Snub for Cameron as Obama attacks 'risky' austerity and calls for immediate action to solve eurozone crisis
Obama singles out German Chancellor and French president for praise over economic policy
Osborne admits cuts will continue for two more yearsPresident calls for ‘specific steps’ that European leaders ‘can take right now'Luxembourg PM says Britain will still join eurozone
18:36 GMT, 9 June 2012
Barack Obama launched an outspoken attack on austerity measures last night, warning they risk dragging the world economy into a new ‘downward spiral’.
The US President blamed Europe for economic problems in his country and warned that immediate action is required to solve the eurozone crisis.
But in an intervention that will alarm the Treasury, Mr Obama declared that cuts are preventing economic growth which could prompt an upturn.
Under fire: Barack Obama has launched an outspoken attack on austerity measures such as those introduced by David Cameron
His remarks are a sideswipe at those, like David Cameron, who have urged austerity measures.
‘Even as European countries with large debt burdens carry out necessary fiscal reforms, they’ve also got to promote economic growth and job creation,’ said the President.
‘As some countries have discovered, it’s a lot harder to rein in deficits and debt if your economy is not growing.’
Britain plunged into a double-dip recession this year and the Chancellor George Osborne has admitted that cuts will continue for two years after the 2015 general election.
But the Treasury insists that the Coalition will stick to its plans or risk the cost of government debt rising, which would send mortgage rates soaring.
President Obama delivered his hard-hitting attack, warning austerity is ‘a problem’ when countries ‘resort to a strategy of “let’s cut more”’.
This leads to ‘government lay-offs and reductions in spending’ at a time ‘when an economy is still weak and a recovery is still fragile’.
He added: ‘If you’re doing all those things at the same time as consumers are pulling back and there is generally weak demand then you get on a downward spiral where everybody is pulling back.
‘That weakens demand and it further crimps the desire of companies to hire more people. And that’s the pattern that Europe is in danger of getting into.’
Mr Obama said it was ‘a positive thing’ that debate in Europe has turned towards growth.
Praised: Mr Obama singled out German Chancellor Angela Merkel and French President Francois Hollande for 'worknig to put in place a growth agenda
He singled out German Chancellor Angela Merkel and new French President Francois Hollande for ‘working to put in place a growth agenda alongside responsible fiscal plans’.
No such praise, however, was offered to Mr Cameron. Amid signs that Mr Obama fears the European economic downturn could cost him re-election in November, he said it ‘matters to us, because Europe is our largest economic trading partner’.
Labelled 'delusional': Luxembourg Prime Minister Jean-Claude Juncker claims Britain will still one day join the eurozone despite its current economic woes
He added: ‘If there’s less demand for our products in places like Paris or Madrid, it could mean less business in places like Pittsburgh and Milwaukee.’
Mr Obama called for ‘specific steps’ that European leaders ‘can take right now to prevent the situation from getting worse’ including injecting capital into weak banks.
The President spoke out as sources revealed that Spain is expected to ask today for a new eurozone bailout.
A crisis meeting in Brussels is expected to thrash out the terms of a deal which will pump 80billion into ailing Spanish banks.
The agreement is expected to see funds handed out from the eurozone bailout fund, meaning British taxpayers do not have to contribute.
It is likely to be finally signed off on June 21, when auditors report on the state of Spanish bank finances.
‘It is more a question of how, not whether there will be a bailout,’ said one Brussels source.
Yesterday, the head of Cyprus’s second largest bank warned that his country will also need a bailout to prop up institutions badly exposed to Greek debt.
The people of Greece, meanwhile, were warned by Mr Obama that they would face ‘further hardship’ if their country left the euro.
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