European countries have been urged to ease off austerity measures and adopt more growth-friendly policies by US Treasury Secretary Jacob Lew.
He began a series of meetings with the region’s top leaders starting with EU Commission president Jose Manuel Barroso in Brussels. He was also meeting the EU’s top economic and monetary official, commissioner Olli Rehn and EU Council president Herman Van Rompuy.
In his meeting with Mr Barroso Mr Lew discussed “the need to generate demand” to spur the economy.
“They also discussed the situation in Cyprus, which underscored the importance of moving to full banking union,” said a US official.
Cyprus had to seek a €10bn bailout from its European partners and the International Monetary Fund last month after a banking crisis brought it to the brink of bankruptcy.
Mr Lew therefore pressured the EU to push ahead with one of the its major projects to overcome its debt crisis, the introduction of a full banking union. Under that plan, the oversight of banks will be centralised starting next year, eventually followed by a bailout fund with the power to solve banking failures. The goal is to prevent the cost of rescuing a bank from overwhelming the finances of a single member state.
They also discussed the planned free trade agreement between the US and the EU.
That deal would foster growth by lowering tariffs and removing other trade barriers for most industries between the two giants, that together account for more than half of the world economy. The project has strong support on both sides of the Atlantic, with president Barack Obama and German chancellor Angela Merkel amid its prime advocates, but the negotiations are expected to be arduous and a deal won’t be reached fast.