G8 leaders tried to bridge divisions over how to halt Europe’s rapidly-deepening economic crisis Saturday, as host President Barack Obama backed more pro-growth policies in the face of German opposition.
With the future of Europe’s currency union in serious doubt, leaders gathered at Obama’s Camp David lodge to weigh competing demands for growth-friendly spending with Germany’s long-standing focus on spending cuts. Obama on Friday set the stage for a testy meeting by forging an alliance with new French President Francois Hollande over the need to jolt Europe back to growth.
The drive could upend two years of Berlin-led austerity-first policies, which critics say have fuelled rampant unemployment, brought Greece to the verge of bankruptcy and deepened crises in Italy and Spain.
Fearing the outlook is deteriorating — with dangerous repercussions for the US economy and perhaps his chances of re-election — Obama signaled he was ready to wade deeper into a debate that has largely been left to Europe.
Before welcoming leaders to the storied presidential retreat, Obama stressed Europe’s “extraordinary” importance for the United States and said the G8 needs to discuss “a responsible approach to fiscal consolidation that is coupled with a strong growth agenda.” That risked the ire of his guest and Europe’s paymaster German Chancellor Angela Merkel, who faces stiff opposition at home to repeated taxpayer-funded bailouts.
The tension between the pair was evident when a dressed-down Obama greeted G8 leaders at his wood cabin for an informal dinner that would last more than two hours Friday.
Obama welcomed Merkel with a cordial: “How’ve you been?”
When her response came: a shrug and pursed lips, Obama conceded: “Well, you have a few things on your mind.” Diplomats say G8 leaders will ultimately stress the need for both growth and jobs, and publicly European leaders have attempted to smooth over the split, insisting austerity and stimulus are not mutually exclusive.
“We need to take action for growth while staying the course in terms of putting our public finances in order. Stability and growth go together, they are two sides of the same coin,” European Commission chief Jose Manuel Barroso said ahead of the summit.
But with Greece’s fiscal crisis apparently approaching denouement, those words may be sorely tested.
The recent clobbering of Greek parties that back austerity measures under the country’s massive bailout has left the two-year-old effort to prevent a Greek default on life support.
Fresh Greek polls are scheduled for June 17, but there is no certainty that supporters of the painful reforms will win. That would leave G8 members with a tough choice: Loosen demands on Greece by backing more pro-growth policies, or stop assistance.
The markets are already betting that if anti-austerity parties win again, Germany will turn off the bailout faucet, a decision that would force a Greek default and would likely spell an exit from the eurozone.
For now European leaders are insisting that Greece must meet its commitments. It is a stance that they hope will put Greek voters choices in sharp focus.
Looking to the longer-term, Commission president Barroso said there was growing consensus around the idea of specific investments funded by common European bonds — a measure he said would satisfy the need for austerity and stimulus.