World leaders backed keeping Greece in the euro zone on Saturday and vowed to take all steps necessary to combat financial turmoil while revitalizing their economies, which are increasingly threatened by Europe’s debt crisis.
In a bold statement of support for Europe, the Group of Eight leaders of the world’s major economies meeting at the wooded Camp David in the Cactoctin Mountains of Maryland said the global economic recovery shows promising signs but “significant headwinds persist.” “Against this backdrop, we commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us,” it said in a communique.
The leaders said they welcomed discussions in Europe to balance debt reduction with measures to support growth and added: “We reaffirm our interest in Greece remaining in the euro zone while respecting its commitments.” It was unusual for the often-bland G8 communique to single out a small nation. But fears that a political stalemate in Greece would lead to the tiny Mediterranean country leaving Europe’s monetary union at unknown costs to the financial system have spooked global markets.
US President Barack Obama and leaders from other major economic powers met to discuss the global economy and seek ways to soothe markets after worries about Spain’s banking problems also played a role in sending world stock prices to their lowest levels this year. Earlier, a shirt-sleeved Obama opened the morning session, promising to seek ways to restore healthy growth and jobs and address concerns in Europe. “All of us are absolutely committed to making sure that both growth and stability, and fiscal consolidation, are part of an overall package in order to achieve the kind of prosperity for our citizens we all are looking for,” Obama said. British Prime Minister David Cameron, after an early morning treadmill workout with Obama at the Camp David gym, said he detected a “growing sense of urgency that action needs to be taken” on the euro zone crisis. London relies heavily on international finance and banking instability would strike a fresh blow to an economy already in recession. “Contingency plans need to be put in place and the strengthening of banks, governance, firewalls – all of those things need to take place very fast,” he told reporters.
European leaders seemed keen to stress on Friday that they would stand firm in protecting their banks, after news of escalating bad loans raised the specter that rescuing Spain’s banks would crash the euro zone’s fourth largest economy. “We will do whatever is needed to guarantee the financial stability of the euro zone,” European Union President Herman Van Rompuy said. Earlier French President Francois Hollande suggested using European funds to inject capital into Spain’s banks, which would mark a significant acceleration of EU rescue efforts. An Italian newspaper reported that Italian Prime Minister Mario Monti has proposed at the G8 summit creating a Europe-wide system of bank deposit insurance. Officials had no immediate comment.
OBAMA, MONTI,
HOLLANDE: Beyond stabilizing the financial system, a key issue on the agenda is how to balance a growth with efforts to lower government debt through fiscal belt tightening. Obama has aligned himself with Monti and the new French president in putting more emphasis on growth.
That places pressure on German Chancellor Angela Merkel, who has pushed fiscal austerity as a the prime means of bringing down huge debt levels that are burdening European economies.
Voters in euro zone countries have shown frustration with that approach, ejecting the Greek government. In France the conservative Nicolas Sarkozy was defeated by Hollande, a socialist, in the May 6 elections. A draft of the summit communiqué shown to Reuters will stress an “imperative to create growth and jobs.”
There are signs of softening in Germany’s austerity stance. Germany’s largest industrial union, IG Metall, struck its biggest pay deal in 20 years early on Saturday. The 4.3 percent pay increase, more than double Germany’s inflation rate, will boost worker buying power in the euro zone’s richest nation and lift consumption – something the United States long has urged as a means to bolster overall growth throughout the world’s second largest economic region.
Obama, in the Saturday discussion on the global economy, advocated a balanced approach, saying there should be “no artificial boosts,” G8 delegation sources told Reuters.
“We need a growth agenda while maintaining fiscal discipline,” he said, according to sources.
In the G8 group photo outside the presidential log cabin surrounding by lush green trees, Obama also sought balance. He stood with the leaders of Europe’s two largest powers – France and Germany – to his right and his left respectively. An adviser to Hollande said France’s growth message is winning supporters. “The positions he has taken are seeing an extremely positive echo in Europe but also in the United States, Canada and Japan,” the adviser said.
GLOBAL SECURITY: Also on the summit agenda are concerns about oil and food prices as well as Afghanistan, Iran, Syria and North Korea.
Speculation has grown that Obama will use an energy session at the G8 to seek support to tap emergency oil reserves before a European Union embargo of Iranian crude takes effect in July. But with oil prices already sliding, a move by Obama to tap the Strategic Petroleum Reserve – alone or along with other countries – could expose him to criticism that the emergency supply should only be touched in a supply crisis. The Camp David summit kicked off four days of intensive diplomacy 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.
