Jack Lew, the US Treasury Secretary, has claimed victory in Washington’s campaign for the world’s leading economies to embrace fiscal stimulus, saying they had come round to longstanding US arguments to put growth before austerity.
Speaking ahead of President Barack Obama’s final Group of 20 summit which takes place in China later this week, Mr Lew said a “consensus” had formed around the US position on the need for countries to “use all policy tools” including monetary, fiscal and structural reforms. That, he said, was being reflected in new policy measures unveiled this year in Canada, China, South Korea, Japan and parts of Europe where governments were either boosting spending or delaying tax increases.
“The G20 is no longer debating growth versus austerity, but rather how to best employ fiscal policy to support our economies, and increasingly how to make sure the benefits of growth are more widely shared, while continuing to focus on sustainable long-term fiscal policies,” he said on Wednesday.
But at the G20 summit in Hangzhou, Mr Obama would also be pressing his counterparts to do more and to follow through on commitments made earlier this summer by finance chiefs.
“More needs to be done, but we have made real progress,” Mr Lew said.
The tussle over fiscal policy has been a regular feature of G20 summits in recent years with Germany in particular resisting pressure from the US and the International Monetary Fund to spend more to boost growth.
An IMF clarion call earlier this year for co-ordinated action from the G20 to inject more life into a lagging global economy was quickly quashed by Wolfgang Schäuble, the German finance minister, who argued that the “debt-financed growth model has reached its limits”.
Mr Lew conceded that many G20 members were still not willing to join the “public bandwagon” on the need for fiscal action to boost growth. But their actions pointed to a change, he said, citing the UK’s decision to abandon fiscal constraints after the June “Brexit” referendum as one example.
The G20 is no longer debating growth versus austerity, but rather how to best employ fiscal policy to support our economies
– Jack Lew
The G20, he said, had proved its worth in the wake of that referendum with its co-ordinated response helping to calm financial markets.
The US, he also said, remained confident that China was living up to its commitment to allow market forces to play a large role in determining the value of its currency, the renminbi.
The tense US economic relationship with China and allegations that Beijing has over time manipulated its currency to gain economic advantage have again been a feature of this year’s presidential campaign. But Mr Lew said Washington was satisfied for the time being that China was living up to its commitments to give the market a greater role in setting its exchange rate.
Market pressures were now pressing the value of the RMB down, Mr Lew said, and the US needed to accept that. The real test of the leadership in Beijing’s commitment still lay ahead, however, and would come only when markets were pushing the other way and causing an appreciation of the Chinese currency, he said.