Obama calls for action to tackle European crisis

US PRESIDENT Barack Obama is to put pressure on Germany to ease the pain of austerity with policies to boost growth, as he uses two days of talks with the G8 industrial nations to warn Europe it needs to act swiftly to spare the world economy from a second deep recession in four years.

In advance of the G8 summit at Camp David this weekend, a warning from ratings agency Fitch that Greece’s days in the single currency could be numbered heightened fears in Washington that the worsening crisis in the eurozone poses a threat to America’s fragile recovery and Mr Obama’s re-election chances.

Mr Obama will welcome new French President Francois Hollande as a potential ally in his push for Europe to follow the US in giving a higher priority to expansionary policies, and as a counterweight to German Chancellor Angela Merkel.

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Mr Obama can expect support from British Prime Minister David Cameron, who told Dr Merkel and Mr Hollande on Thursday that eurozone leaders must embark on a series of urgent steps to prop up the single currency, to avoid a major implosion across Europe.

While Mr Obama is not anticipating any major decision to emerge from Camp David, it will be a chance for the Americans to vent their frustration that Europe has failed to find a solution to a debt crisis.

The two main figures in Greece’s fresh election are on a collision course, with one predicting ”hell” if Athens adheres to EU-mandated austerity and the other forecasting a ”nightmare” if the nation abandons reforms and gives up the euro.

Emboldened by yet another poll showing his party’s wide appeal, the leader of the left-wing Syriza party, Alexis Tsipras, said the international accord Greece had signed up to in return for rescue loans was catastrophic for the country. Instead of a rescue, the debt-stricken nation has been thrown into its worst recession since World War II.

”With this policy [bailout agreement] we are going directly to hell,” he said.

”To save Europe we need to change direction,” insisted the politician who has pledged to ”tear up” the €130 billion ”memorandum of understanding” that Athens reached with the EU and IMF earlier this year.

But Antonis Samaras, who heads the conservative New Democracy party, said that in the event of Greece reneging on the pledges it had made, the road ahead would be a ”nightmarish” one.

Reversion to the drachma would mean wages, deposits and property values all being ”cut in half”, and the price of imported commodities, such as food and fuel, rocketing, he predicted.

”This is the nightmare that those who speak of a unilateral condemnation [of the loan agreement] will bring,” he told his parliamentary group at its last meeting before the 300-seat house is dissolved and the election campaign officially announced.

Nervous investors weighed the possibility of political chaos and economic collapse in Greece having knock-on effects for the global economy. Spain was the main focus of concern amid reports – denied by its Economy Minister – of a run on Bankia, the country’s fourth biggest bank. Fitch waited for European markets to close before downgrading Greece’s credit rating from B- to CCC.

A wave of downgrades of Spain’s biggest banks was expected as ratings agency Moody’s downgraded four Spanish regions.

In Greece, there were hopes that the deposit outflows from banks had reduced. Critics say that if Syriza comes to power and overturns the loan deal, Greece will be forced to leave the eurozone and be condemned ever after to also-ran status.

But for many Greeks there is a profound and growing desire to try something – anything – new after two years of wage cuts and tax increases under a socialist government and then the unelected government of the technocratic prime minister Lucas Papademos.

”Even if it was just to release the pressure that had built for so long, the people wanted to express their anger and disappointment,” said Fotini Bombola at her craft store, Happy Cloud, in Athens. ”What they said was, ‘We’re not sheep for you to take to the slaughter.”’

Like many, she said she had voted for Syriza, but wanted Greece to stay in the eurozone.

Others said those goals were mutually exclusive. ”The true dilemma in the election is to stay in the eurozone or out,” said Haris Karamaneas, who works in the construction industry. ”It will be the moment of truth for a lot of people who voted with anger in the previous election.”