Tags: US | Europe | Deflation | ECB

US Warns Europe on Deflation, Says ECB Actions May Fall Short

Wednesday, 15 October 2014 05:25 PM

The United States on Wednesday renewed a warning that Europe risks falling into a downward spiral of falling wages and prices, saying recent actions by the European Central Bank may not be enough to ward off deflation.

In a semiannual report to Congress, the Treasury Department also said Berlin could do more to help Europe, namely by boosting demand in the German economy, Europe's largest.

"Europe faces the risk of a prolonged period of substantially below-target inflation or outright deflation," the Treasury said.

The ECB in recent months has cut interest rates to record lows, offered banks new long-term loans, and announced plans to buy private sector assets.

All of this is intended to prop up the European economy, which teeters on the edge of a new recession. Europe is a major trading partner for the United States and China, and its travails have been at the center of worries over the global economy.

Speaking for the Obama administration, the Treasury said the ECB's actions "should help combat deflationary risks," but that "further policy support for demand may be needed."

The report was carefully worded to avoid sounding pushy over what Washington thinks Germany should do. Berlin has been a key American ally for some decades.

Still, Washington appears to see Germany as a missing link in Europe's elusive recovery from what in many corners of the continent has looked like an economic depression.

"Measures to increase domestic demand, particularly in surplus countries like Germany, can help further European and global rebalancing," the Treasury said.

In economist speak, that means that Berlin could help the world if it fostered more German consumer spending, which could then increase imports from Europe's weaker economies.

© 2020 Thomson/Reuters. All rights reserved.


   
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The United States on Wednesday renewed a warning that Europe risks falling into a downward spiral of falling wages and prices, saying recent actions by the European Central Bank may not be enough to ward off deflation.
US, Europe, Deflation, ECB
282
2014-25-15
Wednesday, 15 October 2014 05:25 PM
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