Greece should remain in the eurozone despite its financial woes, according to a communique issued by the G8 gathering at Camp David during the weekend. Talk of growth rather than austerity dominated the meeting, despite Germany’s reluctance to consider such a strategy. President Francois Hollande of France also planned to broach the subject of joint euro bonds at an informal European Union meeting later in the week.
Reuters reported Saturday that leaders of the G8 countries agreed after much discussion that not only should Greece be kept in the eurozone, but measures to stimulate growth should be pursued as a means of combating the euro zone’s financial crisis.
President Obama championed the idea of U.S.-style stimulus, over the reluctance of the German chancellor, Angela Merkel, to abandon her austerity stance. However, Merkel has been increasingly isolated in her devotion to the idea, with one election over another across Europe championing groups who have advocated for growth and against tough budget-cutting measures as one country after another falls into recession.
The Guardian reported that Merkel argued against any specific measures to resolve the crisis being included in the G8 communique, and at first had also advocated that the G8 not push for any detailed strategy at all, since she said it was not the G8’s business to tell eurozone countries how to resolve their problems.
However, the aides of David Cameron, the British prime minister, argued that it would look “distinctly odd” if no solutions were offered in the communique. After two hours of intense discussion, it was resolved that the communique would after all refer to the crisis; it said in part, “a strong and cohesive eurozone is important for global stability” and added that “Greece should remain in the eurozone.”
Hollande, for his part, brought up the topic of joint euro bonds at the G8 summit and also intends to present it at the informal EU meeting planned for May 23 in Brussels. Merkel has been stoutly opposed to such bonds, although she has said she is not opposed to the notion per se—just that such a concept cannot be implemented unless and until there is closer economic cohesion among eurozone nations.
Many economists and policymakers believe that such a measure could restore confidence in markets, and Hollande is expected to have the backing of a number of other officials when he approaches the matter. Prime Minister Mario Monti of Italy and Prime Minister Mariano Rajoy of Spain are expected to support the plan, as is the European Commission (EC), which conducted a feasibility study of the bonds late in 2011 until the proposal was cast aside under strong German opposition. The EC’s feasibility study said at the time that euro bonds could not be put off forever, considering the magnitude of the financial crisis. It advocated for a speedier adoption of the strategy. In part, the study said, “While common issuance has typically been regarded as a longer-term possibility, the more recent debate has focused on potential near-term benefits as a way to alleviate tension in the sovereign debt market.”
It added, “In this context, the introduction of Stability Bonds would not come at the end of a process of economic and fiscal convergence, but would come in parallel with further convergence and foster the establishment and implementation of the necessary framework for such convergence.”
“The euro bonds debate is back front and center and Hollande will have support from other leaders if he raises it,” one E.U. official was quoted saying, and added, “It’s not something that’s going to happen overnight—there’s a lot that needs to fall into place first—but there is a desire for a plan of action toward euro bonds.”
The Wednesday meeting’s focus will be on investment and growth. The European Council (EC) cresident, Herman Van Rompuy, is expected to push leaders to agree on specific actions that will boost growth and stimulate employment throughout the E.U.
Among proposals expected to be considered are an increase in the paid-in capital of the European Investment Bank and a discussion of project bonds that would be underwritten by the budget of the E.U. that would be used to finance infrastructure. The plan is to reach agreement on ideas that can be formally approved at the June 28-29 summit meeting.
Bloomberg reported that on Monday Finance Minister Wolfgang Schaeuble of Germany was scheduled to meet in Berlin with new Finance Minister Pierre Moscovici of France, preparatory to the E.U. meeting later in the week. The two were expected to work out a revised plan for the euro despite the lack of consensus from the G8 meeting over the weekend.
“We’re all very pleased that France wants to offer new initiatives with its newly elected president,” Schaeuble said in an interview with the Bild am Sonntag newspaper on Sunday. “The German government is ready to talk about anything.” However, Schaeuble dismissed the consideration of any measures that would increase debt.
Growth pushed over German reluctance; euro bonds to be discussed at EU meet