May 18, 2012 / 7:15 AM / 6 years ago

WRAPUP 3-Obama presses Europe for shift to growth focus

* U.S. president sets tone for weekend G8 summit

* Germany’s Merkel could be alone stressing austerity

* France’s Hollande signals sticking to Afghan pullout vow

By Caren Bohan and Alister Bull

WASHINGTON, May 18 (Reuters) - U.S. President Barack Obama pressed Europe on Friday to shift toward a more pro-growth policy and away from austerity to tackle a crisis that threatens to push Greece out of the euro zone and send economic shockwaves worldwide.

Setting the tone for a weekend G8 summit, Obama made clear he was aligning himself with the new French president’s drive for more economic stimulus in the recession-plagued euro zone instead of emphasizing belt-tightening programs spearheaded by Germany.

Obama’s stance reflects his worries that the euro zone contagion, which threatens the future of the single currency, could hurt the fragile U.S. economic recovery and his own re-election chances in November.

After White House talks with French President Francois Hollande, Obama said the two agreed that tackling the euro-zone crisis was “an issue of extraordinary importance, not only to the people of Europe, but also to the world economy.”

“We’re looking forward to a fruitful discussion later this evening and tomorrow with the other G8 leaders about how we can manage a responsible approach to fiscal consolidation that is coupled with a strong growth agenda,” Obama told reporters.

German Chancellor Angela Merkel, who has insisted on the need for tough fiscal discipline to bring down suffocating debt levels across the euro zone, could find herself increasingly alone at the summit at Camp David in Maryland.

When G8 leaders gather at the presidential retreat starting with a working dinner on Friday, British Prime Minister David Cameron, who has been increasingly vocal in urging Europe to do more to resolve the debt crisis, will insist they must work together to stop it from spreading worldwide, an aide said.

No major economic policy decisions are expected from the talks but Obama will press for a comprehensive approach to resolving Europe’s debt troubles.

European shares hit their lowest level since December on Friday, depressed by the prospect that a Greek euro exit would spread turmoil in the currency bloc and engulf much larger economies such as Spain‘s.

While Obama and Hollande found some common ground on economics ahead of the summit, the meeting also showed differences over France’s commitment to the NATO military mission in Afghanistan.

Hollande, a socialist sworn in this week as French president, reminded Obama of his campaign pledge to pull French troops out of Afghanistan by the end of 2012, earlier than the alliance’s timetable. But Hollande said France would support the NATO effort in other ways.

Obama was expected to try to get Hollande to rethink the French withdrawal plan.


But the two leaders appeared more in sync on the euro zone crisis that is expected dominate the Group of Eight talks.

Meeting with Obama for the first time since his election victory earlier this month, Hollande said he spoke to Obama about the need to put a priority on growth. They discussed their shared concerns about Greece and the belief in the importance of keeping Greece in the euro zone, Hollande said.

Obama’s administration spent heavily to try to tackle the 2007-2009 U.S. recession, and Hollande is seeking to take the edge off austerity with more job-creating infrastructure investments.

He is not alone. Cameron has become increasingly vocal in demanding Europe’s leaders act more decisively. Canada’s Stephen Harper has been a frequent critic. Of the euro zone G8 members, Italian premier Mario Monti was calling for profound growth measures even before Hollande did.

That could leave Merkel, who insists debt-cutting programs cannot be diluted, cutting a lonely figure.

“Germany is absolutely quite isolated,” said Domenico Lombardi, a former International Monetary Fund official who now is a senior fellow at the Brookings Institution think tank.

The G8 summit comes as Greeks are pulling cash from banks amid growing fears that it might crash out of the single currency euro zone. Financial markets fear for the future of the entire currency zone, with Spain’s banking sector also under pressure.

Nearly two thirds of Greeks voted on May 6 for parties of the radical left and far right which oppose the austere terms of an EU/IMF assistance programme. Talks failed to avert a repeat election, which is now set for June 17.

Heather Conley, a senior fellow at the Center for Strategic and International Studies think tank, said Hollande and Obama “see things very similarly about the need for a better balance between fiscal consolidation, austerity and economic growth.”

One of Obama’s closest aides, National Security Adviser Tom Donilon, said the United States welcomes the evolving debate in Europe about the “imperative for jobs and growth,” but he said the president’s intention is not to drive a wedge between Europe’s two biggest economies, Germany and France.

“The president looks forward to leading a discussion among the leaders about the imperative of having a comprehensive approach to manage the crisis and get on a sustainable path towards recovery in Europe,” Donilon said.


Obama, a Democrat, has pitched a similarly “balanced” approach combining short-term stimulus and longer-term cuts to try to heal the U.S. economy and stoke hiring that has not recovered from the financial crisis.

Mitt Romney, the presumptive Republican nominee to face Obama in the Nov. 6 election, has made reducing the U.S. debt load, which has escalated during Obama’s tenure, one of his key campaign messages.

“A balanced approach that includes not just austerity but growth and job creation is the right approach,” White House spokesman Jay Carney said on Thursday, explaining Obama’s message to the G8.

Bruce Jones of the Brookings Institution said because Obama’s re-election prospects hinge so directly on the health of the American economy, he has a huge interest in getting Europe on a healthy growth track. “Even if he wasn’t in an election season, any president of the United States has a lot riding on the Europeans getting this right,” Jones said.

Cameron, worried about the impact of the euro zone crisis on a weak British economy, will call for a “strong and united commitment to securing the economic recovery and to support job creation,” his aide said.

Also on the summit agenda will be the price of oil and policy options to address it, although Brent crude hit a 2012 low on Friday.

Economic policy outcomes are not expected from the closed-door talks at Camp David, a rustic presidential escape about two hours from Washington that Obama has visited far less frequently than his predecessor George W. Bush.

The White House moved the summit to the Maryland retreat from Chicago in part to give the meeting a more informal flavor. Absent from the summit will be newly inaugurated Russian President Vladimir Putin, who is sending his prime minister, Dmitri Medvedev, in his place.

Hollande and Yoshihiko Noda of Japan are G8 first-timers, while Monti, Cameron, Harper, Merkel and Obama complete the line-up of leaders. European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy will also attend.

It will be the largest international summit ever held at Camp David, which was built in the 1930s and is best known as the site of past Middle East peace talks.

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