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Eurozone Crisis Looms Over G8 Summit

  • Richard Solash

The crisis in the eurozone is expected to cast a shadow over this week's G8 summit.

The crisis in the eurozone is expected to cast a shadow over this week's G8 summit.

WASHINGTON -- Leaders of the world's top economies are gathering in the northeastern United States for a two-day Group of Eight (G8) summit set to be dominated by the deepening crisis in the eurozone.

The peacefulness of Camp David, the U.S. presidential hideaway serving as this year's venue, contrasts with the panic that the crisis threatens to unleash, with Greece teetering on the brink and world economies bracing for the worst.

On May 17, British Prime Minister David Cameron warned of the potential danger ahead. "The eurozone is at a crossroads," he said. "It either has to make up or it is looking at a potential break-up.

"Either Europe has a committed, stable, successful eurozone with an effective firewall, well-capitalized and regulated banks, a system of fiscal burden-sharing, and supported monetary policy across the eurozone, or we are in uncharted territory which carries huge risks for everybody."

Asian and European stock markets mostly fell on May 18, and the euro hit another four-month low against the U.S. dollar, amid fears of global turmoil linked to the Greek debt crisis and problems in Spanish banks.

The market declines came after 16 Spanish banks were downgraded by Moody's ratings agency, and the Fitch agency again cut its debt rating for Greece -- intensifying concerns that Greece may be forced to abandon the euro.

Conspicuous Absence

U.S. President Barack Obama will host Cameron, as well as the leaders of Canada, France, Germany, Italy, and Japan.

In the conspicuous absence of Russian President Vladimir Putin, the second in command in Moscow, Prime Minister Dmitry Medvedev, will also be present. European Union leaders and representatives from several international organizations will be there as well.

U.S. officials have voiced concern that Europe's debt crisis could imperil the fragile U.S. recovery, and Canada and Japan are sure to stress to the Europeans at the summit that they, too, worry about global ramifications of what's taking place.

Indeed, the situation has continued to unravel in recent days. Greeks have withdrawn some 3 billion euros ($3.8 billion) from banks since inconclusive elections on May 6.

With antiausterity parties gaining support, analysts warn that if the new government emerging from a revote next month opposes the terms of Athens' international bailout, an exit from the eurozone could follow.

The result could be catastrophic, undermining investor confidence in struggling Italy and Spain, where borrowing costs are already skyrocketing.

From there, the effect could spread globally, and European officials have already spoken of "contingency" planning.

Any progress, then, at Camp David, can't come too soon.

G8 Debut For Monti, Hollande

Obama's pro-growth approach to tackling financial trouble will receive a boost with the G8 debut of Italian Prime Minister Mario Monti and new French President Francois Hollande.

The White House said Obama and Monti "agreed on the need to intensify efforts to promote growth" in a May 15 telephone call.

Immediately before the summit, Obama is due to meet with Hollande, who has vowed to temper the austerity push that contributed to the defeat of his predecessor, Nicolas Sarkozy.

German Chancellor Angela Merkel will be pressed to show greater flexibility on the pace and means by which eurozone members tackle their massive debts, according to Uri Dadush, the former director of economic policy at the World Bank.

"I expect that some more pressure will be put on Mrs. Merkel, particularly with regard to having a more expansionary [monetary] policy and, also, allowing the European Central Bank more leeway with regard to its own expansionary policies," he says. "But I should also say everybody in the meeting will be aware of the fact that Germany can only do so much."

Obama will also discuss with European leaders potential responses to pressure on oil markets, including, perhaps, the release of strategic oil reserves, before new sanctions against Iran's petroleum sector take effect this summer.

Newly elected Russian President Vladimir Putin has raised eyebrows by deciding to sit out this year's G8 summit.

Newly elected Russian President Vladimir Putin has raised eyebrows by deciding to sit out this year's G8 summit.

The appearance of new faces at the G8 this year comes alongside the notable absence of an old one -- reminted Russian President Vladimir Putin, who says he is busy with government-formation in Moscow.

Many observers say the move is an unmistakable snub, amid continued tensions with the West over missile defense and human rights.

James Collins, at the Carnegie Endowment for International Peace in Washington, was U.S. ambassador to Russia from 1997 to 2001. He takes Putin at his word on missing the summit, but believes the absence will be felt at a gathering where furthering personal relationships is a central goal.

"His sending Medvedev, I suppose, is a signal that he wants to be a participant there, even if indirectly," he says. "On the other hand, his absence will mean that this particular G8 meeting is missing the new serious player on the block, where people, I think, would have been most interested in having his views expressed."

Middle East, Democratic Transitions

Other analysts suggest that Putin may have also decided to duck discussion of additional steps to be taken regarding Iran and especially Moscow ally Syria.

G8 leaders are expected to compare notes on the Middle East and reaffirm their support for democratic transitions. Russia's seat in the G8 will mean that no condemnation of Syrian President Bashar al-Assad is expected in the final communique.

On the development front, this year's summit will focus on food security, with an eye toward Africa.

Obama has invited the leaders of Benin, Ethiopia, Ghana, and Tanzania to Camp David, where the G8 will revisit 2009 pledges on agricultural development, many of which remain unfulfilled.

Climate change, nuclear nonproliferation, and North Korea will also be subjects of discussion.

Afghanistan will take center stage at the NATO summit in Chicago, which begins on May 20, directly after the G8 concludes.

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