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US warns Europe against relying too much on exports

The United States warned Europe on Thursday against relying too much on exports for growth and urged officials to make more use of fiscal policy, saying stronger demand in Germany was essential.

In its semiannual report to Congress, the U.S. Treasury Department appeared to give a preview of the positions it will press on foreign policymakers during next week's International Monetary Fund meetings in Washington.

A statue of the first secretary of the Treasury, Alexander Hamilton, stands in front of the U.S. Treasury Department building in Washington.
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A statue of the first secretary of the Treasury, Alexander Hamilton, stands in front of the U.S. Treasury Department building in Washington.

For one, America is wary of the euro zone's rising current account surplus, a broad measure of cross-border flows of goods and capital.

The Treasury noted the European Central Bank was taking forceful measures to help, but that complementing the monetary stimulus with taxpayer money and economic reforms "would avoid the risk that growth becomes excessively reliant on the external sector."

It noted that stronger demand growth within Germany was "absolutely essential."

While growth in Europe has shown some recent signs of picking up, the region remains the sick man of the global economy.

Washington also called China's currency "significantly undervalued," but said Beijing appeared to be less heavy handed in its currency interventions, and had recently intervened to prop up the yuan's value.

The semiannual report examines the economic and foreign exchange policies of major U.S. trading partners. It did not formally label any country a currency manipulator, and has not done so in any report since 1994.

The Obama administration has long called on South Korea to minimize currency interventions, but said on Thursday it has "intensified" its engagement with Seoul on currency issues.

The United States also appeared more concerned about the prospects for Japan, warning officials to avoid overdoing fiscal consolidation and relying too much on monetary policy as the government continues radical measures to shock the economy out of decades of deflation.