Obama backs Europe growth push

Andrew Beatty
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US President Barack Obama (R) and French President Francois Hollande smile during a bilateral meeting in the Oval Office

US President Barack Obama (R) and French President Francois Hollande smile during a bilateral meeting in the Oval Office. The two mean firmly agreed on the need for strong pro-growth policies to loosen an austerity straitjacket, ahead of a G8 summit darkened by the eurozone crisis

President Barack Obama threw his weight behind France's demand for pro-growth policies in Europe Friday, as world leaders gathered at Camp David for a G8 summit darkened by Greece's possible eurozone exit.

Forging an alliance that could help upend two years of austerity-focused policies championed by Germany, Obama and French President Francois Hollande at a White House meeting rallied around the need to kick-start growth.

Fearing Europe's roiling crisis could dent the US economy and with it his chances of re-election, Obama risked a confrontation with German Chancellor Angela Merkel, a G8 ally who has demanded austerity come first.

Obama stressed that events in Europe held "extraordinary" importance for the United States, which unlike the eurozone is growing, albeit slowly.

He said that the G8 summit, which he will convene at his Camp David retreat later Friday, would discuss "a responsible approach to fiscal consolidation that is coupled with a strong growth agenda."

Meanwhile, Hollande said growth must be the priority, maintaining his stance that austerity measures alone would be insufficient to reverse the crisis in Europe.

In an attempt to smooth over the split within the G8, other European leaders stressed that austerity and stimulus are not 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.

The recent clobbering of Greek parties that back austerity measures under the country's 173-billion-euro ($220 billion) bailout has sparked a fresh round of market panic and left the two-year-old effort to prevent a Greek default on life support.

Fresh Greek polls are scheduled for June 17, but there is no certainty that supporters of the painful reforms will win, and already nervous Greeks have been pulling money from bank accounts.

If anti-austerity parties win, the markets are already betting that the rest of Europe turns off the bailout spigot, a decision that would force a Greek default and would likely spell an exit from the eurozone.

So far, European leaders are insisting that Greece must meet its commitments, a stance that will likely be held until the elections. But a row is brewing over whether Greece's bailout package needs to be revisited.

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

Diplomats say new initiatives are unlikely to come from the 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.

Commission president Barroso said there was growing consensus around the idea of investments funded by common European bonds -- a measure he said would satisfy the need for austerity and stimulus.

"We need to compliment the fiscal consolidation efforts for reforms with investment," he told AFP on the margins of the summit.

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

On Friday night, discussions around the dinner table at Obama's Laurel Lodge will focus on Iran's nuclear challenge ahead of talks between global powers and the Islamic Republic in Baghdad later this month.

The leaders are also expected to address Syria's crackdown on its anti-government uprising, fears that North Korea will launch a new nuclear test and Myanmar, after Obama eased US investment restrictions Thursday on the country formerly known as Burma.

Diplomats said there would also be an agreement on how to help newly free Arab nations recover state assets moved abroad by members of previous regimes.

The G8 club of developed nations includes the United States, Britain, Canada, France, Germany, Italy, Japan and Russia.