US warns euro zone over deflation risk

Wednesday 09 April 2014 16.26
US Treasury Secretary warns euro zone over deflation risk
US Treasury Secretary warns euro zone over deflation risk

US Treasury Secretary Jacob Lew has warned the euro zone to pay heed to the risk of deflation, adding pressure on European authorities and the European Central Bank to boost growth.

"The risk of low demand and the risk of deflation is something they need to be very alert to," Mr Lew said on CNBC television.

Speaking days before a group of 20 finance ministers and central bankers meet in Washington to discuss the world economic situation, Mr Lew said countries running strong fiscal and trade surpluses should do more to increase demand, to help deficit countries.

"In Europe as a whole, the growth rate is very modest, the risk of deflation is something that has a lot of people concerned," he said.

"There is a demand problem in the world and  there is a demand problem in Europe. There are a number of countries that could do more, and Germany obviously is one of the surplus countries in Europe," he added.

He suggested that more investment in infrastructure could help boost demand, in turn countering the deflationary pressures from slow growth.

Mr Lew's warning came a day after the International Monetary Fund's chief economist Olivier Blanchard urged the ECB to act "soon" to counter extremely low inflation, which some economist worry could reverse the euro area's rebound.

Mr Blanchard said the ECB had studied its options already, including setting negative interest rates and embarking on a US-like quantitative easing stimulus.

"I think they should all be looked at, and I know that the ECB is looking at them," he said of the bank's various choices.

"And we hope that they will implement them as soon as they are technically ready to do so. Everything should be done to try to avoid" deflation, he concluded.