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Obama leads charge to save the eurozone

Merkel cuts isolated figure as world leaders want Germany to guarantee Greece's debts.

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David Cameron has called for world leaders to draw up strong contingency plans for the break-up of the euro after discussing the European debt crisis with Barack Obama.

The Prime Minister also urged the European Central Bank (ECB) to emulate the Bank of England by printing new money to inject into the European economy.

World leaders on Saturday discussed the eurozone debt crisis at the Group of Eight summit at the US President's Camp David retreat in Maryland.

Angela Merkel of Germany came under intense pressure to do more to support the struggling currency by putting German economic credibility behind the debts of weaker economies like Greece.

Cameron and Obama started the day running together in the Camp David gym, discussing the global economy as they ran side-by-side on treadmills.

Aides said the two discussed Merkel's continued resistance to any mutualisation of eurozone debts. Following their half-hour workout, Cameron said that the summit was "making progress" on the eurozone crisis, but gave another warning about the risk of Greece being forced out of the single currency.

"What is required is a sense of urgency, but then clear actions for strong banks, strong deficit reduction plans, strong governments, and strong contingency plans for whatever might happen," he said.

Leaders at the summit from non-eurozone countries have been increasing the pressure on European leaders to do more to respond to the debt crisis. Cameron highlighted the role of the ECB, suggesting that it should be considering the quantitative easing policy - electronically creating new money to inject into the economy - used by the Bank of England.

Some leaders have cast the debate about the European economy as a choice between austerity measures to balance their budgets and stimulus measure to boost growth.

Austerity measures can actually create the conditions allowing a central bank to use such unconventional stimulus measures, the Prime Minister suggested.

"Growth and austerity aren't alternatives - you need a deficit reduction plan in order to get growth, in order to have the low interest rates that we have in Britain that are vital for the future of our economy," he said,

"Just as Britain benefits from a strong government with a strong deficit reduction plan and strong banks, but also an independent monetary policy giving us low interest rates - helping to push demand in the economy - so the eurozone, I believe, needs that approach as well."

Officials drafting the summit communique on the global economy worked until 4am yesterday morning, with Germany fighting to limit the document's references to the eurozone crisis.

There is growing agreement among G8 leaders that the answer to the eurozone crisis is for members of the single currency to "mutualise" their debts, meaning strong members like Germany partly guarantee the debts of weaker ones like Greece.

Mrs Merkel has resisted any such plans, reluctant to ask German taxpayers - who already resent the bill for helping other eurozone countries - to underwrite the budgets of indebted southern Europeans.

A communique set to be approved last night stressed the "imperative to create growth and jobs" even while pursuing austerity measures to balance budgets.

Mrs Merkel cut an isolated figure at summit.

When she arrived on Friday night, Obama asked her how she was. In response, she only shrugged.

"Well, you have a few things on your mind," Obama told her. The summit also discussed a US call for developed economies to release oil from their strategic reserves to try to bring down world oil prices.

The White House is arguing that a European Union embargo on Iranian oil will soon start to push up prices, a potential threat to Obama's re-election campaign.

Cameron hinted at action on the "threat" from fuel prices.

"We're addressing here the two biggest threats to all our economies, and that is, of course, the eurozone crisis, but also the very high oil prices that translate into high prices at the pumps, and we're making progress on both - particularly on the eurozone," he said.

However, aides said there is unlikely to be any early move on fuel reserves.

Cameron last night arrived in Chicago for a Nato summit at which he will discuss the role British forces will take after 2014 - the official end of combat operations in Afghanistan.

Senior Whitehall sources have told The Sunday Telegraph that British Special Forces soldiers are set to stay in the country to target al-Qaeda even after the Nato mission in the country is wound down.

Nato leaders admit that the Afghan government will need extensive financial and military support from the West if it is to have any hope of exerting any authority in the country.

Britain has already said that it will play a key role in training the Afghan military, setting up and staffing an officer training college in the country, modelled on the Royal Military Academy Sandhurst.

Senior officials have now revealed that the UK is also likely to contribute military personnel to counter-terrorism work in post-2014 Afghanistan.

That would mean the men from the SAS, Special Boat Squadron and Special Forces Support Group being based in Afghanistan.

--- Britain spends more on overseas aid than any other developed economy, figures released at the G8 summit showed. A G8 report showed that the UK spent 0.56 per cent of gross domestic product on aid last year. The G8 average was 0.28 per cent.

 

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