By James Lamont and Edward Luce in New Delhi
Published: November 8 2010 14:30 | Last updated: November 8 2010 23:47
Barack Obama, US president, has hit back at critics of the US Federal Reserve’s planned $600bn monetary stimulus, saying the higher US growth rates it could bring would be “good for the world as a whole”.
Mr Obama also hinted that the US would push hard at this week’s Group of 20 meeting in Seoul for an aggressive rebalancing of the world economy. “We can’t continue in a situation in which some countries are maintaining massive surpluses and other countries are maintaining massive deficits,” he said.
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Defending the Federal Reserve, Mr Obama said it was in nobody’s interests for the US to be “stuck with no growth or very limited growth”.
The president received unexpected support from Manmohan Singh, India’s prime minister, who will also attend the G20 summit. The Indian leader said the world “needs a new balance between the deficit and surplus countries” and described Mr Obama as the “father of the G20 process”.
Meanwhile, Timothy Geithner, US Treasury secretary, said world leaders had reached consensus on an “early warning mechanism” to police excessive trade imbalances ahead of Thursday’s G20 meeting.
The US has proposed that the International Monetary Fund implement guidelines to monitor current account imbalances and co-ordinate responses to reduce them.
Mr Geithner stressed that China had joined the consensus among other Asian nations, despite criticism from Beijing that the proposals were a return to “planned economies”. He warned that unilateral action by individual countries could destabilise the global economy and stifle growth.
“It’s a very pragmatic approach, a very multilateral approach. It allows the focus to shift to the broader mix of causes that matter, not just to focus on the exchange rate, and it allows China to point to a set of multilateral commitments,” Mr Geithner said on Monday on the sidelines of Mr Obama’s visit to India. “The Chinese are very supportive. They have a lot of benefit to them. It’s better than the alternatives.
“[China’s leaders] are in the midst of a constant debate,” he added. “The balance between the forces in favour of moving more quickly and moving more slowly are constantly shifting.”
Yet Mr Geithner stopped short of endorsing hard and fast numerical targets that would set caps on external imbalances. “It makes no economic sense to try and do that,” he warned.
The Treasury secretary was also conciliatory towards Beijing, saying China’s economy was in just the early phase of a larger transition.
“China has embarked on a very sweeping set of reforms to try and shift growth away from a model they believe is too export-dependent to a model that provides more domestic demand,” Mr Geithner said.
“That requires a sweeping set of changes to the design of the safety net and their financial system and a whole range of other incentives . . . The exchange rate is just a part of that.”
In Europe, Jean-Claude Juncker, chairman of the group of eurozone finance ministers, reiterated criticism of the Fed policy by Germany, Brazil and others.
“I don’t think it is a good decision,” he told a European parliament committee. “You’re fighting debt with more debt. There is great criticism of the Chinese policy, but in a different way they are pursuing exactly the same policy.”
Additional reporting by Anjli Raval in New Delhi and Peter Spiegel in Brussels
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