G8 summit focuses on weakness in Europe
French President Francois Hollande, U.S. President Barack Obama, German Chancellor Angela Merkel and Italian Prime Minister Mario Monti pose for a group photo during the 2012 G8 Summit at Camp David May 19, 2012 in Camp David, Md.
Jeremy Hobson: President Obama will be with world leaders in Chicago today after meetings at Camp David over the weekend. The takeaway from those meetings is that there should be more of a focus on growth rather than austerity as Europe grapples with another flare up in the debt crisis.
Julia Coronado is chief economist at the investment bank BNP Paribas. She is with us live as always from New York, good morning.
Julia Coronado: Good morning.
Hobson: Well Julia, do you think that everyone from this G8 meeting is on the same page now that growth rather than austerity is the way to go for Europe?
Coronado: Unfortunately, it’s not quite so simple. I think we can all agree we want growth, but countries like Spain are finding it hard to fund the deficits that would help them boost growth. They would need some outside help and few people are raising their hands to provide it. And of course the worry is that the lack of confidence in a country like Spain is going to spread to the banking system, that holds a lot of Spanish debt.
Hobson: Well, and that’s one of the things that we always talk about as one of the biggest fears for the United States as all of this European crisis unravels – which is that if there is a problem with the banks, that could actually really cause problems over here.
Coronado: That’s exactly right. I mean that was the liquidity crisis of 2008. When worries about growth turn into a banking run, then we are talking about a recession. We’ve seen some flight of deposits out of countries like Greece and Spain. So far it's actually surprising that it hasn’t been more pronounced, but of course these things can be so fragile and can be, once they get underway, very hard to stop. So that really is the key worry right now.
Hobson: Well, are the Europeans ready to deal with any banking crisis?
Coronado: Well, there is some talk. Of course, they’re aware of this risk. They’re thinking about possible solutions, including a European-wide bank deposit insurance scheme, much like we have with the FDIC, that would help investors and depositors have more confidence in the banking system -- very complicated when you are talking about 17 countries coming to an agreement.
Hobson: Julia Coronado, chief economist with the investment bank BNP Paribas, thanks as always.
Coronado: It’s a pleasure.