Given the escalating crisis in Greece, the future of the Eurozone is expected to dominate the talks, raising the stakes for the summit and for Obama.
WASHINGTON — For months, President Obama has been urging his European allies to balance their zeal for spending cuts with policies to spur economic growth. His pleas have mostly been ignored.
But now, as Obama prepares to host the Group of 8industrialized nations’ summit Friday and Saturday, his pro-growth argument has taken on new force — and some measure of desperation.
The G-8 gathering at Camp David will cover an array of topics, but given the escalating crisis in Greece, the future of the Eurozone is expected to dominate the talks, raising the stakes for the summit and for Obama.
The volatile situation in Europe, with the possibility of Greece exiting the 17-nation Eurozone, could undercut the American economic recovery and Obama’s prospects for reelection.
Obama is certain to press the European leaders, particularly German Chancellor Angela Merkel, to move closer to his pro-growth and stimulus position during their meeting at the wooded presidential retreat outside Washington.
“This summit is as much about the U.S. elections as the Eurozone crisis,” said Kati Suominen, a transatlantic fellow at the German Marshall Fund, a think tank in Washington.
That puts a greater onus on Obama, she said, to guide the decades-old G-8, made up of Britain, Germany, France, Italy, the U.S., Japan and Canada, plus Russia, which joined in 1997.
New French President Francois Hollande, elected May 6 on a platform of ending austerity, will meet with Obama on Friday at the White House, and their discussions could provide clues on how hard the Socialist Party leader will push a growth agenda and risk a rift with the pro-austerity Germans.
In recent days, as financial markets have tumbled and anxious Greeks have rushed to withdraw money from banks, Merkel has shown a softening in her stance, saying she would be open to stimulus programs for Greece.
“I want … that Greece stays in the euro. I think that would be good for Greece and for all of us,” Merkel said Wednesday in an interview with CNBC.
Merkel and her European colleagues — and a wary White House — would like to ease tensions and head off more potential trouble with a new Greek election set for June 17 and a big debt payment due in July.
Athens has been receiving a bailout from European and international institutions, but those funds are contingent on Greece making severe spending cuts, which have enraged citizens and led to a caretaker government.
“Now the situation, the circumstances, are evolving,” said Domenico Lombardi, a senior scholar at the Brookings Institution in Washington. “The Europeans are becoming more receptive to the idea that austerity is really self-defeating.”
That said, nobody is expecting Germany’s Merkel or the European Union to shift course after a two-day meeting in the U.S. Besides, the larger G-20, which includes emerging nations such as China and India and holds its summit next month in Mexico, is now the main forum for leaders on global economic strategy.
The White House has sought to lower expectations, seeking to frame the G-8 meeting as a low-key gathering for intimate conversations. Nevertheless, powerful events in Europe are forcing world leaders to reassess the key economic question of the day — austerity or growth — and the steps needed to steady a global economy still suffering from the 2008 financial meltdown.
The U.S. and Europe have taken separate paths in dealing with the financial crisis, with Washington supporting the economy with deficit spending and Europe focusing heavily on belt-tightening. But Hollande’s victory in France and voter resistance to budget-cutting in northern Europe have exposed deepening cracks in the Germany-led strategy.
Greece’s recent failure to form a government, following election gains by anti-austerity proponents, is seen as propelling the country closer to leaving the Eurozone — something that would plunge the currency union and the global economy into uncharted waters.
Merkel has insisted she won’t change the terms of the Greek bailout or abandon the European Union’s commitment to prudent fiscal policies.
But her greater willingness to accept a growth strategy that would accompany the fiscal one suggests that EU leaders will consider such steps as increasing infrastructure spending and giving indebted countries more time to get their fiscal houses in order.
White House Press Secretary Jay Carney told reporters Wednesday that Obama would urge European leaders to “address the need for growth in Europe and the need to put people to work, including and especially young people in Europe.”
By all accounts, Europe is better prepared today to withstand a Greek exit from the Eurozone than it was last fall when debt problems preoccupied the G-20 summit.
Since then, the European Central Bank has flooded the continent’s financial system with cheap credit. And last month, a number of G-20 nations made pledges that doubled, to more than $700 billion, the International Monetary Fund‘s “firewall” to contain the debt problems.
Still, analysts said it would be a mistake to assume that Europeans have enough means to handle the crisis, should the problems of Greece spread to Italy and Spain. And they warn that a worsening of the Eurozone’s troubles would inflict pain on the U.S. economy because American companies rely on European trade and investments.
“The likelihood [of a Greek exit from the Eurozone] is rising every day,” said Barry Eichengreen, a UC Berkeley economics and political science professor.
He likened the situation to a car driving down an icy road as Europe shifts from austerity to a more balanced approach that supports growth.
“That wheel is spinning slowly,” he said. “But the other wheel, the crisis, is spinning fast. And you know what happens to a car when two wheels spin at different speeds. It careens out of control.”
At the G-8 summit, Obama will be giving directions from the back seat.