By Tony Czuczka -
May 21, 2012 6:57 AM GMT+0400
German Chancellor Angela Merkel agreed to shift the euro area’s debt-crisis response toward economic growth, avoiding a showdown with her partners as the U.S. prods Europe to stem more than two years of market turmoil.
German Chancellor Angela Merkel agreed to shift the euro area’s debt-crisis response toward economic growth, avoiding a showdown with her partners as the U.S. prods Europe to stem more than two years of market turmoil.
With French President Francois Hollande newly at the table
of Group of Eight leaders who met at Camp David outside
Washington, Merkel faced the broadest opposition yet to her
austerity-led policy for debt reduction and saving the euro. As
the G-8 agreed that Greece shouldn’t exit the currency union,
some German allies said even that challenge may pale if
governments across the continent don’t press ahead on quick-
acting programs that offer voters jobs and growth.
“Whatever is achieved on Greece in this very difficult
situation will not really allow Europe and the euro zone to
breathe unless a more substantive agenda of growth is decided
upon in Europe to accompany fiscal consolidation,” Italian
Prime Minister Mario Monti said in a CNN interview on May 20.
The euro has lost 3.5 percent against the U.S. dollar this
month and almost $4 trillion has been wiped from equity markets
amid speculation Greece may become the first country to leave
the euro area.
No crisis solution can work without Merkel, who heads
Europe’s largest economy and contributes the most of any country
to the European Union’s financial backstops and bailouts for
Greece, Ireland and Portugal. In less than 24 hours of talks and
huddles at the U.S. presidential retreat in rural Maryland that
ended May 19, she also faced pressure from President Barack Obama, who met her one-on-one after the summit.
Germany’s Role
Obama underscored “just how much leadership Germany plays
within the euro zone,” U.S. Deputy National Security Adviser
Ben Rhodes told reporters. Even so, “you can have the pact that
Chancellor Merkel showed so much leadership in getting around
fiscal reforms within the euro zone, while also pursuing steps
to promote growth at the same time.”
Merkel says the 17 euro nations can’t spend their way out
of the crisis and didn’t budge on that stance at Camp David. As
policy makers head into another round of crisis diplomacy
culminating with an EU summit on June 28 and 29, Germany has
signaled it may agree to using unspent EU aid money, increasing
the capital of the European Investment Bank and jointly
guaranteeing “project bonds” to spur growth.
“It was very clear that, without solid finances, we will
again have a great deal of uncertainty in the euro area,”
Merkel said in her summary of the summit discussions. That means
that growth and debt reduction “go hand in hand.”
Future Conflicts
Merkel spearheaded the fiscal pact signed by all 27 EU
countries except the U.K. and Czech Republic in March, which
commits governments to reducing debt and deficits.
More conflict may lie ahead. Hollande told reporters at
Camp David he will propose “euro bonds” when EU leaders meet
to discuss growth measures in Brussels on May 23. Merkel has
rejected joint euro-area debt issuance, saying that eliminating
the gaps in bond yields would remove the incentive for weaker
countries to overhaul their economies. U.K. Prime Minister David Cameron, whose country isn’t in the currency union, urged
Hollande to back joint debt when they met in Washington before
the G-8 summit.
Monti, whom Merkel praised for spurring change in the
Italian economy when he visited Berlin in January, told
reporters “the most significant result of the G-8 and the most
encouraging one for Italy” is that leaders agreed to “speed up
and intensify action for growth at the European level,”
according to a transcript on the prime minister’s website.
Challenges at Home
Merkel is also busy trying to swat away challenges at home.
She came to the annual G-8 talks three days after hosting
Hollande on his first visit to Berlin as president and fresh
from two state election defeats for her Christian Democratic
Union that spurred opposition criticism of her austerity policy.
“I see Angela Merkel as increasingly isolated,” Thomas
Oppermann, the chief whip of the opposition Social Democrats,
said in an e-mailed statement.
Things also didn’t go Merkel’s way in the European
Champions League soccer final on May 19, which Germany’s Bayern
Munich lost to U.K. club Chelsea in a penalty shootout. A Bayern
fan, Merkel kept track of the game and settled down in a viewing
room with Obama and Cameron for the shootout.
“And the president was able to offer his sympathy to
Chancellor Merkel when that concluded, as did Prime Minister
Cameron,” Rhodes said.
To contact the reporter on this story:
Tony Czuczka in Berlin at
aczuczka@bloomberg.net
To contact the editor responsible for this story:
James Hertling at
jhertling@bloomberg.net
