MARYLAND: A growing chorus of world leaders on Friday pushed more pro-growth policies to help ease a European crisis that threatens to oust Greece from the Euro Zone and reverberate throughout the global economy.
Setting the tone for a weekend G-8 summit, President Barack Obama aligned himself with the new French president’s drive for more economic stimulus in recession-plagued Europe, in a swipe at the tough austerity programmes that have been spearheaded by German Chancellor Angela Merkel.
Obama’s stance reflects his worries that the Euro Zone contagion, which threatens the future of Europe’s 17-nation single currency, could hurt the fragile US economic recovery and his own re-election chances in November.
The Camp David summit kicked off four days of intensive diplomacy — including a NATO meeting in Obama’s home town of Chicago — that will test leaders’ ability to quell unease over the threat of another financial meltdown as well as plans to wind down the
unpopular war in Afghanistan.
Over dinner Friday at the presidential retreat, the leaders discussed still other intractable global problems. The group, which
included Russian Prime Minister Dmitry Medvedev, agreed ahead of world powers’ talks next week with Iran that Tehran must answer questions about its suspected nuclear weapons programme, a US official said. North Korea, Syria and Myanmar were also on the agenda, but it was the global economy that dominated the day.
After White House talks with French President Francois Hollande, Obama said the two agreed that tackling the Euro Zone crisis was an issue of extraordinary importance, not only to the people of Europe, but to the world economy.
Merkel, who has insisted on the need for tough fiscal discipline to bring down suffocating debt levels even as angry voters have toppled some Euro Zone governments, seemed certain to find herself increasingly alone.
As Obama welcomed his guests one-by-one outside a rustic lodge at the presidential retreat in Maryland, he asked Merkel, “How have you been?” She shrugged and offered a strained smile. “Well, you have a few things on your mind,” he said in a brief exchange captured by a boom microphone. Her predicament could be underscored in the summit’s final communiqué that, according to a draft shown to Reuters, will stress ‘our imper-ative to create growth and jobs’.
Reflecting growing frustration as Greece’s post-election turmoil shakes global markets, British Prime Minister David Cameron called on euro members for decisive action and said the Greeks must make up their minds whether to stay in the Euro Zone.
No major economic policy decisions are expected from the talks, but Obama will urge the Europeans to work harder at forging a comprehensive approach to their debt troubles.
World stocks fell to levels below where they began the year, depressed by the prospect that a Greek euro exit would spread
upheaval in the currency bloc and engulf much larger economies such as Spain’s. The European Union’s (EU’s) trade commissioner said for the first time that European officials were working on contingency plans in case Greece bombs out of the Euro Zone.
Germany isolatedHollande said he spoke to Obama about the need to put a priority on growth, and that they also agreed it was important to find a way for Greece to stay in the Euro Zone. Obama’s administration spent heavily to try to tackle the 2007 to 2009 US recession, and has long urged Europeans to do more to boost growth. Hollande is seeking to take the edge off austerity with more job-creating infrastructure investments.
Like Cameron, Canadian Prime Minister Stephen Harper has been a frequent critic of Euro Zone G-8 members’ handling of their debt woes. Italian Premier Mario Monti was calling for growth measures even before Hollande did. That could leave Merkel, who has used Germany’s status as Europe’s biggest economy to pressure others to keep a tight rein on debt, cutting a lonely figure at Camp David. “Germany is absolutely isolated,” said Domenico Lombardi, a former International Monetary Fund (IMF) official, who now is a senior fellow at the Brookings Institution think tank. Lombardi said that while Germany had the upper hand when controlling debt was the focus, it is now clear that Greece has become a systemic crisis and this must now become the centre of the debate.
A softer approachWhile Merkel wants Greece’s continued membership in the Euro Zone tied to Athens meeting tough austerity measures laid out in its bailout programme, Hollande was seeking a softer approach. Hollande also said he favours Europe recapitalising Spain’s troubled banks, which would mark a significant shift toward Europe taking over wider responsibilities from individual nations. Backing calls for a concerted effort to boost economic activity, Jose Manuel Barroso, president of the European Commission, said there was a need to promote growth while putting public finances in order and this should be centre stage at the summit. He insisted, however, that they wanted Greece to stay in the euro area.
The G-8 summit comes as Greeks are pulling cash from banks amid growing fears about its Euro Zone membership. Financial markets are deeply concerned about the future of the entire zone currency, with Spain’s banking sector also under pressure.
Nearly two-thirds of Greeks voted on May 6 for parties of the radical left and far right, which oppose the austere terms of an EU or IMF assistance programme. Talks failed to avert a repeat election, which is now set for June 17.
The balanced approach that Obama is pushing for in the Euro Zone is similar to his domestic efforts combining short-term stimulus and longer-term cuts to try to heal the US economy and stoke hiring that has not recovered from the financial crisis.