We need your help now

Support from readers like you keeps The Journal open.

You are visiting us because we have something you value. Independent, unbiased news that tells the truth. Advertising revenue goes some way to support our mission, but this year it has not been enough.

If you've seen value in our reporting, please contribute what you can, so we can continue to produce accurate and meaningful journalism. For everyone who needs it.

President Barack Obama greets German Chancellor Angela Merkel on arrival for the G8 Summit Friday, May 18, 2012 Charles Dharapak/AP/Press Association Images

G-8 leaders to focus on European financial crisis

Energy will also be on the agenda, as the world looks to the oil markets in advance of scheduled sanctions on Iranian oil exports.

DRAWN TOGETHER IN this serene mountain outpost, leaders of the major industrialised nations are prodding Germany to balance its push for European fiscal austerity with doses of stimulus spending to avoid an economic calamity that could reverberate worldwide.

With three new members in their midst, the Group of Eight leaders will take measure of themselves as they turn their attention Saturday to reconciling the need to quell European debt crises with the desire to increase demand for goods and spur job growth.

Facing economic and political pressures at home, President Barack Obama and leaders of Germany, France, Canada, Italy, Great Britain, Russia, and Japan were huddling in the casual setting of Camp David’s Laurel Lodge looking to build consensus even though a decisive plan of action seemed out of reach at this point.

Promote both fiscal consolidation and a ‘strong growth agenda’

The G-8 session here in this secure presidential compound nestled in Maryland’s Catoctin Mountains sets the stage for a far more consequential European summit next week where eurozone members hope to come together on specific steps to fight rising debt while spurring a recovery.

Obama established the tone for the G-8 Friday after meeting with just-elected French President Francois Hollande, declaring that the aim of the summit is to promote both fiscal consolidation and a “strong growth agenda.”

“President Hollande and I agree that this is an issue of extraordinary importance not only to the people of Europe but also to the world economy,” Obama told reporters following the meeting.

In a hint of the pressures facing the leaders, Obama greeted German Chancellor Angela Merkel to Camp David Friday at dusk, asking her how she was. Merkel, facing resistance over her austerity push, merely shrugged.

“Well, you have a few things on your mind,” Obama said sympathetically.

A central economic topic, though hardly the only one confronting Europe, is the fate of Greece which is facing the most acute financial crisis of the eurozone and is set to hold elections June 17 to end political deadlock. At issue is whether Greece abandons the euro to escape austerity measures.

Hollande, speaking with Obama at his side Friday, said: “We share the same views, the fact that Greece must stay in the eurozone and that all of us must do what we can to that effect.”

Lowering expectations for the G-8, US National Security Adviser Tom Donilon said: “The leaders I think will focus on specifics and specific concepts and ideas for growth and jobs. But I would also point out that the ultimate decisions on that would be decisions taken in the eurozone.”

Oil markets

Also on the agenda is energy as the world looks to the oil markets in advance of scheduled sanctions on Iranian oil exports. While oil prices have been falling, major oil importing countries, including the US, are keeping a wary eye on prices and keeping open the possibility of tapping their own oil reserves.

For Obama, Europe’s fate is critical to his own political survival. An economic recession that spreads to the US could damage an already slow recovery and boost the argument by his Republican challenger, Mitt Romney, that the United States economy needs new leadership.

There is a get-acquainted aspect to the session as well. The Camp David gathering, the largest collection of foreign leaders ever at the presidential retreat, is the first G-8 meeting for Hollande, for Italian Prime Minister Mario Monti and for Japanese Prime Minister Yoshihiko Noda. In what has been widely viewed as a snub, Russian President Vladimir Putin is skipping the G-8, sending Prime Minister Dmitry Medvedev in his place.

The meeting comes at a turning point in Europe, marked by elections in France and Greece that signaled defiance toward the fiscal austerity measures that Merkel has pushed for the most indebted eurozone countries. European countries are straining under high borrowing rates. The drastic cuts in spending and government layoffs were designed to address massive national debts but they have also caused short-term economic distress and joblessness.

On Friday, Spain’s central bank announced that the level of bad loans on the books of Spanish banks was at an 18-year high, fueling concerns about the financial sector in the eurozone’s fourth-largest economy.

Europe didn’t take “some of the decisive steps” the US did

The emphasis on economic growth has been welcomed by Obama, who has long argued that the stimulative steps he took in 2009 put the US on the road to recovery.

“Europe is still in a difficult state,” Obama told donors in Seattle last week, “partly because they didn’t take some of the decisive steps that we took early on in this recession.”

To what degree the Europeans, and Merkel in particular, agree remains to be seen.

“With Hollande coming into play here, there is going to be a lot of pressure on Germany, not just from Hollande and Obama, but also some of the other countries — Italy and UK — some pressure for Germany to push more toward growth within Europe because they have to get them on board,” said Jeffrey Bergstrand, a former federal reserve economist and now an expert on international finance at the University of Notre Dame.

US officials have been encouraged by recent discussions in Europe to ease up some belt-tightening so that spending cuts aren’t as deep or as swift and to increase spending on public works projects like roads and schools in weaker parts of Europe. They also point to Germany’s recent decision to negotiate higher public sector wages, a move they say could have a positive ripple effect on demand.

Merkel herself has made conciliatory gestures, saying in a television interview this week that she was open to helping stimulate the Greek economy provided Greece honored pledges to shrink its debt.

Read: Did Angela Merkel say Greece should hold a referendum on euro membership?

Associated Foreign Press
Your Voice
Readers Comments
    Submit a report
    Please help us understand how this comment violates our community guidelines.
    Thank you for the feedback
    Your feedback has been sent to our team for review.