Obama sees 'emerging consensus' on crisis

20 May 2012, 6:10 pm   -   Source: AAP

US President Barack Obama has played international host as Europe's debt crisis threatens to drag down the US recovery and his own political future.

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Confronting an economic crisis that threatens them all, US President Barack Obama and leaders of other world powers declared that their governments must both spark growth and cut the debt that has crippled the European continent and put investors worldwide on edge.

"There's now an emerging consensus that more must be done to promote growth and job creation right now," Obama proclaimed on Saturday after hosting unprecedented economic talks at Camp David, his secluded and highly secure mountaintop retreat. Seeking a second term amid hard economic times, Obama hailed a debate heading in the direction he likes, with nations now talking of ways to spark their economies instead of just slashing spending.

Obama's statement came before he was to lead a much larger NATO summit in Chicago on Sunday and Monday that will be heavily focused on the Afghanistan war.

Despite the statement, there were no bold prescriptions at hand. Instead, leaders seemed intent on trying to inspire confidence by agreeing on a broad strategy no matter their differences. With all of them facing their own difficult political realities, they built some sovereign wiggle room into their pledge to take all necessary steps, saying "the right measures are not the same for each of us".

Obama played international host as Europe's debt crisis threatens to drag down the US recovery and his own political future, underscoring the stakes for him in getting allies abroad to rally around some answers.

Much of the new emphasis on government-led growth seemed aimed at German Chancellor Angela Merkel, who came to the summit as the European leader who had demanded austerity as the most important step toward easing the eurozone's debt crisis. But the election of Socialist Francois Hollande as president of France, and Greek elections that created political chaos in the country were clear rejections of the belt-tightening Merkel represented.

Hollande, a new voice at the table in just his first week on the job, offered Obama a reminder of his own responsibilities to work to expand the economy, "even if he's in an electoral period and who has a Congress that's not necessarily easy to deal with".

Coping with shaky oil markets, the leaders set the stage for a united release of world oil reserves to balance any disruption in world markets when tough new sanctions are imposed on Iran's exports because of its disputed nuclear program. The leaders said they were ready to take "appropriate action" to meet any shortages.

The mere preparation to release oil reserves could help calm markets and ensure that oil prices, which have been dropping, don't climb again and anger consumers as US elections approach.

The Group of Eight summit includes leaders of the United States, Japan, Britain, Germany, France, Italy, Canada and Russia.

A joint summit statement reflected how urgently the countries must contain a financial crisis that could spread from the eurozone to the United States and infect the rest of the global economy. They declared unanimity in ensuring that Greece, which is crippled in debt and politically gridlocked, remains as part of the 17-member euro currency union.

"The leaders here understand the stakes," Obama said in summing up a packed, unusually intimate day of world talks. "They know the magnitude of the choices they have to make and the enormous political and economic and social costs if they don't."

Merkel said growth and deficit-cutting reinforced each other and that everyone around the table agreed. "That is great progress," she said. As for promoting growth, she said investments under consideration include research and development, Internet networks and infrastructure. But she said "this doesn't mean stimulus in the usual sense."

US officials agreed, saying growth measures that the Europeans might pursue don't all require outright public spending, and could be in the form of public-private partnerships or in initiatives designed to loosen credit. And the leaders stayed away entirely from the word "stimulus", which has taken on an unpopular political connotation, including in the United States.

"The global economic recovery shows signs of promise, but significant headwinds persist," G-8 leaders said.

The statement of support for Greece remaining in the euro underlines the unpredictable damage to the global financial system that could come from a Greece departure. It follows a week of increasing speculation that Greece might not be able to stay the course, and in which a top European Union official said officials were working on emergency plans in case of a Greek exit. That country is facing the most acute financial crisis of the eurozone and is set to hold elections on June 17 to end political deadlock.

At issue is whether Greece abandons the euro to escape austerity measures. Meanwhile, Europe's woes have given shudders to Wall Street.

The Fitch ratings agency dropped Greece to the lowest possible grade for a country not in default on Thursday. Fitch said Greece's departure from the euro "would be probable" if elections next month do not reverse political trends there, which have brought in politicians opposed to the terms of Europe's bailout.

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