US tells Europe to pull its weight

THE US administration used the World Economic Forum in Davos this weekend to criticise Europe and Japan for not pulling their weight in the global economy. Treasury Secretary Robert Rubin warned yesterday of the "large imbalances created by disparities in growth and openness".

Vice-President Al Gore opened another line of attack by criticising the European Union's agricultural subsidies, calling for "a broad and deep reduction in agricultural tariffs and an outright ban on agricultural export subsidies".

The theme of this year's Davos meeting is "responsible globality" - a euphemism for the new worldwide financial architecture. The US administration believes that reforming the International Monetary Fund and the World Bank is only part of the solution to get the global economy working in a socially responsible way.

For Mr Rubin "the absolute key to financial stability and economic growth is consistent adherence to strong macro-economic and structural policy".

In other words, if the rest of the world only followed the example of the US, then "you too could have the kind of GDP growth that America unveiled on Friday", when it reported a seasonally adjusted annual growth rate of 5.6 per cent in the last three months of the year.

But behind the set speeches at Davos there is a genuine fear among many American politicians and economists that the US economic "miracle" may be more fragile than it appears. Wall Street is the problem. Moises Naim, a US foreign policy expert, warned that ever-growing stock prices were a potential "hotspot" in the world economy. "Wall Street touches nerves, and a fall would send shock waves reverberating around the world," he said.

Privately, members of the US administration are worried that the six- year-old Wall Street bull market is founded on the "wealth effect", which makes consumers feel more prosperous. They prefer to spend rather than save.

But one senior official pointed out that the bull market is in part, at least, a bubble, and that this bubble is driven by only 50 stocks on Wall Street. A third of the rise in the S&P index is down to only a handful of hi-tech stocks - a perilously narrow foundation for sustained growth.

The message was clear from both Mr Rubin and Mr Gore that the world cannot rely on the US remaining, as Mr Gore said, "the importer of last resort". Washington and Wall Street want Europeans and the Japanese to stop saving and start spending on US products.

Kenneth Courtis, chief economist for Deutsche Bank Asia, warned of "an economic convulsion of a type never seen before". He believes that the financial crisis is last year's story. The next big crisis, he believes, could be trade related.

Nigel Roberts covered the Davos symposium for CNBC.