* G8 seeking ways to soothe financial markets
* Pressure on German Chancellor Merkel
By Jeff Mason and Laura MacInnis
CAMP DAVID, Md., May 19 (Reuters) – U.S. President Barack
Obama pledged at a summit on Saturday to work with Europe on a
package that balances growth with debt reduction as world
leaders try to prevent the worsening euro zone crisis from
destabilizing the global economy.
At the wooded Camp David retreat in Maryland’s Catoctin
Mountains, Obama and leaders from other major economic powers
are seeking ways to soothe financial markets after worries about
Spain’s banking problems and the risk of a Greek exit from the
euro zone sent world stocks to their lowest levels this year.
A shirt-sleeved Obama opened the morning session on the
global economy at a rustic lodge, promising to seek ways to
restore healthy growth and jobs and address concerns in Europe.
“All of us are absolutely committed to making sure that both
growth and stability, and fiscal consolidation, are part of an
overall package in order to achieve the kind of prosperity for
our citizens we all are looking for,” Obama said.
After an early morning meeting with Obama, British Prime
Minister David Cameron said he detected a “growing sense of
urgency that action needs to be taken” on the euro zone crisis.
“Contingency plans need to be put in place and the
strengthening of banks, governance, firewalls – all of those
things need to take place very fast,” he told reporters.
European Union leaders seemed keen to stress on Friday that
they would stand firm in protecting their banks, after news of
escalating bad loans raised the specter that rescuing Spain’s
banks would crash the euro zone’s fourth largest economy.
“We will do whatever is needed to guarantee the financial
stability of the euro zone,” EU President Herman Van Rompuy
said.
Earlier French President Francois Hollande suggested using
European funds to inject capital into Spain’s banks, which would
mark a significant acceleration of EU rescue efforts.
Balancing a growth agenda with efforts to lower government
debt through fiscal belt tightening is a crucial part of the G8
discussions. Obama has aligned himself with Italy’s Prime
Minister Mario Monti and the new French president in putting
more emphasis on growth.
That places pressure on German Chancellor Angela Merkel, who
has pushed fiscal austerity as a the prime means of bringing
down huge debt levels that are burdening European economies.
Voters in euro zone countries have shown frustration with
that approach, ejecting the Greek government and in France the
conservative Nicolas Sarkozy was defeated by Hollande, a
socialist, in the May 6 elections.
A draft of the summit communiqu (c) shown to Reuters will
stress an “imperative to create growth and jobs.”
There are signs of softening in Germany’s austerity stance.
Its largest industrial union IG Metall struck its biggest
pay deal in 20 years early on Saturday. The 4.3-percent pay
increase, more than double Germany’s inflation rate, will boost
worker buying power in the euro zone’s richest nation and lift
consumption – something the United States long has urged as a
means to bolster overall growth throughout the world’s second
largest economic region.
GLOBAL SECURITY
Also on the summit agenda are concerns about oil and food
prices as well as Afghanistan, Iran, Syria and North Korea.
Speculation has grown that Obama will use an energy session
at the G8 to seek support to tap emergency oil reserves before a
European Union embargo of Iranian crude takes effect in July.
But with oil prices already sliding, a move by Obama to tap
the Strategic Petroleum Reserve – alone or along with other
countries – could expose him to criticism that the emergency
supply should only be touched in a supply crisis.
The Camp David summit kicked off four days of intensive
diplomacy that will test leaders’ ability to quell unease over
the threat of another financial meltdown as well as plans to
wind down the unpopular war in Afghanistan.
After the Camp David talks wrap up late on Saturday
afternoon, Obama will fly to his home town of Chicago where he
will host a two-day NATO meeting at which the Afghanistan war
will be the central topic.
