Obama and Merkel at odds at G8 summit

19 May 2012, 5:14 pm   -   Source: AAP
German leader Angela Merkel is at odds with US President Barack Obama over growth policies in Europe. (AAP)

German leader Angela Merkel is at odds with US President Barack Obama over growth policies in Europe. (AAP)

US President Barack Obama has backed French calls for pro-growth policies in Europe, setting up a clash with German leader Angela Merkel at the G8 summit.

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US President Barack Obama is backing French calls more pro-growth policies in Europe, as G8 leaders huddle at Camp David for a summit darkened by Greece's possible eurozone exit.

Obama set the stage on Friday for a fractious meeting of world leaders by forging an alliance with new French President Francois Hollande over the need to jolt Europe back to growth.

Fearing Europe's economic crisis is poised to worsen - with dangerous repercussions for the US economy and perhaps Obama's chances of re-election - Obama weighed in, risking the ire of German Chancellor Angela Merkel who has championed an austerity-first approach.

Shortly before welcoming Merkel and other leaders to his famed presidential retreat outside Washington, Obama noted that events in Europe held "extraordinary" importance for the United States.

The G8 needs to discuss "a responsible approach to fiscal consolidation that is coupled with a strong growth agenda," he said.

To kick-off the summit Obama, minus his tie, greeted leaders shortly after dusk at the threshold of his wood cabin for an informal dinner that lasted more than two hours.

But the dressed-down atmosphere did little to relieve tensions, which have been stoked by the belief that two-years of painful cuts demanded by Germany and others have undercut Greek growth and made recovery more difficult.

In what may have been a telling moment, Obama greeted Merkel at his Laurel Lodge 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."

Publicly, European leaders have attempted to smooth over the splits within the G8, insisting austerity and stimulus need not be 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 President Jose Manuel Barroso said ahead of the summit.

But with Greece's fiscal crisis apparently approaching denouement, those good words may be sorely tested.

Two years of austerity have resulted in crippling unemployment and while Greeks say they are overwhelmingly in favour of staying in the eurozone, there is little appetite for more budget cuts.

Diplomats say major new initiatives are unlikely to come from the G8 summit but Obama's intervention tips Europe's political calculus toward pro-growth policies before European officials gather in the coming weeks to thrash out concrete measures.

G8 leaders will hold their main discussions on Europe's fiscal plight on Saturday at Camp David's rustic collection of cabins on the wooded Catoctin Mountain in Maryland, outside Washington.

Friday night's dinner discussions focused heavily the ongoing bloodshed in Syria and Iran's contested nuclear program ahead of talks between global powers and the Islamic Republic in Baghdad later this month.

According to a senior US official there was broad agreement on the need for political transition in Syria, where a revolt and government crackdown has left 12,000 dead.

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