World leaders to discuss euro crisis at G-8 summit
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WASHINGTON -- Top world leaders will gather today at Camp David as they confront renewed financial tensions in Europe for the first time since the euro region put in place extraordinary measures meant to combat its problems. The central issue: Is the revival of the euro crisis proof those measures have failed, or is it setting the stage for a first test?
Hosted by President Barack Obama, Group of 8 gathering's discussion is likely to be dominated by Europe's continued economic turmoil. But unlike earlier such meetings -- and there have been many over the past two years -- there are no new big ideas on the table, or major steps that the United States and other countries are urging the Europeans to take.
Rather, the leaders are watching to see if the bailout funds, bank loans and other steps taken in recent months will prove adequate if Greece's political paralysis leads it to break from the euro region. The stakes are high for all concerned -- for a host, Mr. Obama, who is facing a re-election battle and hoping to avoid the downturn in trade and economic growth likely to flow from a European meltdown, and for leaders in Britain, Canada, Japan and Russia with deep stakes in global growth.
The three euro zone leaders in attendance -- from Germany, France and Italy -- will again be on the hot seat, as they have been in international summits since Greece's problems began unfolding in late 2009.
Two of them are relative newcomers with much left to prove: Italian Prime Minister Mario Monti took office in November and, while given credit for more disciplined spending than predecessor Silvio Berlusconi, has yet to win parliamentary approval for broader labor and regulatory policy changes considered central to boosting growth. And newly elected French President Francois Hollande wants more emphasis on economic growth, but may face a skeptical response if he proposes to do that by increasing government debt.
"They've got a long way to go, a very difficult set of challenges, and they just need to make sure that they can convince the world that they're going to manage these challenges," U.S. Treasury Secretary Timothy F. Geithner said at a forum Tuesday. "We have a big stake in the managing."
The immediate focus is again on Greece, where divided elections last week left the country unable to form a government and raised the possibility that the nation may renege on the terms of an international bailout and quit or be ejected from the euro currency union.
A caretaker government was appointed Wednesday to stay in office until a fresh vote in June, now seen as a national referendum on whether to stay with the euro -- and to accept the strict terms of an international bailout.
European leaders are discussing whether to relax the bailout terms as part of a possible compromise, and German Chancellor Angela Merkel said Wednesday in Berlin that she may be open to some centralized European investment in Greece to help lift its economy from a five-year recession.
But larger questions will be on the table at Camp David: how the developed world can bolster growth, for example, when governments are constrained by high debt and have little room for stimulus spending.
More immediately, however, they'll debate what recent weeks have shown about Europe's crisis response, and whether the programs put in place over the last year can truly absorb the shock of a Greek exit. The political decisions Europe has taken over the last two years have largely pointed toward bolstering the system against such a shock, and the tremors likely to ripple through the European and global economies as a result.
Ahead of the G-8 gathering, Canadian Finance Minister James Flaherty said he worried that emerging political divisions within the currency bloc may make it impossible for leaders to follow through on steps needed to address their problems. "The whole future of the euro zone is up for grabs," he said.
First Published May 18, 2012 12:00 am