The head of the European Union slammed President Obama’s emphasis on worldwide economic stimulus as “the road to hell” in a speech to the European Parliament on Wednesday.
Czech Prime Minister Mirek Topolanek, whose country currently holds the rotating presidency of the EU, launched the scathing attack on Washington’s deficit spending.
The nonpartisan Congressional Budget Office reported Friday that Mr. Obama’s budget would generate $9.3 trillion in cumulative deficits over the next 10 years. As a result, America’s publicly held debt would triple from $5.8 trillion at the end of fiscal 2008 to $17.3 trillion by the end of 2019, CBO said.
“All of these steps, these combinations and permanency, is the road to hell,” said Mr. Topolanek, who lost a no-confidence vote in the Czech parliament this week. “America will need liquidity to finance all these measures, and they will balance this with the sale of their bonds, but this will undermine the liquidity of the global financial market.”
Foreign investors held 45 percent of U.S. publicly held debt in 2007, up from 15 percent in 1985.
China, which holds some $800 billion worth of U.S. Treasuries, is the largest foreign holder of U.S. government debt. Chinese Prime Minister Wen Jiabao recently demanded that the Obama administration “guarantee the safety” of China’s investment in U.S. bonds. On Monday, the governor of China’s central bank proposed replacing the U.S. dollar as the world’s reserve currency with a new global system controlled by the International Monetary Fund.
British Prime Minister Gordon Brown has encountered problems of his own on the fiscal front. In the run-up to the Group of 20 summit next week in London, Mr. Brown has been touring the world drumming up support for coordinated stimulus plans financed by deficit spending. However, Bank of England Governor Mervyn King warned lawmakers in Parliament on Tuesday that they should be “cautious” about rising spending and deficits. Then on Wednesday, for the first time in seven years, Britain failed to attract enough buyers at a $2.5 billion bond auction.
In preparation for the G-20 summit, Mr. Obama, who signed a $787 billion stimulus package last month, has been pressuring other nations to adopt their own substantial economic-stimulus packages. Many European countries have been insisting that the London summit emphasize financial-market regulatory reforms instead.
The attack from the Czech prime minister followed a blistering assessment of U.S. economic policy delivered by an Italian official last month, just before Treasury Secretary Timothy F. Geithner arrived in Rome for a meeting of finance ministers and central bankers from the world’s seven major industrial democracies.
“If the problem is an excess of debt, the cure is not adding more debt, whether that debt is public or private,” said Italian Finance Minister Giulio Tremonti in a critique of “the American way” published in an Italian newspaper. “Without new [financial-market] rules, the way out of this crisis, whether by the various rescue plans or with a ’bad bank,’ will only be sowing the seeds of the next one.”
Karl-Theodor zu Guttenberg, Germany’s federal minister of economics and technology, said recently that Germany’s stimulus package was more than adequate for Germany’s circumstances.
“Keeping German public finances on a long-term, sustainable path” was a major priority, he said in a speech last week at the Peterson Institute for International Economics. “Internationally, we must take care not to allow increases in public debt to raise interest rates or cause major changes in currency rates.”
German Ambassador Klaus Scharioth echoed that view in an interview with The Washington Times on Tuesday.
European fiscal policy even played a role Wednesday on Capitol Hill, where congressional budget committees are marking up their own budget plans.
With Mr. Obama’s budget, “the transition to the European model begins in earnest,” said Rep. Paul D. Ryan, Wisconsin Republican.
“That was unfair to Europe,” Mr. Ryan added.
By generating deficits that never fall below 4 percent of gross domestic product, “Mr. Obama’s budget violates the Maastricht Treaty,” Mr. Ryan said, referring to the European agreement that led to the creation of the euro and strict fiscal guidelines for countries that adopted the currency.
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