In the Shadow of the G-20 Stars
Euro Chaos Marginalizes Obama's Role in Cannes
A new experience awaits US President Obama at the G-20 summit in Cannes this week. Thanks to the euro crisis, he's likely to remain only a peripheral figure in the meetings. Still, with the presidential campaign in full swing back home, he will be unable to deny himself the right to give at least a little bit of sage advice.
In his first trip abroad since spring, United States President Barack Obama will arrive in Cannes, France on Thursday morning for the G-20 summit. One thing is already clear: The most powerful man in the world will not be the center of attention here.
"The surprising announcement of the
Greek referendum and the potential of Greek government collapse will completely overshadow the summit as the specter of default grows by the hour," says Heather Conley, former deputy assistant secretary of state in the State Department's Bureau for European and Eurasian Affairs, and now a senior fellow at the Center for Strategic and International Studies (CSIS) in Washington.
It's not that Obama lacks any
opinion on this crisis. Indeed, it could come to affect him directly, because a euro recession also has the potential to drag American banks down. Such a situation would likely have a negative impact on US unemployment rates and Obama's chances of re-election next year as well.
The president regularly speaks with German Chancellor Angela Merkel. "If Europe does not deal with the problem of undercapitalized banks, it could easily blow up and turn into another worldwide conflagration," Obama's former chief economic advisor Austan Goolsbee said
in a recent interview with SPIEGEL. "Europe as a whole has certainly been too hesitant. Germany is part of the leadership in the euro area -- and it has not yet stepped up and done what has got to be done."
Obama Wants to Intervene, But Quietly
When European Union leaders recently agreed on what was supposed to be a
solution in Brussels, Obama quickly released this statement: "We welcome the important decisions made … by the European Union which lay a critical foundation for a comprehensive solution to the euro-zone crisis."
But Obama also knows that he can't intervene with too much gusto. As much as it might like to be right now, Washington isn't the capital of Europe. Figuratively, at least, that would probably be Beijing right now. Europeans are hoping that Chinese President Hu Jintao will agree to
invest billions in the European Financial Stability Facility (EFSF).
The US already suffered the painful experience of objections to its schoolmaster-like interventions after Treasury Secretary Timothy Geithner called for the Europeans to take stronger measures in combating their currency crisis, in addition to essentially inviting himself to a meeting of his EU counterparts in the Polish city of Wroclaw in September. He only wanted to share his experience in handling the last global finance crisis, he said at the time.
The response, however, bordered on the devastating. Austrian Finance Minister Maria Fekter said it was "odd" that the US would feel obliged to dispense advice to Europe, and Geithner was excluded from the more detailed consultations over the euro's future.
Meanwhile the US, the motherland of the 2008 financial crisis, remains bogged down in another crisis of credibility that includes the president. "Obama's position will be very weak," says Jacob Kirkegaard, a research fellow at the Peter G. Peterson Institute for International Economics in Washington, DC. "He has very little to show to the other leaders when he makes the claim for coordinated stimulus in the G-20." Obama hasn't even succeeded in pushing his own proposals for stimulus and job creation or to reduce the national deficit through Congress.
Besides, it would seem odd for a country that just had its credit rating slashed to lecture the rest of the world on ways out of the financial crisis. Particularly when images of America's
social divisions highlighted by the Occupy Wall Street protests are making their way around the globe.
Criticizism of Europe Is Convenient
Nevertheless, it is natural for US experts to want to voice their opinions. Former Obama advisor Goolsbee, for example,
told SPIEGEL: "I don't think Europe will be able to get out of this without committing to the equivalent of a full stress test." Such an action would require clarifying the financial situation of the banks and their recapitalization, he added. "There is a feeling among investors that continental European banks never did that in the earlier crisis," he warned. But it remains unclear whether the latest EU summit results will meet these challenges.
Certainly there is no doubt that the political calendar will influence Obama's rhetoric. The president is arriving in Europe as a candidate almost exactly one year ahead of election day in the US -- and a bit of Europe bashing will score him points back home.
During appearances in recent months, the Democrat has not shied away from implying that without Europe, America would have made more progress in its economic recovery. The center of American criticism of Europe is often Germany, the most influential country in the euro zone. "If Europe's leaders do not come up with a more robust plan, the judgment of global stock and credit markets is likely to be harsh and swift," The New York Times commented harshly last month. "It is time for Mrs. Merkel to acknowledge that truth -- and do what is best for Germany and all of Europe."
Global Stimulus Unlikely
But Obama will have to reign in the Europe bashing in Cannes. Because of the euro crisis he'll hardly have an opportunity to have other debates that are important to him, such as the fundamental question over whether the global economy should be stimulated with more government money to create more jobs, or if austerity is more important.
If Obama wants a decent chance of re-election, he will need to drive the US unemployment rate below 9 percent. A global economic stimulus program could certainly help him achieve that.
However, a similar suggestion by the Americans at the Toronto G-20 summit in 2010 fell flat. Experts hold out little hope that a similar proposal would have any success now. "There won't be a big clash over stimulus vs. austerity because everyone has no interest in making the G-20 appear divided at this point in time," says Kirkegaard. Not only would that undermine market confidence, he adds, but it would lead to more uncertainty. "They will agree that everyone should do what they can -- according to national circumstances, which of course means potentially nothing."
CSIS fellow Heather Conley offers a similar take. "The Obama administration would like to focus on a US-led global growth agenda," she says. "Pressure will be applied to China and Germany to spur domestic demand to rebalance global growth, but I think Greece will overwhelm this story too."