The US Treasury Secretary John Snow is in Europe this week talking up the need for growth - and criticizing what he calls the straitjacket of the Stability and Growth Pact, the rules which, in theory at least, put strict limits on Eurozone budget deficits.
America doesn't believe in budget straitjackets: but it certainly believes in budget deficits. Currently it's at an all-time high of 455 billion dollars.
Our economics correspondent Stephanie Flanders secured the only TV interview with Mr Snow.
JOHN W. SNOW:
I, John W Snow, do solemnly swear...
To uphold the constitution and talk as little
as possible about the deficit. John Snow
used to run a railroad. Now he's America's
73rd Treasury Secretary and George Bush's
2nd. Job one these days, persuading the
world that the American economy is back
on track. In the boom years of the 1990s,
America's growth rate averaged about 4%
a year. But when Bush took office, the
economy was already slipping into
recession. It soon got over it. But growth
since then has been pretty mediocre: on
average about 1.7%. That, coupled with
three sets of tax cuts and runaway
spending, has left the public finances
drowning in red ink. In 2000, America
had a budget surplus of $236 billion.
Yesterday, the White House admitted
it would run a deficit this year of $455
billion - a swing of nearly $700 billion
in just three years.
It's been a weak recovery and now I think
with the tax bill, the jobs and growth bill,
that the President signed at the end of March,
we're beginning to see the American economy
come back. We are looking for a much higher
growth rates for the second half of the year.
You mention the stimulus packages. Do
you think they could have been better
designed as stimulus packages?
It is well designed tax policy in the sense
it makes good economic sense. It is good
policy for now but good policy long-term.
So what is the policy really? It is the lower
marginal tax rates. Most economists will
say you always get more of anything that
you tax less. More work, more energy,
more resourcefulness, more investment.
Obviously, it is not going to be long-
term because almost all of those tax
changes as the bill is written now would
Not if were successful. The plan is to
make those virtually all of those reforms
improvements in the tax code permanent.
That would add to the deficit. The new
forecast that the White House put out
yesterday, incredibly high deficits?
I missed the announcement yesterday.
This is the deficit going up to the 400 type
number. Which is still very manageable.
That is a little over 4% or of the GDP of
the United States.
As you know, chairman Greenspan was
talking yesterday and he did say over the
long-term this big shift could raise issues
about crowding out the supply for private
The deficit that the chairman talks about
as well as myself is the deficit that comes
from the social security plans and the
mediocre plans. These unfunded commitments
to future generations. I'm talking about
the current deficit, the 400, 450 billion.
It is large, it is manageable in the sense
it wont disrupt the financial markets. As
we grow the economy we can bring it
down. Our budget forecasts had it
coming down to I think below 1%.
Snow has another even bigger deficit to
worry about - this time with the rest of
the world. The current account deficit for
2003 is on course for over $600 billion
or 5.7% of GDP. That leaves America
needing to borrow over $2 billion a day
from international investors - just to
stand still. To narrow the trade gap
everyone knew the dollar had to fall.
And now it has - by 17% against the rest
of the world, just since the start of last
year. Against euro, it's lost more than
25%. Do you worry sometimes that
Japanese investors and others will wake
up one morning and think, maybe we're
not going to put so much in America any
I would like to see the rest of the world
buy more from the United States. That's
the heart of this issue. The rest of the
world isn't going to be in a position to
do that, unless their domestic economies
are stronger. That's a reason you hear us
say, the President of the United States
say, we need to make growth a priority
for the world economy. But the United
States is a very attractive place for capital,
we treat capital well. Provide probably
on a risk adjusted basis the highest returns
on capital. So I think America will continue
to attract ample capital.
Now the dollar, there was a long-standing
strong dollar policy as it was known in
the previous administration. There was
ambiguity about that in this administration.
There has been a dramatic fall in the dollar
especially against the euro. Maybe you
can clear it up, is the policy changed, is
the US administration no longer concerned
about the American dollar.
No. I think we have repeated over and
over again the support for the strong dollar.
The President said it. I've said. It there's
no daylight between us. And it remains
the policy of the United States. But - we
have said though, that we believe in the
relative value of the dollar being set in
competitive open currency markets with
interventions kept to a minimum. And
made the point that nobody can devalue
themselves to prosperity. The best we
can do is focus on the domestic economies,
make sure they're not inflationary, high
You say you can't devalue your way to
prosperity. The dollar has fallen. People
in the rest of the world worry about the
US exporting deflationary pressures to
the rest of the world. Are they right to be
I don't think so. The currencies adjust to
the under lying basis of the rates. That's
what should happen, that's the nature of
our freely fluctuating exchange rates.
Snow's other big mission this week:
getting Europe to pull its finger out.
America may not have expanded fast
last year, but it still accounted for 71%
of growth in the G7. This year it will
produce about two-thirds of rich country
growth. The largest Continental economies
are hardly managing to grow at all.
I would like to see higher growth rates in
Europe. I'm pleased to see the leaders of
Europe beginning to focus I think with
greater intensity on the whole question of
growth. In France, the president's call for
dealing with the pension issues, making
them less of a burden on productivity
and outputs is suggestion that the
stability rules be looked at to see whether
the 3% rule is consistent with long-term
growth. All of that seems to me to be a
focus on growth. I'm delighted to see
that and welcome it
The fiscal rules they haven't been able to
what the US has done, the massive swing
into deficit. Do you think that was a
mistake in the design of the euro.
No I don't. I think the focus on defer sit
control is a healthy and a good thing. But
economy should not put themselves in
straight jackets either. And it's always
important to go back and examine
underlying rules to see whether they're
producing the results desired. After all
it's a stability and growth backed. And I
think the suggestion by the President
Chirac to take a look at that and see
whether it's the rules, the rules are
consistently promoting growth as well
as stability is probably a healthy call.
I hope there's a debated on that.
One last question, you're a relatively new
secretary, every senior economic official
of the administration is no longer here
that was here at the end of the year. Do
you think it's affecting the administration's
credibility on economic policy, that
there's an a high turn-over.
That's not unusual in American
administrations. We still have the
President, and he sets the policies.
And you'll stick around?
I would hope so!
Thank you Mr Secretary.
This transcript was produced from the teletext subtitles that are generated live for Newsnight. It has been checked against the programme as broadcast, however Newsnight can accept no responsibility for any factual inaccuracies. We will be happy to correct serious errors.