US urges Germany, other European nations to take deflation risk seriously, act more decisively to fix banking sector; continent has shown recent hints of stronger growth, but inflation pace has slowed to worrisome levels

Cindy Allen

WASHINGTON , April 9, 2014 (Thomson Reuters Corp.) – The United States on Wednesday urged Germany and other European countries to take seriously the risk that Europe could slip into a dangerous spiral of falling wages and prices. "The risk of deflation is something that they need to be very alert to," Treasury Secretary Jack Lew told U.S. broadcaster CNBC.

Lew was speaking on the eve of the spring meetings of the International Monetary Fund, which brings top financial officials from around the world to Washington.

Europe's depressed economy promises to be a central theme of the meetings, and the IMF's chief last week called on the European Central Bank to lower borrowing costs in the euro zone.

The United States has been pressing Europe to act more decisively to fix its banking sector, which has been reticent to lend. Lew has also regularly called on the region's stronger economies, including export powerhouse Germany, to try harder to boost demand in their economies to lift up the region as a whole.

While Europe has recently shown a few hints of stronger growth, the pace of inflation has slowed to worrisome levels. Should prices start to fall, wages could as well, triggering a vicious deflationary loop that could hurt the economies of major trading partners like the United States and Asia.

"The risk of deflation is something that has a lot of people concerned," Lew said.

Lew welcomed German politicians' recent commitment to spend more on infrastructure and urged them to put more gusto into their stimulus efforts.

"They need to take a little more (action), not a little less," he said.

Lew also repeated America's regular warning to China that the Asian giant should be more convincing in its policy shift toward allowing financial markets to determine the value of its currency.

He also said the United States has encouraged Japan on many occasions to consider policies that would offset the drag on the economy expected from a tax hike enacted this month. (Reporting by Jason Lange; Editing by Bernadette Baum, James Dalgleish and Nick Zieminski)

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