The Washington Post

World leaders agree on more spending to boost Europe’s economy

Leaders of the world’s wealthiest nations opened the door Saturday to more government spending in Europe as way to revive the continent’s struggling economy, shifting away from the idea that the surest way to recovery was through strict fiscal austerity.

Meeting at the Group of Eight summit at Camp David, President Obama and his fellow leaders said they were committed foremost to creating jobs and growth, a shift, at least in emphasis, from previous gatherings dominated by German efforts to reduce high government debt through drastic fiscal reform.

In a joint statement, the leaders of eight of world’s richest countries said they would promote investment in education and infrastructure, as they also sought to rein in government debt. Obama, who has pushed for additional fiscal stimulus in the United States, said the new agreement affirmed the course his administration pursued during the financial recession at home. He said the move toward economic stimulus bolstered Europe’s chances of surviving the crisis.

“The direction the debate has taken recently should give us confidence that Europe has taken significant steps to manage the crisis,” Obama said in a brief statement to reporters outside his wooden cabin nestled in the leafy presidential retreat in the Catoctin Mountains. “There is now an emerging consensus that more must be done to promote growth and job creation right now in the context these fiscal and structural reforms.”

After his remarks, Obama was set to hold a formal bilateral meeting with German Chancellor Angela Merkel, who has championed the austerity approach and argued that growth will return more predictably if governments reduce their debt and pursue policies to make their economies more efficient.

Merkel has found herself increasingly isolated as other European nations struggle with high unemployment and low prospects for recovery in the near term.

A popular political backlash has pushed Greece close to exiting the euro zone and elevated Socialist Party candidate Francois Hollande to the French presidency on the strength of a growth agenda.

Still, there was more than a nod to Merkel’s point of view in the joint statement. The Group of Eight pledged a “firm commitment to implement fiscal consolidation,” efforts to “combat financial stresses” and economic policy reforms that would increase efficiency.

But growth and jobs were cited as the “imperative” – a change from other summits where the same countries set strict timetables for cutting deficits. National debt and deficit targets, moreover, were to be analyzed on a “structural basis,” an important distinction that lets countries accumulate more government debt during bad economic times.

Obama administration officials were careful to emphasize that the other leaders did not gang up on Merkel during two days of meetings at Camp David. Obama, aides said, made sure to spend time informally with each leader, strolling with Merkel along paths and sitting with her on the porch outside the Laurel Lodge.

“There was a very good interaction between leaders, both European leaders among themselves and between each of them and the other leaders,” said Michael Froman, deputy national security adviser for international economics. “Nobody was put on the defensive, nobody felt offensive.”

Obama is presiding over two international summit this weekend as he seeks to avert potential crises that could distract his focus on the U.S. economy in an election year. On Saturday evening, he was scheduled to fly to Chicago for a two-day NATO summit that will focus on Afghanistan.

But the G-8 leaders also took on security challenges, presenting a unified front in ramping up pressure on Iran to abandon its nuclear weapons ambitions. Obama reiterated that Iran remained a “grave concern” for world leaders.

In their joint statement, the world leaders vowed not to back off their collective pressure on the Persian Gulf nation, even though they acknowledged that it could create “substantial risk” to global oil markets.

They vowed, if necessary, to call on the International Energy Agency, which coordinates release of the world’s oil reserves, in a statement aimed at calming the markets. The White House remains concerned that renewed spikes in gasoline prices, which have dipped in recent weeks, could pose a persistent election-year risk to president.

Iran’s “continuing violation of international rules and norms and inability thus far to convince the world community that it is not pursuing the weaponization of nuclear power is of grave concern to all of us,” Obama said before convening a breakfast discussion. “We’re hopeful we can resolve this issue in a peaceful fashion with respect to Iran that recognizes their sovereignty but also recognizes their responsibilities.”

The United States, along with Britain, France, Germany, Russia and China, are to meet with Iranian negotiators in Baghdad on Wednesday for the latest round of talks in an attempt to find a resolution. Those meetings come after U.S. negotiators proclaimed an initial set of talks in Istanbul in April “constructive and useful,” even though no specific agreement was reached.

The gathering of the G-8 leaders — minus Russian President Vladi­mir Putin, who sent Prime Minister Dmitry Medvedev in his place — was a chance for Obama to spend personal time with his counterparts, several of whom took power within the past year.

In the rustic wooded setting of the presidential retreat — where each leader was assigned an individual cabin — the leaders removed their ties and business suits for shirt sleeves and spring sweaters.

Obama spent time talking informally to each leader. He presented a chocolate birthday cake to Japanese Prime Minister Yoshihiko Noda, who turns 55 on Sunday. And Obama chatted up British Prime Minister David Cameron about the euro crisis as they worked out together on the treadmill, White House officials said.

Obama also watched, with Cameron and Merkel, the overtime shootout in the Champions League soccer final between Chelsea and Bayern Munich. When the Germans lost to the London club, there was some “playful trash talking, and sympathy for Chancellor Merkel, in many languages,” according to the White House.

Schneider reported from Washington.

David Nakamura covers the White House. He has previously covered sports, education and city government and reported from Afghanistan, Pakistan and Japan.

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