G8 growth team win in austerity v stimulus debate

 

“OUR IMPERATIVE is to promote growth and jobs,” began the final statement by the leaders of eight of the world’s richest countries at the G8 summit at Camp David.

The declaration, at the culmination of a tense, two-day meeting, during which the German chancellor Angela Merkel came under pressure from her US and European colleagues, marked a turning point in the two-year austerity-versus-stimulus debate. It opens the possibility of increased government spending to propel European economies out of crisis.

“There’s now an emerging consensus that more must be done to promote growth and job creation right now,” President Barack Obama said in closing remarks.

The declaration contained repeated concessions to Dr Merkel’s views but, in every instance, references to fiscal consolidation, fiscal responsibility and the need for Greece to respect its commitments followed calls to generate growth, boost confidence and nurture recovery.

The presence of French president François Hollande, who was elected on a growth agenda, was a significant factor. On Friday Mr Hollande and Mr Obama confirmed their pro-growth alliance at the White House. At the previous G8, in Cannes last November, then president Nicolas Sarkozy sided with Dr Merkel in imposing more austerity on Italy.

The leaders of Britain, the US, France, Germany, Italy, Canada, Japan and Russia gave no detailed suggestions, but their communiqué said productivity and growth could be increased through “structural reforms and investments in education and in modern infrastructure”.

It also advocated “support for small businesses and public-private partnerships”.

Mr Obama said the crisis in Europe threatens the US recovery because Europe is the US’s largest trading partner.

In contrast to Republicans, who demand immediate cutbacks, the Obama administration has consistently argued for debt reduction over the medium term. Mr Obama advised the Europeans to adopt policies more like his: “We discussed ways [Europe] can promote growth and job creation while still carrying out reforms necessary to stabilise and strengthen their economies for the future”.

The president seemed to lecture his European counterparts. Citing “our own experience here”, he said he had taken “decisive steps to confront our own financial crisis” from his first days in office, including stress tests for banks, recapitalisation of banks and financial reforms.

The US economy had shrunk by nearly 9 per cent the quarter before he took office, Mr Obama said. “America’s economy has now grown for almost three consecutive years. Our businesses have created more than four million jobs over the past 26 months. Exports have surged and manufacturers are investing in America again.”

Mr Obama said “Europe’s situation . . . is more complicated” because of the Greek crisis, slow growth and very high unemployment in several countries. It was also difficult for the 17 euro zone countries to reach agreement.

“We recognise and respect that,” he said. “But the direction the debate has taken recently should give us confidence.”

The US president spent time alone with each of his seven guests, walking Dr Merkel on the paths of the mountain retreat.

The leaders also watched part of the Champions League match between Chelsea and Bayern Munich.

US officials hope Dr Merkel’s experience at Camp David will make her more inclined to compromise at the European summit in Brussels on Wednesday.