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Euro-zone crisis expected to dominate G8 discussion

A woman walks past a '1 Euro' shop in Athens in November, 2011. Pro-austerity parties in Greece failed to win enough support from voters to form a government this month, and neither did their anti-austerity opponents.

Louisa Gouliamaki/AFP/Getty Images/Louisa Gouliamaki/AFP/Getty Images

This weekend's Group of Eight summit is all about Europe.

Prime Minister Stephen Harper will talk about little else but the European debt crisis at Camp David, Md., where he joins U.S. President Barack Obama on Friday for two days of talks, along with counterparts from Japan, Germany, Britain, France, Italy and Russia.

Mr. Harper is bracing for "frank" exchanges with European leaders, who he and Finance Minister Jim Flaherty have long accused of doing the minimum to contain a problem that has plagued the global economy for more than two years.

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The Prime Minister will call on European leaders to "overwhelm" the crisis, and will seek assurances from German Chancellor Angela Merkel, French President François Hollande and Italian President Mario Monti that they have a plan should the crisis escalate, Harper spokesman Andrew MacDougall said.

"Canada wants to see the problems attacked aggressively," Mr. MacDougall said on Thursday.

There is reason to fear the debt crisis has shifted from chronic to acute. Voters in Europe are turning against the austerity programs meant to stem the crisis, sowing uncertainty that is wreaking havoc in financial markets. European stocks fell for a fourth consecutive day on Thursday, Moody's Investors Service lowered the debt ratings of 16 Spanish banks, and the European Central Bank has said it will no longer deal with some Greek lenders.

Mr. Hollande, who will be meeting most of his G8 counterparts for the first time, was elected two weeks ago on a promise to reverse some of the cost-cutting measures implemented by his predecessor, Nicolas Sarkozy. Pro-austerity parties in Greece failed to win enough support from voters to form a government this month, and neither did their anti-austerity opponents. That forced the Greek head of state to call a second election for June, which is widely seen as a referendum on whether Greece will continue using the euro as its currency.

The G8's days of fighting fires in the global economy were supposed to be over. Once the main forum for discussing economic issues, the G8 gave way to the Group of 20 in 2009, when it became clear that the established powers could do little to dictate the course of the global economy without the help of countries such as China and Brazil.

There was talk the G8 should fold its tent. But the group kept meeting, toning down expectations, while focusing on issues over which its members had more direct control, such as international security and poverty reduction.

But this weekend, the economy will dominate discussions as European leaders try to fix the escalating problems in their own backyard that threaten to spread to North America and other world markets.

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The G8 likely will stop short of agreeing to collective action on Europe. But the fact that the politicians at the centre of the turmoil have a place to gather with trusted allies should be seen as positive, said David Shorr, an expert on global governance at the Stanley Foundation, a think tank based in Muscatine, Iowa.

"It doesn't necessarily detract from the G20 for a group of countries, including a number of the leading euro-zone countries, to be talking about the challenges to economic growth," Mr. Shorr said. "Given the threat posed by the euro zone, it's probably a good thing for leaders to discuss the issue at every opportunity."

There are other storylines. Mr. Hollande, a Socialist, adds a new dynamic to a group dominated by right-of-centre politicians. Mr. Obama, who is expected to announce a $3-billion program to boost food production in Africa on Friday, would benefit from a successful summit to boost his re-election chances.

But there will be no escaping the gravity pull of the euro zone's existential crisis. Ms. Merkel, whose party suffered defeat in a recent regional vote, appears to be softening her insistence on austerity, while British Prime Minister David Cameron is openly warning of the euro zone's demise.

Mr. MacDougall said Mr. Harper welcomes the discussion, even it means throwing out the original agenda.

"The Prime Minister is of the opinion that this needs to be talked about now," he said. "It's good for leaders to have a frank discussion on a number of possible outcomes in the euro zone."

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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