European Debt Conflagration will Undermine Obama Re-Election

 

WASHINGTON, PARIS & SANTA FE, NM (By Helene Cooper and Annie Lowery, NYT) December 8, 2011 ― Vice President Joseph R. Biden Jr. visited Prime Minister Lucas Papademos of Greece in his Athens office on Monday.

 

Timothy F. Geithner, the Treasury secretary, hopscotched across Europe on Tuesday and Wednesday, urging leaders to address the European debt crisis more urgently.

 

And President Obama has been on the phone almost every other week — including on Wednesday — with either Chancellor Angela Merkel of Germany or President Nicolas Sarkozy of France.

Publicly, Obama administration officials talk only about the economic consequences of a potential debt conflagration in Europe.

 

Privately, though, they are well aware Europe’s success in dealing with the troubles — and the administration’s success in persuading them to do so — is arguably the single most important factor that will determine Mr. Obama’s re-election chances.

The American economy has shown signs of life recently, with talk of a double-dip recession fading and job growth picking up. The change has raised the prospect that the economy may not be quite the political weight around Mr. Obama’s neck in 2012 that his advisers had feared — unless Europe goes downhill.

 

Mr. Obama’s aides realize there is no easy way to plan a re-election strategy for one potential body blow: an implosion of the European currency.

 

Such an event, experts say, would undoubtedly send the American unemployment rate higher and possibly induce another recession.

 

Other than lobbying from the sidelines, Mr. Obama and his administration have little control over the situation.

“It’s certainly true Europe is the gorilla in the room when people look at how the economy could affect the election,” one senior Obama adviser said, speaking on grounds of anonymity because he was not authorized to speak publicly. Added Edwin M. Truman, former adviser to Mr. Geithner: “If the euro comes apart in a messy way — and it’s hard to imagine it will come apart in a nonmessy way — it would make the fall of 2008 look like a clambake.”

And so it is, Mr. Truman and others said, Mrs. Merkel and Mr. Sarkozy could have far more to say about who will be the next president of the United States than anyone thought.

Now, incongruously, it is Mrs. Merkel and Mr. Sarkozy who could play a part in whether Mr. Obama wins re-election. The president himself has called Europe the “wild card” in the domestic economic recovery and his aides have privately expressed frustration at what they view as a passive response from European leaders to the debt crisis. Obama administration officials say leaning on European leaders to get their house in order, as the president has been doing, is in best interest of the United States, and not something Mr. Obama is doing for his own political benefit.

Mr. Geithner is in Europe this week in advance of the latest European summit meeting on Thursday that is meant to, yet again, try to deal with the debt issue. In a hurried, five-city, three-day tour, meeting with heads of state, Europe’s central banker and high-ranking economic officials, Mr. Geithner has quietly dispensed advice on the sovereign-debt crisis while pressing for decisive action for the good of the global economy.

Some prominent Europeans have bridled at what they consider the unsought American intervention.

 

On Wednesday, Valéry Giscard d’Estaing, the former French president, told Reuters: “Geithner’s visit is inopportune. He should not be meddling in European affairs.” Cognizant, no doubt, of such sensitivities, Mr. Geithner has tried to chart a careful course in Europe this week, meeting behind the scenes, careful never to push or prescribe publicly, and so far taking only two questions from the news media. So far, European leaders have largely declined to yield to pressure from Obama administration officials who are advocating the same aggressive way the United States responded to its own banking crisis in the fall of 2008 and through early 2009.

Frustrated Obama officials have been urging their European counterparts to move as much money as possible to prop up the debt of countries like Greece, Italy, Portugal and Spain. “Ultimately, Europe will need to find a path that allows for stronger growth, but right now, the most important thing Europe can do for the global recovery is to manage this crisis successfully,” Michael Froman, the deputy national security adviser for international economic affairs, said in an interview.

Administration officials say besides the potential for drying up demand in Europe for American goods and the looming potential of a European bank failure’s setting off another financial debacle, the European crisis could stymie growth not only in Europe, but also in emerging markets.

Anxiety over what could happen across the Atlantic, coupled with earlier undue optimism about the domestic economic recovery, has the White House nervous about trumpeting even modest good economic news for fear of a later downturn.

Democratic campaign strategists concede a collapse of the euro would transform the political dynamic even as some see the president’s standing improving, enhancing the prospects of other Democratic candidates.

“It is absolutely an important assumption if the economy really tanks, really tanks, as the result of strong headwinds coming from Europe, it would be a more challenging environment,” said Representative Steve Israel of New York, the chairman of the Democratic Congressional Campaign Committee.

While political analysts say Mr. Obama, as the incumbent, would bear the brunt of the political fallout of another economic crisis, some Republicans are fretting as well. At a Washington dinner party two weeks ago, David Smick, a Republican financial consultant, approached Karl Rove, the Republican strategist, with a provocative question. “What if I told you given what’s happening in Europe, whoever is president in 2013 might not see his party elected for another 30 years,” Mr. Smick told Mr. Rove, according to guests who were present. Mr. Rove, one guest said, “just listened.”

In an interview, Mr. Smick said the European crisis, in his view, could eventually make another huge government bailout like the controversial bank rescue program of late 2008 and 2009 necessary.

 

But most political analysts say that could be political suicide for the country’s leaders. On Wednesday afternoon, Mr. Obama was on the phone with Mrs. Merkel again. “As usual,” the White House said in a statement afterward, “the president expressed his appreciation for the efforts the chancellor and other European leaders are making to resolve the crisis.”

Helene Cooper reported from Washington, and Annie Lowery from Paris.