Sunday

29th May 2016

Analysis

Eurozone crisis spooks US election

  • It didn't work: Obama has tried to get the euro-crisis off his back, but scrappy EU leaders are not helping (Photo: The White House)

What does Greece have to do with the next US president? Or the current debate about a "political and fiscal union" in Europe?

Readers tempted to shrug shoulders and say "not much" would be ill-advised. The main topic in the US campaign ahead of the 6 November presidential elections is the economy. And Europe has become the bogeyman for the Republican camp.

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"I see our President making us more and more like Europe. I don't want to be like Europe, I want to be like America," Republican candidate Mitt Romney said on Sunday (12 August) during a campaign event in North Carolina.

His freshly announced running mate, fiscal hawk Paul Ryan, joined in: "If president Obama's policies of borrowing, taxing and spending worked, we would be entering a golden age along with Greece."

Media mogul Rupert Murdoch added insult to injury. "Now we can choose between the Greek and the US dream," he tweeted after Ryan was announced as Republican vice-president nominee last week.

Meanwhile, President Obama is on the phone every week with at least one big EU leader - Italy's Mario Monti, France's Francois Hollande, Spain's Mariano Rajoy.

His treasury secretary, Timothy Geithner, recently went all the way to the northern German island of Sylt where finance minister Wolfgang Schauble was on holiday. The efforts to save Europe seem frantic - banking union, bond-buying. Meanwhile, Germany is stalling everything.

With a close race ahead - Obama has an average of 4 percent ahead of Romney in the first half of August, according to RealClearPolitics - the fear in the Democratic camp is that if the eurocrisis gets worse and spills over, there will be no way for Obama to win this election.

Already the US recovery from the 2008-2009 financial and economic crisis is starting to slow down to 1.5 percent GDP growth in the second quarter, the weakest pace in a year.

"We're going to have some continued headwinds over the next several months. Europe is still a challenge," Obama said on 30 July at a campaign fund raiser in New York.

"I don't think ultimately that the Europeans will let the euro unravel but they are going to have to take some decisive steps."

"I am spending an enormous amount of time trying to work with them, and Tim Geithner is trying to work with them. The sooner they take some decisive action, the better off we're going to be," he added.

A pollster's view

Bruce Stokes from Pew Research Centre, a US-based pollster, told this website that the euro crisis is the "single most important issue that could cost Obama the elections."

He said US citizens surveyed are in general very little informed about the euro crisis and that if news suddenly broke that markets are in meltdown and exports are no longer flowing to Europe, they would "not know where this comes from and blame it on Obama. He's the one in the driving seat."

Romney's decision to side with Germany and the fiscal hawks in Europe is a projection of his conservative, 'small government' ideology upon the old continent, without much analysis of whether too much austerity is not the solution, or whether Spain in fact has less debt, proportionally, than the US, Stokes explained.

"It is really just about big government versus small government and often not that well informed. This has nothing to do with what is actually going on in Europe," he said.

In an op-ed published in the German finance paper Handelsblatt, Romney's senior economic adviser, Glenn Hubbard, in June criticised the Obama administration for advocating eurobonds and direct recapitalisation of Spanish banks by the eurozone bailout funds.

"This advice is unwise and reflects a limited understanding of the source of the crisis and a growth-oriented economic path forward," the Romney consigliere wrote.

"While offering advice to increase deficit spending in the eurozone, President Obama presides over unprecedented peacetime deficits in the United States, where a debate over 'growth' versus 'austerity' policies also rages," he noted, even though much of current US debt was in fact accumulated prior to the Obama administration, during former president George W. Bush's "war on terror."

Hubbard's recipe - allowing Greece to exit, while helping other eurozone countries stabilise their economies in the next two years - must have sounded appealing to many German politicians who in recent months have increasingly floated a Greek exit as a credible scenario.

Meanwhile, if multi-millionaire Romney wins, he would become a president twice richer than all his previous eight predecessors combined, and with considerable mystery surrounding his tax returns and offshore accounts.

As a man who made most of his money in risky investments via his venture capital fund, with millions of dollars in campaign contributions from the financial sector, he may have a strong incentive to undo even the timid regulatory moves pushed by Obama after the 2008 bust.

"Republicans in Congress are now blocking the money needed to implement the new law on financial sector regulation, for instance to hire extra staff in the regulatory bodies," Stokes pointed out.

US banks getting bigger

Even though there has been a popular backlash against bailing out Wall Street - such as the Occupy movement last year - "this is not an issue at all in the campaign," the pollster said.

The five largest banks in the US are now bigger than before the crisis first erupted in 2008.

"Obama has yet to articulate a clear message, a positive message, on why he should be re-elected. 'It could have been worse without me' doesn't really sell," Stokes said.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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