Germany urges U.S. to focus on debt cuts

http://www.washingtontimes.com/news/2010/jun/21/germany-urges-obama-to-focus-on-debt-cuts/

Broadside comes as White House seeks more stimulus

The congressional battle over adding more government stimulus spending versus deficit reduction spilled overseas Monday as the German government publicly rebuked the Obama administration over its red ink and said countries now must focus on controlling debt.

It's the same sort of pushback President Obama has been getting from critics at home as he calls for a second round of stimulus spending, which he argues is needed to spur private job creation at a time when unemployment hovers near 10 percent nationwide.

But he's increasingly being opposed by Republicans and some Democrats at home, and German officials' comments signal a looming fight over deficits as the world's leaders gather in Toronto next week for a summit of the leaders of the world's biggest economies, with the Group of Eight summit of industrial powers kicking off Friday in Canada.

A larger gathering of the world's 20 leading economies, known as the Group of 20, follows immediately afterward.

"It's urgently necessary for monetary stability that public budgets return to balance," German Economy Minister Rainer Bruederle said at a press conference Monday, according to Bloomberg News. "This is something we should also tell our American friends."

His comments were echoed at a separate press briefing Monday by German Chancellor Angela Merkel and Finance Minister Wolfgang Schauble, who said national debt levels must be brought under control to reassure nervous global financial markets. Germany has long been one of the most conservative of the major powers on issues of deficit spending and inflation.

The Germans were responding in part to a letter Mr. Obama sent to G-20 leaders laying out his stance that a global recovery is too fragile for governments to start belt-tightening and cutting back on more spending.

"Our highest priority in Toronto must be to safeguard and strengthen the recovery," Mr. Obama said in the letter, sent Wednesday and released Friday. He told fellow leaders he is "committed to the restoration of fiscal sustainability in the United States," but said each country must be free to decide how and when to impose stability plans.

The White House said Mr. Obama reached out to Mrs. Merkel by phone Monday, and spokesman Bill Burton said the two leaders talked about "the importance of continuing to take resolute steps to foster a durable recovery and to strengthen financial regulation."

Leaders across Europe have announced austerity plans in the weeks since Greece's financial condition became critical and talk of a string of sovereign defaults swept international finance markets.

But with the U.S. unemployment rate still so high, Mr. Obama has been reluctant to call an end to new stimulus spending, and earlier this month called on Congress to pass yet another round. He said the time for balancing budgets can come later.

He has also pushed many of the biggest decisions about midterm and long-term reforms over to a commission he established by executive order. He has asked the commission to report back before year's end.

America's debt stood at $13.038 trillion as of Friday, the most recent reporting date for the Treasury Department.

Last week, in his own letter to G-20 leaders, Canadian Prime Minister Stephen Harper, the summit host, said he wants countries to agree to cut their deficits in half by 2013 and to stabilize their debt-to-GDP ratios by 2016.

"To sustain recovery, leaders from advanced countries, to the extent possible, need to reaffirm their intent to follow through on delivering existing stimulus plans. At the same time, advanced countries must send a clear message that as their stimulus plans expire, they will focus on getting their fiscal houses in order," Mr. Harper said.

Mr. Obama said the budget he proposed earlier this year would halve the deficit by 2013 — from more than $1.4 trillion last year to about $727 billion.

Republicans — who are frequently critical of taking cues from foreign governments — pointedly noted the German criticism.

On the Senate floor, Minority Leader Mitch McConnell, Kentucky Republican, used Germany's plea as a prod to urge Democrats to find offsetting spending cuts for the taxes and spending package pending in the upper chamber.

All Senate Republicans, joined by some Democrats last week, blocked efforts to pass first a $140 billion bill and then a $105 billion bill, arguing that the entire measure should be paid for with offsetting cuts in other programs.

Republicans suggested redirecting money from last year's $862 billion stimulus program pushed by the Obama administration to pay for some of the new spending. Meanwhile, several House Democratic leaders have signaled they are open to using stimulus funds to pay for other job priorities, such as preventing teacher layoffs.

But the White House and Senate Democratic leaders remain opposed.

"We've got a plan you heard the vice president talk about that, we believe, is helping what was a very fragile economy become more stable," White House press secretary Robert Gibbs said last week. "We need to continue to implement the plan that we have, and not take money away from very important projects like education right now."