G8 summit: Pressure mounts on Angela Merkel over Euro crisis

DAVID Cameron will join François Hollande and other world leaders in rounding on German chancellor Angela Merkel this weekend, piling pressure on her to release funds to ease the debt burden on crippled south European countries.

The Prime Minister and the French president looked set to create an unlikely alliance against Germany as they held bilateral talks at the G8 summit at Camp David, near Washington DC, last night.

Mr Cameron and the French leader publicly disagree on austerity measures, and the Prime Minister snubbed Mr Hollande when he visited London as the Socialist candidate in France’s presidential elections.

But with the markets in turmoil yesterday, seven of the G8 leaders were at one in believing Germany’s strategy to save the eurozone is not working. The FTSE 100 index took the biggest hit, falling 70 points and wiping £80 billion off the value of shares.

As the world leaders arrived in the US, reports emerged from Greece that Mrs Merkel had suggested to the Greek government that a referendum on staying in the eurozone should be held alongside elections next month.

The move was seen by commentators as a gamble by the German chancellor that the Greeks would vote to stay in the euro and then be forced to continue with the programme of austerity measures.

Greece’s government spokesman, Dimitris Tsiodras, said Mrs Merkel aired the proposal during a phone call with Greek president Karolos Papoulias earlier in the day.

He said such a project was “obviously” outside the jurisdiction of the Greek caretaker government appointed this week.

A German government spokeswoman confirmed Mrs Merkel had a “confidential” phone conversation with Mr Papoulias, but declined to confirm or deny the Greek statement on the referendum idea.

As the credit ratings of Spanish banks took another battering and fears of a Greek exit from the euro increased – with new elections expected to produce more votes for parties opposed to the bail-out package – G8 leaders were warned by Mr Cameron that the crisis would become global if it was not dealt with quickly.

There were also fears that ratings agency Moody’s Investor Service – which downgraded 16 Spanish lenders on Thursday night, including the UK arm of Santander – would add more banks to the list over the weekend.

Mr Cameron found an unlikely ally in Mr Hollande with his calls for the European Central Bank (ECB) to become a lender of last resort and guarantor of eurozone government economies and banks exposed to southern European debt.

Ahead of flying out, Mr Cameron said: “It is becoming increasingly clear that they are less likely to be able to sustain that necessary adjustment economically or politically unless the core of the eurozone, including through the ECB, does more to support demand and share the burden of adjustment.”