By Claudia Hirsch

NEW YORK (MNI) – U.S. Treasury Secretary Tim Geithner Tuesday said
Europe’s fiscal crisis and broad recession remain the biggest hurdles to
better global growth.

Asked by television host Charlie Rose what would bring the world
economy “back,” Geithner told the Clinton Global Initiative conference,
“I still think it’s really overwhelmingly about how Europe manages its
crisis,” and that Europe remains the “single largest drag on demand and
growth.”

Geithner described Europe’s thorny task as a “long, difficult road
for them, and the politics are very hard.” But he added, “if you step
back a little bit, it looks a little better than it did” just a few
months ago.

On the domestic economy, Geithner said growth is “not that strong,
but not really that surprising,” given the depth and breadth of the
financial crisis and the necessary path out of it, which has included
increased household savings and reduced household debt.

“That’s a fundamentally good thing for the future, even if it’s
been a drag on growth.”

Another impediment has been what the Treasury secretary described
as “political paralysis,” which, among other by-products, has prompted
businesses to hold back on investments and hiring while Congress dallies
on cleaning its fiscal house.

Whether or not Congress and the president are able to prevent the
automatic spending cuts and tax increases that will otherwise go into
effect on Jan. 1, Geithner said, will depend on the “outcome of the
election.”

He exhorted Congress not to “buy time” by simply extending existing
budget priorities and “put off again any meaningful action to make the
econ strong,” but rather to wade into the “daunting” but “manageable”
fiscal challenges. He reiterated the Obama administration’s preference
for “sensible” balance of tax reform and spending cuts.

“You’re not going to convince Americans that the current mix of tax
rates that the most fortunate Americans enjoy today are affordable,”
Geithner said. “They’re unaffordably low.”

Meanwhile, spending cuts by definition hurt growth, he added.

Geithner went on to say that allowing what is “politically
comfortable” to determine what is economically necessary “leaves
countries weak and burning.”

Geithner said long-term U.S. growth is likely to hover around 2.5%.

“Right now,” he said, “the dominant economic challenge is finding a
way to get (world’s) economies growing faster.” When that happens, the
focus will “shift” to inflation, he said.

Geithner also emphasized the “enormous promise and potential in the
American economy,” including a “huge boom” ahead in the energy sector,
and strength in agriculture, technology and manufacturing.

“American workers are still more productive, and they’re becoming
more productive at a higher rate” than those in other advanced
economies, he said.

“You hear for the first time people saying, ‘We’re going to bring
production back from China or Mexico,'” Geithner said, referring to the
steady if gentle trend of back-shoring certain manufacturing processes
to the U.S.

Separately, he reiterated his intention to leave his Treasury post
at the end of this term.

** MNI New York Newsroom: 212-669-6430 **

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