Members of the euro area must push for greater economic growth now they have overcome the worst of the region’s debt crisis, former U.S. Treasury Secretary Lawrence Summers said.
“You can’t really claim there is a viable growth model for Europe,” Summers, director of the National Economic Council under President Barack Obama until last year, said at a conference in Paris today. “We have walked back from the brink of financial catastrophe, but it’s only a limited accomplishment to say we don’t need to worry anymore about banks failing and nations collapsing.”
Greece took another step toward winning a 130 billion-euro ($172 billion) second bailout after the Greek government said today that investors with 95.7 percent of the country’s privately held bonds will participate in the biggest sovereign- debt restructuring in history.
European leaders can’t assume their economies are “self- correcting” and government efforts to boost growth are needed, said Summers, who has returned to Harvard University’s Kennedy School of Government.
“Germany remains committed to its economic model and sees it as one others should follow, but it’s one based on export-led growth,” he said. With peripheral euro countries facing a recession, “it’s clear they will be having more exporting than importing and so it’s hard to see where the import demand is going to come from.”
Summers said he “congratulates” European Central Bank Mario Draghi for his “courageous” bank lending expansion and Italian Prime Minister Mario Monti “for the progress Italy is making.” Italian 10-year bond yields are about 4.7 percent now, after rising above 7 percent earlier this year.
The greater risk facing Europe right now is “stagnation and division,” not the extra ECB bank lending that has concerned Germany’s Bundesbank, Summers said.
“All the dangers are on the side of too little stimulus and not too much stimulus,” he said, referring to both the U.S. and Europe, adding the pace of U.S. growth is “insufficient.”
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