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Europe's Fate, and Obama's, May Ride on G8

Europe's Fate, and Obama's, May Ride on G8

By Alexis Simendinger - May 18, 2012


President Obama has a weekend challenge ahead of him: Can he persuade European leaders gathered in the Maryland woods outside Washington, D.C., to adopt the U.S. fiscal example of short-term bailouts, government stimulus and long-range plans for belt-tightening in order to promote growth and stave off a fiscal meltdown in the Eurozone?

Obama's re-election chances, pinned to his promises of a rosier U.S. economy and more jobs here, could ride on what his peers in Europe decide to do.

U.S. economists have said continued writhing in Europe over a solution to the debt crisis, and even Greece’s withdrawal from the 17-country union, might not seriously impair the American economy. But a severe contraction in trade with the United States, a destabilization of the financial sector, and a breakup of the zone would almost assuredly toss this country back into recession, according to some experts.

Treasury Secretary Tim Geithner said this week that a more conciliatory tone emerging from Europe was encouraging. "You are seeing them talk about a better balance between growth and austerity, meaning a somewhat more gradual, softer path toward restoring fiscal sustainability," he said.

Beyond jawboning this weekend at the summit of the Group of Eight industrialized nations, hosted by the United States at Camp David, there is little Obama has the power to command in countries that make up America’s largest trading partner.

Europe’s glacial responses to debt problems have prompted demonstrations and public unrest, and compelled Greeks to pull cash out of the banks for fear their country might withdraw from the single currency and return to the drachma.

The months of turmoil have frustrated members of the Obama team, who have watched Europe’s fiscal struggles and worried that repairs may come too late.

“The United States has an extraordinarily significant stake in the outcome of the economic discussions in Europe and the steps that are taken in Europe,” National Security Adviser Tom Donilon said Thursday at a White House briefing. “Obviously, this comes at a very delicate time with respect to the . . . Eurozone economy.”

Obama will meet Friday morning at the White House for the first time with newly elected French President Francois Hollande, France’s first Socialist leader in 17 years. During his campaign to defeat predecessor Nicolas Sarkozy -- who backed austerity and proved to be an ally of Obama’s on a host of issues -- Hollande pledged to re-examine Germany’s austerity proposals in order to focus more on growth, but he also promised doubters that he would not veer toward excessive new spending.

German Chancellor Angela Merkel has backed tight budget and spending controls as the cure for what ails Europe. But after a video conference call Thursday among the leaders of Germany, Italy, Britain and France in advance of the G8 summit, Merkel’s spokesman released a statement saying the leaders have “a high level of agreement” that fiscal austerity and growth are required.

The leaders concurred that “fiscal consolidation and growth are not contradictions, but rather both are necessary,” the spokesman said.

During the conference call, British Prime Minister David Cameron warned his peers that Eurozone leaders needed to take “decisive action” to stabilize the situation, and he reiterated that he would do "whatever it takes to keep Britain safe from the storm," according to news reports. Cameron emphasized that if the Eurozone collapses, his nation will feel the pain.

The differing approaches outlined by Hollande and Merkel, who represent the two largest economies in Europe, have been dissected abroad since the two met in Berlin this week following Hollande’s election. The pair vowed to find a joint approach to address Europe’s recessionary woes before a European Union meeting next month.

On Friday afternoon, Obama and Hollande will travel to Camp David to join the leaders of the United Kingdom, Canada, Japan, Italy, Germany and Russia over dinner. Although President Vladimir Putin was to attend, he sent Prime Minister Dmitry Medvedev instead. Obama and Putin will meet at a larger G20 summit June 18-19 in Mexico.

After the G8 gathering, the leaders will fly to Chicago for a meeting of NATO devoted primarily to the war in Afghanistan and that country’s long-term economic requirements beyond the planned conclusion of combat operations in 2014.

Hollande campaigned to defeat Sarkozy while pledging to withdraw more than 3,000 French troops from Afghanistan by the end of the year, a promise U.S. officials sounded willing to abide if France’s exit can be painted as “within the framework” of the “overall alliance approach.”

“We will have a discussion with the French,” Donilon said. 

Alexis Simendinger covers the White House for RealClearPolitics. She can be reached at asimendinger@realclearpolitics.com. Follow her on Twitter @ASimendinger.

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