ENNISKILLEN, Northern Ireland – Europe is mired in debt and recession. Financial markets have hit violent ups and downs on fears that U.S. stimulus efforts may soon be scaled back. Japan is finally looking up after years of stagnation — but it remains an open question if the recovery will stick.
That’s the global economy that will confront the heads of the Group of Eight leading economies as they gather Monday and Tuesday for their annual summit in Northern Ireland.
British Prime Minister David Cameron will serve as summit host for U.S. President Barack Obama and the leaders of Germany, Italy, Canada, France, Japan and Russia. At the top of the agenda: New co-operation to fight tax evasion and increase transparency among governments. Also on the table will be how much help to give to rebels in Syria, and a push for lower trade barriers between the United States and the European Union.
On the sidelines and over dinner, it’s expected that the discussions will broaden to include the election results in Iran and data protection, following revelations about a U.S. counterterror surveillance program.
As always, the summit takes place under heavy security, guarded by 8,000 police backed by water cannon. The venue itself is surrounded by extensive security fences, and on three sides by water. There’s only one access road to the closest town, Enniskillen, some 5 miles (8 kilometres) away.
While its peace process has been hailed worldwide as a success story, Northern Ireland remains a society troubled by deep-seated divisions between Catholics and Protestants. Officials have said trouble away from the summit site can’t be ruled out. Additionally, thousands of anti-capitalist and labour union protesters are expected to march from the town to the summit fence on Monday.
Since last year’s G-8 meeting at Camp David in the U.S., there has been a modest economic upswing throughout the developed world and prospects are brighter after five years of turbulence and recession. Yet despite progress, the economic outlook remains fraught with uncertainties.
Chief among the question marks: When will the U.S. Federal Reserve begin to curtail its extraordinary stimulus, which has supported the recovery in the U. S. and helped send markets around the world to new peaks? Global stock and bond markets have whipsawed since May 23, when U.S. Fed Chairman Ben Bernanke said that the U.S. central bank might slow its drive to keep long-term borrowing costs low in the coming few months.
Here is a quick picture of where the G-8 countries’ economies stand:
UNITED STATES: If Europe is the weak link and Asia the strongest, then the U.S. and Canadian economies are squarely in the middle. The two countries are experiencing steady, if not spectacular, economic growth and job gains.
In the U.S., the once-battered housing sector has been recovering for the past year. Home sales have reached three-year highs. And prices have jumped this spring by the most in seven years. That has encouraged builders to start work on more homes.
The unemployment rate has fallen to 7.6 per cent from 8.2 per cent a year earlier.
For all the G-8 participants, the most unsettling shift is the possible end of massive monetary stimulus from the Fed — a factor beyond their immediate control. The Fed’s injections of money into the economy through bond purchases — known as quantitative easing — had helped send markets soaring.
Now it’s not clear which way markets will head.
At previous summits, Obama has pushed European leaders to focus more on growth, rather than austerity. But most European governments have already begun to make that shift.
So Obama is likely to focus on other global concerns, such as the violence in Syria.
JAPAN/ASIA: For once, the bad news for Asia is not coming from Japan. The world’s third-largest economy grew at a 4.1 per cent annual rate in the first three months of the year.
Prime Minister Shinzo Abe has promised to explain to fellow G-8 leaders his strategies for fostering long-term growth. Over the past few months, the yen has dropped from about 80 yen to the dollar in October to about 94 yen now — as the Abe administration tried to bring an end to the country’s two-decade stagnation.
Japan’s central bank has been pumping money into the economy in the hope of stoking inflation — the country has suffered from falling prices for much of the past 20 years, which has halted growth. One consequence of the new inflationary approach has been the sharp fall in the value of the yen against other countries’ currencies. This has made Japanese goods cheaper to the rest of the world, which has boosted exports.
But the lower yen has provoked concern among German officials. Their exporters compete head to head with Japan’s in major markets. Abe is scheduled to meet separately with German Chancellor Angela Merkel.
Abe is likely eager to do some explaining after financial markets see-sawed since he presented his initial, broad-brush reform plans last week. Worries about the effectiveness of these measures, combined with the uncertainty over what the U.S. Fed may do, has pushed Japan’s Nikkei index into bear market territory with a 20 per cent-plus fall.
EUROPE & RUSSIA: Europe’s leaders hope a new trade deal between the EU and the United States can help spur growth. EU trade ministers agreed last Friday on their negotiating position and it’s hoped a deal that would scrap the tariffs and regulations that impede trade might be reached next year.
And Europe needs stimulus. Austerity measures introduced by Europe’s governments to control their deficits have inflicted severe economic pain and produced social unrest across the group 17 European Union countries that use the euro
The eurozone’s economy shrank by 0.2 per cent in the first quarter — the sixth such decline in a row — and unemployment is at 12.2 per cent. The situation is far worse in countries that are struggling to reduce heavy debt burdens — unemployment stands at 26.8 per cent in Spain, 27.0 per cent in Greece.
Private companies haven’t managed to fill the vacuum created by the drastically reduced government spending. In the United States, by contrast, the government has imposed far milder spending cuts and tax increases.
European leaders have recently agreed to ease up on the pace of deficit reduction — but have proposed no other large-scale measures to boost growth, at least in the short term.
Russia has seen more than a decade of largely uninterrupted economic growth, thanks to its lucrative oil and gas industries, to become the world’s 8th largest economy. However now that energy prices have stabilized, experts say Russia is unlikely to grow as quickly unless it aggressively reforms its economy.
For a reminder of Europe’s troubles, the leaders won’t have to look far. The Lough Erne resort where they’re staying went bankrupt in 2011.
Dublin supermarket owner Jim Treacy borrowed 21 million pounds ($32 million) to open the five-star golf resort in the green rolling lakelands near Enniskillen in 2007 during the credit-fueled real estate boom sweeping the Republic of Ireland and Northern Ireland, which is part of the United Kingdom. The end of the boom took with it much of the expected wealthy clientele.
Bankruptcy administrator KPMG has Lough Erne on the market for 10 million pounds. So far, no takers.
AP writers Elaine Kurtenbach in Tokyo and Chris Rugaber in Washington, D.C., contributed to this report.