Euro crisis hands G8 another chance to save the world

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The fading G8 has a chance to reach into its past and try to save the world again – this time from a euro crisis coming to a head in Greece – with informal talks among a small group of leaders about fixing the global economy.

The G8 leaders don't have the global economic muscle they once commanded. But this week's gathering at Camp David will test the value of their summits by showing whether the clubby group of leaders can exert enough peer pressure on each other to persuade leaders to bend their politics to save their collective skin.

It isn't just the same preaching about Europe getting its act together. Greece will hold new elections and could reject the austerity plans on which its bailout depends. At Camp David, Stephen Harper will push Europeans for a contingency plan to stem contagion if Greece just says no and exits the euro, a government source said. "He wants them to put together a Plan B."

Sure, the G8, in theory, doesn't do economics any more; the bigger G20 does. But this summit comes as Greece is sending the world into another round of nervy speculation about a new financial crisis. Economics is back on the G8 agenda.

When the summit opens Friday, it will be a world debut for new French President François Hollande, who has questioned the European austerity agenda. Another G8 newbie is Mario Monti, the technocrat Italian Prime Minister appointed when his country stopped believing elected politicians could steer through the crisis. German Chancellor Angela Merkel is being told she holds the future of the European ideal in her hands. All the G8 leaders are worried about the house burning down.

At a critical time, this is an opportunity for key European leaders to speak frankly with major non-European leaders.

It will be a retro summit, harking back to the days when the small club of leaders could meet for closed-door talks with a real chance of steering the global economy. The early summits began in 1975 as the G6 (Canada joined a year later, Russia in 1997) at a French château in Rambouillet, where leaders of the United States, West Germany, France, Britain, Japan and Italy met for relatively informal conversations about fixing problems and imbalances in the slow global economy. Then the G8 grew into a big institution, dealing with everything from food aid to nuclear security. Eventually, its economic mandate was superseded by the bigger G20 and it was relegated to security and development issues.

Now fireside chats could be useful again. The euro zone crisis, after all, has always been a political crisis as much as financial. Europe created a common currency, but not a common institution to bail out a failing member. Austerity is unpopular in shaky countries like Greece, but bailing out countries that won't take harsh medicine is unpalatable in richer ones like Germany.

That's why Mr. Hollande and Ms. Merkel can expect to have their arms twisted until they almost snap. Facing a crisis that needs a response, European leaders "have been locked in a struggle over the terms," said C. Randall Henning, visiting fellow at Washington's Peterson Institute of International Economics. At the G8, they meet non-European leaders in a group small enough for candid, confidential talks; that could be the stage to break through some of that impasse.

Much has been made of Mr. Hollande's growth platform and the suggestion that he will undo an austerity pact that Ms. Merkel demanded for backing European bailouts. But Mr. Henning said that can be settled by an agreement to add a growth plan, like investments in infrastructure.

Ms. Merkel faces the most pressure because of concern that Greece's exit – or even potential exit – from the euro could lead to a next default in say, Spain, and the eventual unravelling of the euro. Germany has the most resources but has been reluctant to take the politically unpopular step of pouring big money into mechanisms to backstop the shakier finances of European neighbours. Countries like Canada – which have pushed Europe for massive financial "firewall" packages to convince markets there will not be a series of defaults – will press her to move fast toward a shared European solution for weak banks.

The United States and Canada have refused to contribute loans for an IMF bailout. However, they could at least allow the IMF to borrow money that others like Japan have contributed to a standby bailout fund, Mr. Henning said. Finance Minister Jim Flaherty has argued Europe should sort out its own mess, but that concession would give non-Europeans clout, Mr. Henning argues.

And if the G8 won't really save the world, it has one more chance to be the place where leaders can cut through the fog and start political compromises to protect the global economy.

Campbell Clark writes about foreign affairs from Ottawa