Monday, September 26, 2005

Greenspan - US Has Now Lost Control Of Budget Deficit

WASHINGTON (Reuters) -- U.S. Federal Reserve Chairman Alan Greenspan told France's Finance Minister Thierry Breton the United States has "lost control" of its budget deficit, the French minister said on Saturday.
"'We have lost control' -- that was his expression," Breton told reporters after a bilateral meeting with Greenspan.
"The United States has lost control of their budget at a time when racking up deficits has been authorized without any control" from Congress, Breton said.
"We were both disappointed that the management of debt is not a political priority today," he added.
Ministers from the Group of Seven rich nations on Friday called for vigorous action around the world to curb rising imbalances in international trade and investment accounts.
A decrease in the U.S. budget deficit were cited by the G7 as one way to ease those imbalances. U.S. Treasury Secretary John Snow said the U.S. administration was still committed to halving its budget deficit by 2009.
Breton spoke as International Monetary Fund Managing Director Rodrigo Rato said U.S. plans to cut its government expenditures now looked ambitious in the light of huge reconstruction costs to be borne in the wake of Hurricane Katrina.
Breton said: "The situation that is creating tension today on the currency market ... is clearly the American deficit."
The United States needed to address its budget deficit, he said, adding: "It seems to me that my counterpart John Snow is completely aware of this, he wants to harness the problem, but it seems to me he doesn't have the room for maneuver."
Breton added that after hearing Greenspan talk about inflation: "One has the feeling -- though he didn't say so -- that interest rates will probably continue to rise slightly until his departure."
Greenspan is due to step down as Fed chairman in January after 18 years in the post.
Asked if G7 finance chiefs would meet as usual in February next year as well as gathering for an extraordinary meeting in December this year -- partly to pay tribute to Greenspan before his departure -- the French finance chief said: "Yes, yes. Next February as well."
He said France was "not against" the idea of enlarging the Group of Seven, a notion that has gained impetus at these meetings.

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