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U.S. Treasury Secretary Jack Lew Talks Greece, China

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U.S. Treasury Secretary Jack Lew Talks Greece, China

Jack Lew visited the Brookings Institution in Washington, D.C. on Wednesday in honor of the fifth anniversary of the Dodd-Frank Act. While there, he spoke about two countries scrambling to resolve domestic financial crises: Greece and China.

Greece

"Right now, I don't see any immediate threat to the continued growth of the U.S. economy," Lew said of negotiations between Greece and its Eurozone creditors.

According to him, the nature of the risk in Europe has changed since its financial meltdown in 2010 and 2012. "The risk has been transferred from banks to sovereign entities," he noted, and "the risk of contagion has been contained."

Related Link: Greece Is Bad, But China Is Much Worse

Still, despite the greater stability of the eurozone today, Lew believes it is key for the currency bloc to stay united. For the sake of growth and managing debt, he doesn't believe that "it makes sense" to take on the risk of an uncontrollable Greek crisis that would stem from a Grexit.

In fact, he was shocked that a deal had not already been reached. "Before things broke down and they went to a referendum, they were within a couple billion euros of closing the gap. There's hundred[s] of millions of dollars of risk." As a fiscal policy maker, he said, "You wouldn't normally buy hundreds of billions of dollars of risk for a couple billion dollar gap."

Lew, who sits on the board of the IMF as part of his role as U.S. Treasury Secretary, believes that the institution, which helped bail out Greece, has handled the process well thus far.

China

"When you look at China," Lew explained, "you have to separate what's happening in the stock market from the core economy." According to him, the country's markets still aren't strongly connected to global markets, meaning that there isn't a direct linkage with the United States.

The larger concern, said Lew, stems from what the quick collapse of the Chinese stock market could imply about the long-term growth for the country. That conversation, in his opinion, has to involve the Communist Party policymakers' response to the crisis.

He highlighted the CPC's commitment over the past two years to surrender state power to market forces, but he worried that recent developments could slow down the pace of reform. Since Lew's interviews, Chinese officials have instituted a series of interventionist measures, which have been met with short-term success.

Image Credit: Public Domain

 

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