June 17, 2013

G8 faces uncertain recoveries, turbulent markets

By David McHugh and Shawn Pogatchnik / The Associated Press

(Continued from page 1)

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President Barack Obama, first lady Michelle Obama, and daughter Malia walk to Marine One on the South Lawn of the White House in Washington on Sunday, as they head to Northern Ireland for the G-8 Summit.


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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 percent 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 percent-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 percent in the first quarter — the sixth such decline in a row — and unemployment is at 12.2 percent. The situation is far worse in countries that are struggling to reduce heavy debt burdens — unemployment stands at 26.8 percent in Spain, 27.0 percent 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.


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