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G8 lean toward Obama growth, not Merkel austerity

Leaders of the world’s richest countries banded together to press Germany to back more pro-growth policies to halt the deepening debt crisis in Europe, as President Obama for the first time gained widespread support for that strategy.
Image: G8 conference at Camp David
Leaders walk out to attend the group photo for the G8 Summit at Camp David, Md., on Saturday.Guido Bergmann / Zuma Press
/ Source: The New York Times

Leaders of the world’s richest countries banded together on Saturday to press Germany to back more pro-growth policies to halt the deepening debt crisis in Europe, as President Obama for the first time gained widespread support for his argument that Europe, and the United States by extension, cannot afford Chancellor Angela Merkel’s one-size-fits-all approach emphasizing austerity.

Pointedly recognizing “that the right measures are not the same for each of us,” the leaders of the Group of 8 nations, at a meeting hosted by Mr. Obama at Camp David, committed to “take all necessary steps” to strengthen their economies. They said they wanted to keep Greece in the euro zone and vowed to work to promote growth in Europe, though they did not detail how they would do so.

“Our imperative,” the leaders said in their statement, “is to promote growth and jobs.”

It is by no means the final word in the growth-versus-austerity fight that has been under way for two years. Even with the future of the European currency union in doubt, Germany has insisted that Europe’s ailing economies tackle their financial problems through spending cuts, a policy that critics say has caused higher unemployment, brought Greece to the edge of bankruptcy and worsened the crises in Spain and Italy. 

The leaders did concede somewhat to Ms. Merkel’s position on austerity, acknowledging that national budget deficits had to be addressed. But they added that spending cuts must “take into account countries’ evolving economic conditions and underpin confidence and economy recovery,” a recognition of how much the austerity packages have dampened consumer and political confidence in Europe.

While Greece is not part of the Group of 8 — the club is made up of the United States, France, Germany, Britain, Italy, Canada, Japan and Russia — the political and economic crisis facing Athens hovered over the meeting. Greece has been unable to form a government after voters, angry over austerity measures, brought down the last government, and there is now talk of bringing back the drachma and abandoning the euro.

Ms. Merkel and Mr. Obama met privately after the meeting ended. In her public remarks, the German chancellor said that growth and deficit-cutting reinforced each other, and that “we have to work on both threads, and the participants have made that clear, and I think that is great progress.”

With his own re-election bid tied to a fragile American economic recovery that could easily reverse if Europe’s economy takes another turn for the worse, Mr. Obama was pushing hard on Saturday for a euro-zone growth package. American officials said they hoped that after the full-court press this weekend at Camp David, Ms. Merkel would be more amenable to the pro-growth argument when she meets with European leaders this week at a summit to come up with specific steps to fight rising debt while spurring the economy.

The last time world leaders met to discuss the European debt crisis, in Cannes last November, the French president at the time, Nicolas Sarkozy, joined with Ms. Merkel to push Italy to stick to an austerity package. But the tone was different this time. Mr. Sarkozy lost his re-election bid to Francoise Hollande, who came into office last week promising to focus on growth. And even before they showed up at Camp David to gang up on Ms. Merkel, Mr. Hollande and Mr. Obama had forged a new alliance at a pre-arranged meeting at the White House to focus on growth. 

In comments to reporters afterwards, Mr. Obama said that the group needed to discuss “a responsible approach to fiscal consolidation that is coupled with a strong growth agenda.”

“If a company is forced to cut back in Paris or Madrid, that might mean less business for workers in Pittsburgh or Milwaukee,” Mr. Obama said to explain why the European crisis matters to the United States. He said that while Europe’s predicament is “more complicated” since it requires coordination among multiple governments, steps that his own government took to blunt the impact of the American financial crisis in 2008 and 2009, including the controversial stimulus, can stand as an example for Europe.

In a tense meeting here at this storied presidential retreat, it seemed at times as if it was Ms. Merkel — who herself faces stiff opposition at home to more bailouts of its neighbors by German taxpayers — against the world. Things did not seem to get off to a good start either on Friday night, as Mr. Obama greeted his guests for dinner in a rustic wood cabin.

“How’ve you been?” Mr. Obama asked Ms. Merkel.

She shrugged and pursed her lips.

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

Mike Froman, Mr. Obama’s top adviser on international economic affairs, was careful not to publicly single out Ms. Merkel and Germany when talking to reporters after the meeting. The debate over austerity vs. growth, he said, “has been going on for some time, and we welcome the evolution on that debate.” He added: “I don’t think it was an issue of budging particular leaders off particular positions so much as it’s been an evolution.”

But it remains unclear how far Ms. Merkel will go, despite the pressure from other leaders. Ms. Merkel on Saturday was fresh from a war of words with Greece over that country’s continued membership in the euro, with Greek politicians complaining that Ms. Merkel had suggested a referendum asking Greece whether it wanted to stay in the euro, a claim that a spokesman for Ms. Merkel has denied.

Separately, the leaders also said they “stand ready” to call on the International Energy Agency to take appropriate action to guarantee oil supplies if prices spike.

“There have been increasing disruptions in the supply of oil to the global market over the past several months, which pose a substantial risk to global economic growth,” the group said in a statement.

The oil statement was meant to reassure oil markets that nations will consider tapping into their oil reserves if there is a supply shortage. It is particularly meant to send a warning to Iran — which is the target of an oil embargo to begin July 1 as part of the western effort to rein in Tehran’s nuclear ambitions — that the West will work to counteract high oil prices once the sanctions go into effect. Finally, it is meant to reassure countries like India and China that they will not be hurt by higher prices once the sanctions begin.

Still, American officials expressed optimism that negotiations with Iran over its nuclear program, which are set to reopen at the end of the month in Baghdad, might be productive.

The intimate setting of the meeting — in secluded Camp David, where the leaders slept in cabins and their attendants shared rooms — allowed for a more relaxed atmosphere, White House officials said. There were intimate walks between leaders along wooded paths, and cozy patio tete-a-tetes, including one between Mr. Obama and Ms. Merkel on Saturday morning, just before the economy session.

Mr. Obama and Prime Minister David Cameron of Britain were on treadmills early Saturday morning discussing ways to help ease the debt crisis.

“Nobody felt defensive or put on the defense,” Mr. Froman said, disputing reports that Ms. Merkel was isolated.

But sluggish growth and elevated rates of unemployment characterize the Group of 8 advanced economies. In terms of purchasing power, these economies have grown 8 percent since 2008, the first year of the global economic crisis. The other countries that make up the Group of 20 have grown about 36 percent over the same period.

Annie Lowrey contributed reporting from Washington.

This report, "," first appeared in the New York Times.