PARIS — The euro crisis hangs over the meeting of the Group of 8 industrialized countries that begins on Thursday, with Greece’s renewed problems destabilizing markets, worrying Washington and influencing the debate over who should be the next managing director of the International Monetary Fund.
As President Obama arrived in the French seaside resort of Deauville on Thursday for what is normally more of an informal session on security issues, the continuing problems of the euro and the divisions it is causing inside Europe are threatening to harm the West’s uneven recovery.
The European Union and the I.M.F. have tried for the last year to calm the bond markets. But demonstrations against harsh austerity measures in Spain, Portugal and Greece; bickering among European leaders over Greece’s financial problems; and the European Central Bank’s fierce opposition to any restructuring of Greek debt have all conspired to send bond rates soaring in the last week.
Some analysts, like Bruce Stokes of the German Marshall Fund in Washington, suggest that the problems of the euro could put the recovery of the United States at risk. “If the European crisis gets worse again, the United States will have fewer tools to fight off the contagion,” he wrote in The National Journal.
“For the United States, the euro is a big concern,” said Nicolas Véron, a senior fellow at Bruegel, an economics research institute in Brussels, and a visiting fellow at the Peterson Institute in Washington. “The Americans want to avoid systemic instability.”
For that reason, Mr. Véron suggested, the Europeans want a new head of the I.M.F. in place quickly, and in keeping with tradition they want a European. They have largely united around the French finance minister, Christine Lagarde, 55, an English-speaking lawyer, who announced her candidacy on Wednesday.
American officials have called for an open process and praised both Ms. Lagarde and a Mexican candidate, Agustín Carstens, as “credible,” Treasury Secretary Timothy F. Geithner said on Wednesday. But he also said that Washington was working with all partners to ensure that the fund “reflects the balance of power in the world today.”
The Group of 8 has been overshadowed by the larger and more economically oriented Group of 20, in which fast-growing emerging nations like China, India, Brazil and South Africa also sit at the table, reflecting the shifting balance of power in the global economy.
“The competition for global leadership is bigger than before the financial crisis,” said Jan Techau, the director of Carnegie Europe, the European office of the Carnegie Endowment for International Peace. Similarly, David Shorr of the United States-based Stanley Foundation, said that “the G-8 bears a burden of proof to show its relevance and influence in today’s world of shifting political and economic power.” As a “club of the Western old guard,” he asked, “does it have enough key global players at the table to tackle the big challenges?”
In addition to economic matters — including questions about how President Obama intends to reduce Washington’s giant budget deficit — the leaders meeting on Thursday and Friday will face new challenges concerning nuclear safety after the meltdowns at the Fukushima Daiichi power plant in Japan and how to help along the Arab Spring in North Africa and the Middle East, even as the NATO-led war in Libya drags expensively and bloodily toward stalemate.
One of the biggest issues will be how to invigorate Arab economies and create jobs in the face of a large demographic bulge of unemployed young people and continuing instability.
Mr. Obama has pledged to forgive as much as $1 billion in Egyptian debt and guarantee another $1 billion in financing for infrastructure and new jobs, even as Congress seeks to cut spending to deal with America’s own ballooning deficit.
France wants to push the European Bank for Reconstruction and Development, which was set up to help the economic and democratic transformation of Eastern Europe, to explore helping Egypt, Tunisia and other Mediterranean countries.
But Group of 8 leaders are likely to find themselves enmeshed in discussions over their own economic and political troubles, which are deepening as recovery in Europe and the United States remains feeble.
Greece’s troubles — and rising popular unhappiness with austerity programs there, as well as in Portugal and Spain — have shaken and divided European leaders. If Greek debt is not restructured and the country has no ability to raise money at reasonable interest rates in the private market, it would end up a ward of the European Union. Bond prices for Italian and Spanish debt are rising, as investors sense disagreement and confusion about Greece among euro zone leaders.
Mr. Stokes described the euro crisis as “a slow-motion train wreck since it erupted last year.” Despite billions of euros in loans to Greece, Portugal and Ireland, investors seem far from reassured that these economies can reform themselves and recover, or that any new contagion spawned by Greece will not hit even bigger economies.
In Spain, where unemployment is stuck above 20 percent and two million jobs have evaporated since the economic crisis hit, thousands of protesters — inspired by the Arab Spring — have been camped in Madrid for more than a week. Voters handed the governing Socialist Party heavy losses on Sunday in regional and municipal elections.
After Portugal finally went to the European Union and the I.M.F. for bailout loans, European officials felt that there was a “firebreak,” and that Spain, which had cut its deficit, would be safe. But now it is not so clear, and European Central Bank officials are arguing that if any form of restructuring of Greek debt goes ahead, Spain and Italy will quickly come under fire.
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