G8 shows support for Eurozone as Osborne warns of risks

LONDON (ShareCast) - As expected, the Group of Eight (G8) world leaders this weekend spent a great deal of time focusing on efforts to promote global economic growth and particularly on the Eurozone sovereign debt crisis while showing their support for Greece remaining in the single currency. Within the first lines of the joint communiqué they stated their pledge to "promote growth and jobs" referring to that action as "our imperative". These global leaders promised to "take all necessary steps to strengthen and reinvigorate our economies and combat financial stresses." Yet in a clear recognition of the disagreement over whether to prioritise austerity or growth policies, they said that "the right measures are not the same for each of us." The overall stance presented in the joint statement highlights the need for a combination of both fiscal responsibility and methods for generating growth with a particular focus on the European debt crisis. UK Prime Minister David Cameron left no doubts on the issue as he stated that "growth and austerity aren't alternatives." Along the same lines, German chancellor Angela Merkel also insisted that the two concepts must go hand in hand. "Solid finances and growth belong inseparably together and should not be put into contrast," she said. Fears are riding high that the problems in the 17-country single-currency bloc will end up spilling over to the world economy and thus the G8 was quick to show its commitment to the euro area: "We agree on the importance of a strong and cohesive Eurozone for global stability and recovery, and we affirm our interest in Greece remaining in the Eurozone while respecting its commitments. We all have an interest in the success of specific measures to strengthen the resilience of the Eurozone and growth in Europe (Chicago Options: ^REURUSD - news) ," they said. UK Chancellor of the Exchequer George Osborne warned over the weekend that Britain faces "enormous risks" from the chaos in the Eurozone. "We need the Eurozone to solve its problems...The alternative scenario carries enormous risks for everybody," he said. The damaging effects on the UK are clear as risk analysts warn that a Greek exit from the single currency would wipe another 10% off the value of British banks. At the same time, recovery among manufacturers could be strangled by the crisis. With funds pouring into London, sterling is being pushed up to levels that could make exports more expensive, hitting trade and threatening jobs. Sir Mervyn King, Governor of the Bank of England, last week refused to rule out intervention in foreign exchange markets to try to cap the value of the pound, which has risen by 4% since February. JM