U.S. Treasury Secretary Jack Lew, spoke with Bloomberg Television’s Peter Cook about ahead of the spring meetings of the IMF and World Bank. Lew discussed his concerns about global growth, the strength of the dollar, and the risk posed by a possible Greek exit from the Eurozone.
On the impact of a Greek Exit, Lew said: “I think that there’s no doubt that if this leads to a crisis that — such as Greece leaving the Eurozone, it will cause an enormous amount of disruption and hardship in Greece. I have said consistently that no one should think that all of the risk of a change like that is predictable in advance and, you know, even if the contagion risk is much less now than it was, say, in 2012 and earlier, it would not be a good thing in a world economy just recovering from a deep recession to have that kind of uncertainty introduced.”
On the strength of the U.S. dollar, Lew said: “The relative strength of the U.S. economy compared to other economies around the world, it explains what the current currency valuations are…I’m focusing on the need for other economies to be stronger. I certainly don’t want the U.S. economy to get weaker; that — we have the good fortune of having the stronger economy. The other economies need to get stronger.”
Jack Lew: Policy Can Drive Demand in Europe
PETER COOK: Secretary Lew, welcome back to Bloomberg.
JACK LEW: Peter, good to be with you.
COOK: As these spring meetings of the IMF & World Bank get set to kick off, what’s your assessment of the global economic recovery? Doesn’t feel like people are popping champagne corks here.
JACK LEW: You know, Peter, I think as people look around the world, they look at the United States as a real engine of growth right now and I’m pleased that the United States is doing much better and there’s a lot of attention on how resilient and how much the U.S. economy has recovered.
I look around the world and there’s clearly a need for more attention to how to generate faster, more sustainable growth. I think that as you look around the world, there’s areas where there’s a need for more use of some of the policy levers that are available. You know, we took advantage of all the policy levers to get our economy back in gear. Monetary policy, fiscal policy, reforms, particularly in the financial area. There are a lot of economies that need to use all the levers that are only using some —
COOK: Mr. Secretary, let’s name some names. You’ve gone through this before. Who is it you’re talking about?
JACK LEW: Look, we go around the world and there’s clearly a shortage of demand in a number of places. Europe, demand has been soft. Policy could help drive demand. You know, the monetary policy tools are being used, the fiscal policy tools, and the reforms that are needed in many parts of the economy would be very well-timed if they were put in place along with the monetary tools.
You go to Asia, and in Japan and China, you know, Japan has a policy, three arrows, they use monetary policy out of the box, fiscal policy out of the box. A little bit of, you know, kind of question as to how to balance their long-term need to get their debt control with the need to have fiscal policy that keeps growth moving in the short-term. The reforms have been a little slower, they need to get those into place and they need to keep focused on the fiscal tools as well as the monetary tools.
And you get to China and China has enormous reforms on the agenda, in terms of what it’s set forth to move its economy toward the more market-oriented, market-driven approach. Moving those reforms forward, opening their economy, their markets, their financial system to market forces is critically important. The sooner they do that, the better.
COOK: Before we talk about some of those other places, let me ask you about the U.S. because the IMF did downgrade its assessment of growth for this year for the U.S. down half a percentage point. We saw pretty weak jobs number the other day. Are we hitting a weak patch right now?
JACK LEW: I think if you look at the trajectory of the last year, 18 months, it is showing consistent trend in the right directions, sustainable, strong growth. I think if you look at where the IMF is now, it’s pretty similar to out projection of where the U.S. economy is. You know, U.S. economy growing in the range of just under, just above three percent is something the world looks at as being a driver of global economic growth. I think it’s a great thing that the U.S. economy is doing better. I don’t think it’s sufficient to drive the entire global economy, for the U.S. economy to be the one area of real strength.
Now obviously there’s a been a pickup in economic activity in a bunch of places that’s welcome. How durable it is, how structural it is, is something that there has to be a focus on. And I think the opportunity to move economic growth in the right direction is very much related to policies that governments have control over, and that’s one the reasons it’s important to have these discussions at the IMF meeting about using all the levers that we policymakers have.
COOK: The one big topic here, Mr. Secretary, you know, is going to be the strength of the dollar. And the argument being made at the IMF and elsewhere is that the strength of the dollar is one of the things holding the U.S. economy back. Are you OK with that?
JACK LEW: Look, I think if you look at the U.S. economy, the relative strength of the U.S. economy compared to other economies around the world, it explains what the current currency valuations are. It’s inherently coming from our strength and, relatively speaking, less strong economies elsewhere. Which is why I’m focusing on the need for other economies to be stronger. I certainly don’t want the U.S. economy to get weaker; that — we have the good fortune of having the stronger economy. The other economies need to get stronger.
I think you do have to distinguish between currency valuations that are the result of differential economic performances from policies that are designed to gain unfair advantage. We have made very clear that if there’s kinds of policy intervention that are unfair, that are designed to gain an advantage in trade, it’s unacceptable. We’ve pushed back very hard on it, and I think we’ve done so with considerable success over the last couple of years.
What we’re seeing now is the fact that our economy is outperforming other economies, and the focus has to be on other economies and other policymakers using the tools to get their economies moving in a better direction, in a stronger direction.
COOK: Your predecessor, Larry Summers, has generated a lot of debate over his argument for the secular stagnation diagnosis, as to what’s happening around the world, the risk of that going forward. Where do you fall in this debate?
JACK LEW: Look, I think that we’ve shown in the United States that when you put policies in place, the economy responds to it. There is a need for policy. Look, we have a need for more policy here in the United States. There’s no doubt that our economy could do even better than it’s doing if we invested in infrastructure more, if we changed our immigration law. If we did the things that — if we reformed our tax code, to have a tax code that was more encouraging of investment, and more competitive worldwide and closing loopholes that make it inefficient and lead to less effective investment strategies.
So there are things that we can do. I think it’s incumbent on policymakers to move the dial in the direction of creating more economic growth. I think there’s many areas around the world right now where economies could be doing better if policy were doing better.
COOK: Let me ask you about a couple other issues likely to come up during the course of this week in the talks.
First of all, you’ve got a meeting with the Greek Finance Minister this week. The president’s going to be meeting with him as well. What’s the U.S. message to Greece right now?
JACK LEW: Well, it’ll be the first time I’ve actually met with him. We’ve spoken on the phone, but I haven’t had the opportunity to meet with him before. My message is going to be the same as the message I’ve delivered over the phone on quite a number of occasions. It’s that Greece needs to get down to the technical work of making a list of the changes and the policies that it’s prepared to put in place so that it can work with the institutions to come to a mutual understanding of a path forward so that they can get out of the cycle of being in kind of one crisis to another.
The — there were — I think the rhetoric was not helpful early on and I’ve sent a signal to both the Greek government and to the institutions, as they’re now called, that everyone had to tamp down the rhetoric and get to the technical work of saying what policies can be put in place to address this. Obviously, it would be better of the work had been done six weeks ago and not over the next six weeks, but there’s no time to waste and the work needs to be done.
COOK: Does the U.S. —
JACK LEW: And just to be clear, my understating is the president is going to be speaking to the Hellenic celebration day —
COOK: He’ll be there, yes.
JACK LEW: It’s not a bilateral meeting.
COOK: Gotcha. Does the U.S. have an economic interest in making sure Greece stays within the Eurozone? Is this something in play for the United States?
JACK LEW: Look, I think that there’s no doubt that if this leads to a crisis that — such as Greece leaving the Eurozone, it will cause an enormous amount of disruption and hardship in Greece. I have said consistently that no one should think that all of the risk of a change like that is predictable in advance and, you know, even if the contagion risk is much less now than it was, say, in 2012 and earlier, it would not be a good thing in a world economy just recovering from a deep recession to have that kind of uncertainty introduced.
So I think it’s in everyone’s interest for this to be worked through. But it really means getting down to that not very exciting, not very rhetorical business of going through all of the details. The budget details, the reform details, the schedule. And there needs to be a credible plan forward, and obviously the Greek government has to take the lead and the institutions have to be reasonable working with the Greek government and the faster that work is done, the better.
COOK: A China issue, the creation of this Asian infrastructure investment bank, there’s been a lot of debate over it — over the U.S. handling of this, and I want to see if I can get your take on it. The initial message from the United States to friends and allies was “don’t join up.” Some of them decided to join up. Some saw that as a snub to the United States. What’s your take on that? Was this misplayed? And is it raising any questions about U.S. influence, particularly in that part of the world?
JACK LEW: Well, let me be clear what our message has been and continues to be. From the beginning, we said it’s a good thing if China wants to invest more in global infrastructure investment. There is a deep need for global infrastructure investment. China is the second largest economy, one of the two largest economies in the world. China playing more of a significant role there is a positive thing.
What we have said to China, to other countries, is it’s really important as you launch something like the Asia infrastructure bank to make sure that you do it right, that you have good governance in place, that you avoid having problems with either the social impact, environmental impact or economic impact of the project.
I actually was quite encouraged by the conversations that I had when I was in Beijing just two weeks ago. But I think the Chinese have heard that message. They’re very focused on having a process in place where their initial projects meet a high standard. We’ve made clear to China and to the international financial institutions that we very much look forward to being able to collaborate. Working together, for example, the World Bank and the Asian Development Bank, working with the Asian Infrastructure Bank. We’ve made the offer to the Chinese. We look forward to working bilaterally to help them avoid mistakes that they would like to —
COOK: Could you see the U.S. signing up?
JACK LEW: I think the question is, can this get to a place where it is accomplishing the goal that we both share of having good, sustainable investment and infrastructure and that’s what we’re working together — and we haven’t been foreclosed any options for the future. But right now the question is, as they launch the new Asian Infrastructure Bank, how do they make sure that it operates in a way that it really enhances the economic opportunities in the areas where they are investing? And what can we and the international financial institutions do to help make sure that that’s done in an effective way?
And I’m hopeful that we’ll be successful working together. If the end of the story is good investments and solid projects that advance the economic growth, that’s a good thing. And that’s — and we have never discouraged participation in that kind of investment. We have said it’s important to do it right, and we continue to believe that and we want to be partners in helping China and the partners that they have in the Asian Infrastructure Bank to achieve that goal.
COOK: Really quick, the Iran negotiations. Among your many responsibilities here — of course Treasury handles the sanctions component of this — you’ve been briefing lawmakers up on Capitol Hill. I know the White House said the president’s willing to sign this bipartisan legislation that’s emerged from the Foreign Relations Committee, but it’s pretty clear you guys don’t love this legislation.
Is there a risk that this still could unwind these negotiations, could derail these negotiations?
JACK LEW: Look, I think that the president has made clear many times that he thinks it’s important that Congress not take action that have the effect of disrupting the negotiations while they’re still underway and working towards conclusion. I think yesterday the White House indicated that the president was prepared to sign the compromise that had been developed. It addressed the most significant concern that the administration had raised, both in terms of conditions and certifications and in terms of schedule. I think that’s an important set of changes. And we look forward to working with the Congress as we go back to resume the negotiations.
The goal here is to have a good, solid agreement that achieves the result of making sure that Iran cannot get nuclear weapons. We believe that the framework is a very important step in the direction of getting there, but we still have work to do between now and June 30 to complete it, and that’s the task ahead of us that we’re going to back work on.
COOK: Final question, Mr. Secretary. It’s Tax Day in America. Can you give American taxpayers any hope, any confidence, that there’s going to be progress this year on tax reform? Particularly business tax reform.
JACK LEW: You know, Peter, I am continuing to feel that there’s an opportunity for business tax reform this year that’s actually considerably greater than convention wisdom in Washington would have you believe.
COOK: People have been downplaying the chances.
JACK LEW: You know, it’s not hard to say tax reform is hard. Tax reform is always hard. It was hard in the 1980s. It’s hard today. It’ll be hard when it comes up in the future. Taking away tax breaks, loopholes and deductions, and replacing it with a more sensible system of lower statutory rates and an international tax system that works, it’s hard.
But there’s great advantage to it. The economic benefit is great. I mean, right now, we have the highest statutory tax rate in the developed world. And it makes it hard for U.S. companies to compete around the world. That doesn’t have to be; we can fix that. We saw, last year at this time, people were outraged out inversion. We need to fix that by having a statutory rate that makes sense and closing inversion loopholes.
I think that the link to infrastructure is key. Three years ago, the president said we should use the one time revenue that comes from doing international tax reform, and we should take a portion of that revenue and use it to pay for a mutli-year infrastructure program. I think there’s considerable interest in that in Congress. And I think the fact that our service transportation bill expires, the fact there’s a need for Congress to deal with a funding source for infrastructure, combined with the fact that there’s considerable overlap in conceptual approach on business tax reform between Republicans and the White House and others, is a reason to be considerably more optimistic than conventional wisdom.
You know, I often take the risk of defying conventional wisdom because if you assume that you can’t get anything done, then you don’t try and you always have a self-fulfilling prophecy. The only way that hard things are done is if you tackle them, if you put in the hard work, and if you look at what Paul Ryan is saying, Chairman of the Ways & Means Committee, what I’m saying, there’s more overlap than you normally see between the two of us. That should be a source of optimism to people who want to get business tax reform done.
COOK: We’ll see what happens. Mr. Secretary, thank you for the time. Appreciate it.
JACK LEW: Thanks, Peter.