G-8 leaders put focus on European financial crisis

CAMP DAVID, Md. (AP) ? Leaders of the world's economic powers say Germany should balance its push for European fiscal austerity with doses of stimulus spending to avoid a financial calamity with global repercussions.

The Group of Eight leaders, meeting over the weekend at the Camp David presidential retreat, are trying to figure out how to tame Europe's debt crisis while also increasing the demand for goods and spurring job growth.

In talks Saturday, President Barack Obama and leaders of Germany, France, Canada, Italy, Britain, Russia, and Japan were looking to build consensus even though a decisive plan of action seemed out of reach right now.

The G-8 session sets the stage for a far more consequential European summit next week where the countries that share the euro as their currency hope to come together on specific steps to fight rising debt while spurring a recovery.

Obama established the tone for the G-8 on Friday after meeting with just-elected French President Francois Hollande, when he said the aim of the summit was to promote both fiscal consolidation and a "strong growth agenda."

The two leaders, Obama said "agree that this is an issue of extraordinary importance not only to the people of Europe but also to the world economy."

In a hint of the pressures facing the leaders, Obama greeted German Chancellor Angela Merkel at Camp David and asked her how she was. Merkel, facing resistance over her austerity push, shrugged.

"Well, you have a few things on your mind," Obama said.

A central economic topic, though hardly the only one confronting Europe, is the fate of Greece. That country is facing the most acute financial crisis of the eurozone and is set to hold elections June 17 to end political deadlock. At issue is whether Greece abandons the euro to escape austerity measures.

Hollande, after meeting with Obama at the White House, said, "We share the same views, the fact that Greece must stay in the eurozone and that all of us must do what we can to that effect."

Also on the agenda is energy as the world looks to the oil markets in advance of fresh penalties set to take effect on Iranian oil exports. While oil prices have been falling, major oil importing countries, including the U.S., are keeping a wary eye on prices and keeping open the possibility of tapping their own oil reserves.

For Obama, Europe's fate is critical to his own political survival. An economic recession that spreads to the U.S. could damage an already slow recovery and boost the argument by his Republican challenger, Mitt Romney, that the United States economy needs new leadership.

There is a get-acquainted aspect to the session as well.

The Camp David gathering, the largest collection of foreign leaders ever at the presidential retreat, is the first G-8 meeting for Hollande, for Italian Prime Minister Mario Monti and for Japanese Prime Minister Yoshihiko Noda. In what has been widely viewed as a snub, Russian President Vladimir Putin is skipping the G-8. He sent Prime Minister Dmitry Medvedev in his place.

The meeting comes at a turning point in Europe.

Elections in France and Greece have signaled defiance toward the fiscal austerity measures that Merkel has pushed for the most indebted eurozone countries. European countries are straining under high borrowing rates. The drastic cuts in spending and government layoffs were designed to address massive national debts but they have also caused short-term economic distress and joblessness.

On Friday, Spain's central bank announced that the level of bad loans on the books of Spanish banks was at an 18-year high. That added to concerns about the financial sector in the eurozone's fourth-largest economy.

The emphasis on economic growth has been welcomed by Obama, who has argued that the stimulus steps he took in 2009 put the U.S. on the road to recovery.

"Europe is still in a difficult state," Obama told donors in Seattle last week, "partly because they didn't take some of the decisive steps that we took early on in this recession."

To what degree the Europeans, and Merkel in particular, agree remains to be seen.

"With Hollande coming into play here, there is going to be a lot of pressure on Germany, not just from Hollande and Obama, but also some of the other countries ? Italy and UK ? some pressure for Germany to push more toward growth within Europe because they have to get them on board," said Jeffrey Bergstrand, a former federal reserve economist and now an expert on international finance at the University of Notre Dame.

U.S. officials have been encouraged by recent discussions in Europe to ease up some belt-tightening so that spending cuts aren't as deep or as swift and to increase spending on public works projects like roads and schools in weaker parts of Europe. They also point to Germany's recent decision to negotiate higher public sector wages, a move they say could have a positive ripple effect on demand.

Merkel herself has made conciliatory gestures, saying in a television interview this week that she was open to helping stimulate the Greek economy provided Greece honored pledges to shrink its debt.

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