Robert Rubin, the US Treasury Secretary, said yesterday that Europe must take urgent steps to stimulate domestic demand and bring down trade barriers. Such measures might include further interest-rate cuts and reduced taxes.
But Wim Duisenberg, president of the European Central Bank, said there was no need to boost the euroland economies with lower interest rates. In a BBC interview yesterday, he said: "If there were signs of deflation then the lowering of interest rates would be justified. But we are not there yet."
Mr Rubin said the high-growth US economy could not continue indefinitely to support the rest of the world as a "consumer of last resort", and he called on Europe and Japan for action to achieve higher levels of domestic demand growth and to remove trade barriers.
He told the World Economic Forum in Davos that the US was bearing an unfairly large part of the burden of the present crisis in world markets and economies. "The US has a large and growing trade deficit, while Europe and Japan have large and stable or growing trade surpluses," he said.
"It is almost impossible to avoid the conclusion that the US has simply been more open to absorbing the exports of countries seeking to recover from crisis."
Wide disagreement emerged about the degree of reform needed in the international "financial architecture" to prevent a repetition of the economic crisis in developing countries.
Proposals for a conditional world lender of last resort, which would make unlimited funds available to countries subject to speculative attack in the capital markets, drew a cool response from US policymakers. Any system for giving early warning of financial crisis was likely to be flawed, Mr Rubin said.
Both proposals are viewed sympathetically by the British government, represented at the meeting by the Chancellor of the Exchequer, Gordon Brown.
Mr Rubin warned that the international system could not sustain indefinitely the large trade imbalances created by the disparities in growth and openness between the US and its major industrial trading partners. However, he rejected the suggestion that the US trade deficit - predicted to rise to a record figure of more than $300bn this year - would necessarily result in a big exchange-rate correction bringing the US economic boom to an end. He insisted that the trade deficit was sustainable as long as US capital markets remained attractive to outside investors.
A core difference of opinion emerged over the sustainability of the US economic miracle. Many delegates took a highly pessimistic view, but US policymakers believe the momentum of US growth and the stock market will continue.
Mr Rubin qualified this by calling on other developed countries to stimulate demand to prevent the world economy slipping into recession.
There was also fierce disagreement about both the causes of the continued crisis in emerging markets and appropriate remedies. "Is it the excesses of Western financial markets which have caused the contagious collapse of developing economies, or is it down to the pursuit of unsound policy by the governments involved?" asked one senior policymaker.
Mr Rubin said the free market system faced enormous challenges and would need to be radically reformed in the years ahead. However, he warned there were no "magic wands or quick fixes". He said: "Reducing the excesses of booms will reduce the likelihood and severity of busts."Reuse content