Greenspan: Spending is out of control
Bitter disagreements over global economic policy broke out into the open yesterday as the French Finance Minister claimed that Alan Greenspan had admitted America had “lost control” of its budget while China warned the US to drop demands for radical economic policy changes.
In an extraordinary revelation after a meeting between Thierry Breton and Mr Greenspan, M. Breton told reporters: “‘We have lost control,’ that was his [Mr Greenspan's] expression.
“The US has lost control of their budget at a time when racking up deficits has been authorised without any control [from Congress],” M. Breton said.
“We were both disappointed that the management of debt is not a political priority today. The situation that is creating tension today on the currency market … is clearly the American deficit.”
The public comments, which were made during meetings between the G8 nations and the International Monetary Fund, are certain to anger the Bush administration and widen divisions between the US and France over issues such as the Iraq war and global warming.
A clearly irritated senior US Treasury source said: “Things can get lost in translation.”
A spokesman for the US Treasury said: “This administration is absolutely committed to the President’s goal of halving the deficit as a percentage of GNP by 2009 and we have every expectation of meeting that goal.”
Meanwhile, Zhou Xiaochuan, the governor of China’s central bank, said it would not be pressured into suddenly abandoning its currency regime.
He challenged claims that the blame for the global imbalances could be laid at Beijing’s door, hinting that it was driven by the strength of domestic demand in the US.
Speaking at a meeting of the International Institute of Finance, Mr Zhou said people were right to worry about imbalances. “The US has always run a fiscal imbalance and current account imbalance but in the recent two years we see the magnitude of the deficits is historically high. People start to worry,” he said.
