Saturday, May 19, 2012

Unwise Camp David G8 Communique

A Reuters article today by Jeff Mason and Laura MacInnis reported on the Camp David Group of Eight (G8) summit at Camp David.
  • The G8 agreed to keep Greece in the Euro zone
  • The group agreed to "combat financial turmoil" while "revitalizing a global economy"
  • Thew group favors mixing German-style austerity with (Euro government and bank) stimulation, though these two opposite approaches have unresolved differences. A fuzzy statement was issued which stated, "We commit to take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses, recognizing that the right measures are not the same for each of us,"
  • President Obama wanted a growth-oriented approach as the fragile U.S. recovery and his changes of re-election might be affected by an austerity approach. "Growth and jobs must be our top priority," he said. The push for a growth-oriented approach seems to have come particularly from the French. German chancellor Angela Merkel stated oxymoronically, "Solid finances and growth belong inseparably together and should not be put into contrast."
  • G8 leaders stated the oil markets would be monitored and that they stand ready to increase supplies if needed.
  • The communiqué at the close of the meeting was not aligned with the emphasis on austerity clearly championed by Merkel of Germany and British Prime Minister David Cameron as the proper path to prosperity for the European Union.
  • European leaders stressed that they would stand firm to protect the banks, the Reuters article noted.
  • Iran’s nuclear capacity, oil prices and Afghanistan were issues that were also raised at the G8 meeting at Camp David. NATO members of the meeting went on to Chicago for a NATO meeting that would address issues of that military alliance, including the on-going commitment to Afghanistan.
Summarized from:

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Notes from the Blog Author
The winner from this conference was Vladimir Putin and the Russian Republic. Putin didn’t attend this meeting, so he didn’t have to answer questions about guarantees of Russian natural gas or oil at steady prices to be paid in Euros. He didn’t have to clarify his government’s separate negotiations with Iran. He gave himself a free pass on these important issues through non-attendance.

The short-term political losers appear to be David Cameron of the UK and Angela Merkel of Germany. They realize that only austerity will staunch the blood of a bankrupt member, Greece, and significantly encourage thrift on the part of Spain and Italy. Now they know that isn’t going to happen.
The short-term political winners but long term flirtation with disaster has been engendered by France, Greece (though not present), Italy and Spain. They think they have been cut some slack. If they use that slack they will finish digging the graves of their own bankruptcy.

The United States may be a short-term and a long-term political and economic loser here. Failing to side with the common sense of the UK and Germany has been the ugly feat done by Obama with an eye to his own re-election. But if there are private treasury guarantees by Geithner (who was present) to the Euro member banks, that could prove money down a rat hole that will haunt Obama in the future.

Assumption by the blog author: there is no other answer, Greece must leave the Euro and re-establish the drachma or a new unstable local currency. It is too late for it to enjoy membership in the single currency. Even The Economist realizes this. Greece must be cut loose "pour encourager les autres," such as Italy, Spain, France and the irresponsible debt of the U.S. itself.

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