Debt crisis and Libya to dominate Obama, Merkel talks

By Jeff Mason and Andreas Rinke

WASHINGTON (Reuters) – U.S. President Barack Obama and German Chancellor Angela Merkel began to air differences over fiscal policy, the euro zone crisis and the war in Libya Tuesday while emphasizing the strength of their alliance.

Obama welcomed Merkel at a formal ceremony on the White House lawn with cannon shots and military musicians adding to the pomp and circumstance of an official visit — the first visit by a European leader under Obama’s presidency.

“This visit reaffirms an enduring truth: our alliances with nations like Germany are more important than ever,” Obama said with Merkel standing at his side. “Indeed they are indispensable to global security and prosperity.”

“Europe and Germany have no better partner than America,” Merkel said in English, drawing applause.

The show of partnership did not mask differences that the two leaders have over economic and security issues.

Obama favored more government stimulus spending during the global economic crisis while Merkel pressed for fiscal austerity. The United States cautiously endorsed military action in Libya while Germany confounded its NATO partners by refusing to take part.

Those issues and the euro zone debt crisis were expected to dominate talks between the leaders and their advisers.

Obama has cited the crisis as one in a handful of foreign ”headwinds” affecting the U.S. economy.

But as Greece started a campaign to secure a new international bailout, Obama’s administration made clear it expects Europe — and, by default, wealthy Germany — to take care of the problem.

Euro zone sources said on Tuesday a proposal for a second Greek bailout package worth 80 billion to 100 billion euros over three years was taking shape.

Washington faces a debt challenge, too, and Merkel could rebuff Obama’s calls about Greece by saying the United States must get its own fiscal problems under control.

The White House is leading talks with Republican and Democratic lawmakers to try to agree a deal on long-term deficit reduction.

Merkel also is expected to emphasize Europe’s support for French Finance Minister Christine Lagarde’s candidacy to replace Dominique Strauss-Kahn as IMF chief.

The United States has not offered public support for Lagarde, saying instead it wants to see the best candidate get the job — a nod to developing countries, who object to Europe’s traditional hold on the position.

Obama will present Merkel with the Medal of Freedom — the highest U.S. civilian award — during her visit.

He said in an interview with a German newspaper that the two leaders would not always see eye to eye.

“We don’t always agree on everything; no two allies do,” he told Der Tagesspiegel. “But in our meetings and discussions, we always speak honestly and openly, as close friends should, and I believe that our approach to shared challenges is stronger because of it.” (Editing by Bill Trott)