Despite making progress on getting its fiscal house in order, the United States still has much work to do, Treasury Secretary Timothy Geithner told fellow financial leaders Saturday. The comment came just hours after the U.S. government announced that the budget deficit had topped $1 trillion for a fourth straight year despite a modest improvement thanks to stronger economic growth.
"It is important that we in the U.S. enact a balanced framework to bring down our fiscal deficit and debt over several years, while continuing to provide support for jobs and growth in the short term," Geithner told a meeting of the International Monetary and Financial Committee during the annual meeting of the IMF and World Bank, which is being held in Tokyo.
The overwhelming emphasis of the Tokyo gathering has been on coddling fragile growth around the globe. On Friday, IMF managing director Christine Lagarde urged that countries not sacrifice growth for the sake of austerity. The pace of government debt reduction must be tempered by spending to help get the unemployed back to work, she said.
Balancing those sometimes competing priorities is the central puzzle facing policymakers as the world economy slows further, even in dynamic Asia, Lagarde said.
Greece, Spain and other European countries laboring under massive debts have slashed spending and raised taxes, seeking to restore confidence in their public finances and qualify for emergency financing. The economies of financially healthier European countries, such as Germany and Finland, face a potential blow to growth if those troubled economies fail to get their financial houses in order. At the same time, the recovery of the 17-nation grouping that uses the euro could founder if tax increases and spending cuts bite too deeply.
While there seems to be a wide consensus on long-term strategies for reform, there is less agreement on how painful such policies should be in the near term given the persistent risk of recession and surging unemployment.
"One lesson though is clear from history," Lagarde said. "Reducing public debt is incredibly difficult without growth. High debt, in turn, makes it harder to get growth, so it's a very narrow path to be taken."
"It's probably a long path, and one for which there is probably no shortcut either. It's a path that needs to be taken," she said.
Lagarde said monetary policies must encourage banks to lend, while spending cuts are adjusted to the "right pace." Debts must be brought down in the medium term, and structural reforms are needed to sustain growth in the long term, she said.
"That's the package that is needed," Lagarde said. "Let us not delude ourselves. Without growth, the future of the global economy is in jeopardy."
"It's a marathon, not a sprint. It could take years," Lagarde said in an on-camera debate hosted by the British Broadcasting Corp.