rssEuropean Rejection of Obama’s Call for Stimulus Threatens U.S. Economy
Tuesday, July 06, 2010 at 6:00 am
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President Obama at the G-20 Summit in Toronto on June 27 (Xinhua/ZUMApress.com)
BERLIN — President Obama’s push for additional economic stimulus is not just hitting a wall in Congress. The president has also been rebuffed by the largest European countries — with potentially profound consequences for the U.S. economy and Obama’s national agenda.
[Economy1] In the run-up to the G-20 summit in late June, the Obama administration went on a PR offensive, urging other wealthy nations to keep pumping stimulus into their economies. But with the Greek budget crisis heightening anxieties over public debt, conservative governments in Berlin, Paris, London and Rome are all on an austerity track. Instead of a pledge to inject more capital into their economies, all Obama got at the Toronto conference was a communique that emphasizes savings over stimulus.
Some economists fret that Europe’s fiscal retreat threatens to tip the U.S. deeper into recession. Meanwhile, leading analysts in Germany, the continent’s largest economy, say the trans-Atlantic spending spat underscores Obama’s limited maneuvering room in his effort to steer the fragile recovery back home.
“America is having enormous difficulties,” said economist Gustav Horn of the Macroeconomic Policy Institute, part of a labor-affiliated foundation in Düsseldorf, Germany. “At the moment, [the U.S.] is dependent on the rest of the world offering it a friendly economic environment.”
For Obama, the environment is less friendly than he would like. In an open letter to other G-20 heads of state before the summit, the president wrote that leaders should “learn from the consequential mistakes of the past when stimulus was too quickly withdrawn.” Treasury Secretary Tim Geithner, meanwhile, told the BBC, “Growth in the future around the world can’t depend on the United States as much as it did in the past.”
Some economists warn that austerity in the largest European economies, combined with severe budget cuts in countries such as Greece and Spain, could push the continent into a double-dip recession. If so, the consequences for the U.S. could be severe. A European downturn, Horn said, would hurt American exports, both by lowering demand and by strengthening the dollar. Perhaps more importantly, he added, a stumbling Europe could weaken crucial U.S. trading partners in Asia. Likewise, Nobel Prize-winning economist Paul Krugman recently warned that the resistance to more stimulus in Europe and the U.S. raises the specter of a depression.
But the dominant view in Germany is that such fears are misguided. Supporters of budget consolidation note the country is on an upswing, with GDP growth expected to reach as high as 2 percent this year as exports accelerate. Moreover, they argue that fiscal retrenchment will spur private-sector spending. A recent report by the Ifo Institute for Economic Research, a Munich-based think tank with government funding, says cuts would lead to an “expansive confidence effect on German consumers and investors.”
The fear that a European slowdown could hurt American trade underscores a more fundamental challenge that German economists say the U.S. must tackle: expanding exports as a source of economic growth.
“Before the crisis, we had a consumption boom in the U.S. that was not sustainable,” said Ifo economist Klaus Abberger. “And so we think there is a need for some redirection.”
That redirection, economists say, will be outward.
“The growth driver you’ve got left is ultimately net exports,” said economist Christian Dreger of the Berlin-based German Institute for Economic Research, another government-funded think tank.
The Obama administration has come to a similar conclusion. In his State of the Union speech in January, the president announced a new initiative to double American exports within five years, though many analysts called the goal unrealistic.
“For too long, America served as the consumer engine for the entire world,” the president said in follow-up remarks in March. “But we’re rebalancing. … Countries with external deficits need to save and export more.”
But the future of U.S. exports is not entirely under American control. The country can only reduce its trade deficit if the rest of the world has sufficient buying power, Horn said. The G-20 has been touting a new initiative to ease trade imbalances, which would require net exporters like Germany to buy more from net importers like the U.S. But it remains to be seen whether there will be any action to follow the talk.
Obama’s inability to induce Europe to boost its stimulus spending is rendered even more discouraging by the limited traction his spending proposals are getting in Congress. And it does not help that Obama is looking increasingly isolated among world leaders in pushing a more expansive fiscal policy.
“You don’t win something in Congress by saying, oh, Europe’s doing this,” said economist Dean Baker, co-director of the left-leaning Center for Economic and Policy Research in Washington. “[But] you don’t want the U.S. to look like an outlier.”
The president should not get his hopes up for a hand from Berlin, though. As the Berliner Zeitung newspaper declared of Germany’s chancellor in a recent headline: “Merkel won’t listen to Obama.” The country has a culture of thriftiness to rival even the fiscal-conservative wing of the Republican Party. The traumatic hyperinflation that racked the Weimar Republic during the 1920s has made Germany hyper-sensitive to price stability. The country last year amended its constitution to include limits on government debt. Deep concern that the aging of the population will soon make Germany’s welfare state unaffordable have made people here anxious to get back to budget cutting. Meanwhile, unemployment is lower than in the U.S., so the economic pain is less acute.
Deficit hawks here also argue the turmoil in Greece is a warning to profligate governments across the continent.
“We saw with the Greek crisis how vulnerable highly indebted countries are to [speculative] attack,” said Norbert Barthle, a member of the German parliament from the ruling center-right Christian Democratic Union party (CDU) who specializes in budgeting.
The American economy has managed impressive growth so far this year, but it has largely been driven by the effects of government stimulus, Horn said. And the looming dry-up of stimulus funds around the world amounts to a serious problem for the American president.
“He has to do more if other countries do less,” Horn said. “And in that sense, his worries are absolutely understandable.”
David Dagan is a freelance journalist living in Berlin.
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Comment posted July 6, 2010 @ 11:32 am
Obama is a weak leader. First, the borders should be shut down – no more immigration, until US recovery is certain. Arizona is the only state with a clear understanding of the problem.
Sure BAIL out AIG and all the OTHER major corporations, all crying – “help us” so we can have Golden Parachutes, and fund our Las Vegas trips, at the tax payers expense. Weak I tell you.
Pingback posted July 6, 2010 @ 12:46 pm
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Comment posted July 6, 2010 @ 12:47 pm
Stop outsourcing jobs. If the USA continues outsourcing its jobs, the USA will be gone.
Comment posted July 6, 2010 @ 12:56 pm
OOOps! We thought the European and all foreign countries were going to melt on delight as soon as the Messiah talked to them!!! And the reality is that they do not melt but laugh at him.
Pingback posted July 6, 2010 @ 2:07 pm
[...] This news out of Berlin: “President Obama’s push for additional economic stimulus is not just hitting a wall in Congress. The president has also been rebuffed by the largest European countries …” [...]
Comment posted July 6, 2010 @ 1:21 pm
Weak?
And who exactly would you undo the irresponsible, spend-spend-spend/cut taxes and borrow and deregulation policies of Bush & the GOP who brought America into this economic quagmire???
Do tell.
Before you do you just might want to read about Ireland and how well that “austerity-thing” has worked out for them.
For the past 17 months the GOP members of Congress – expesically those who were the co-authors of the Bush economy and jobs busting policies have done nothing – absolultely nothing – to undo the damage they have done to America's families, communities and states.
Like you, all they have are loud mouths that complain, and try and pass they buck. Like you there is no recognition of their responsibility in creating this mess.
Pingback posted July 6, 2010 @ 2:35 pm
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Comment posted July 6, 2010 @ 1:36 pm
MrsD Obama doubled Bush's Deficite since he has been in office. bush was in for 8 years obama only a year and a half and doubled the debt any dumbass knows dont spend money you dont have especially when the economy is how bad it is now
Comment posted July 6, 2010 @ 1:46 pm
Liberals keep beating the Obama drum while their world is collapsing around them. Even the European socialists are waking up to their spending disasters, Obama does not have a clue.
Pingback posted July 6, 2010 @ 2:56 pm
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Comment posted July 6, 2010 @ 2:09 pm
MrsD,
Perhaps you are passing the buck by blaiming Bush. Wake up, where has the most spending been from? Look at the health care bill and the cost of it. That came from Obama and the Dems. In addtion, look at the bailout and cost of that, which also came from Obama. The bailout has been proven not to prevent the high unemployment and also has proven not to create the jobs as expected. Thus it was a failure otherwise why would they be pushing for another bail out? You cannot continue to spend without affecting the economy and value of the dollar.
Comment posted July 6, 2010 @ 2:09 pm
Ireland now has more than 450,000 unemployed, of a workforce of 2 million. Ireland is f*cked, and its politicians incompetents who do not have a clue, they just do what their masters in the EU(SSR) tell them.
Comment posted July 6, 2010 @ 2:11 pm
The US should take advantage of others austerity and spend any funds we have to make our companies more competitive through corporate incentives. While others might stand still we could gain.
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Comment posted July 6, 2010 @ 3:44 pm
who's a dumb ass, Bush never included the cost of the war's in his budget at least Obama does. Clinton left Bush with a surplus, what did he do with that. You can't keep cutting taxes and expect to get shit done without some kind of debt and people who don't work don't pay tax or buy much??The first stimulus was probably half of what it should have been. Most of what has been spent until now was to keep teachers and police from losing their jobs across the country. I guess my question to all you Obama detractors is how would the Maverick(who by the way never said he was Maverick) and the idiot be doing about now. McCain would have probably had a heart attack by now and the idiot would be in charge. How would that be working for ya???
Comment posted July 6, 2010 @ 4:06 pm
I stopped reading after you claimed Clinton actually had a surplus. Lost all credibility. Clinton NEVER had a surplus. All he did was raid social security and move money around to make it look like he had a “budget surplus.”
Google it.
Comment posted July 6, 2010 @ 4:25 pm
the gop can't pass anything with the democratic majority.
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Comment posted July 6, 2010 @ 5:20 pm
What threatens the economy more than anything are people who care more about winning their next election than for what is good for the country. The members of both parties do not give a damn about saving the economy IF saving it means they have to make decisions which will alienate the voter base.
Saving instead of spending? Fiscal responsibility? It will never happen. Both parties will run the country straight into the ground and right before the ultimate crash happens they will plan some sleight of hand trick like a giant false flag operation to take Americans mind off of what is happening as well as to place blame somewhere else.
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Comment posted July 7, 2010 @ 7:24 pm
Sounds like maybe Obama has read Klein's “Shock Doctrine”
He should send a copy to each of the Euro heads
Comment posted July 7, 2010 @ 11:50 pm
Question: Are you willing to start paying more for your goods and services? What about your clothes? Are you willing to pay maybe $5 or $10 more something may cost due to the increase in labor costs? Or your computers, TVs, cell phones? Why do you think the drain started in the first place? The demand for cheap goods.
Comment posted July 7, 2010 @ 11:56 pm
Apparently you have received your list of Obamabot lines to use to defend the messiah. Have you read about or researched the meltdown and the role mortgages and the housing market played in our problems? Have you read about or researched the Dems' role in fueling those problems and who got the most $ during campaigns from those entitities they failed to regulate? And you are right – the Repubs should not have been spending.
And tell me, what deregulation are you talking about – do you know? Are you are talking about the bill Clinton signed? Did you mind getting a tax cut? Go research prior tax rates and you will see that the lowest incomes got a nice break from 15% to 10%. That 5% may not seem a lot but if you have a taxable income of $15,000, that's a difference of $750 a year. I am sure if you have that low of income, $750 would be a lot. I mean, everyone got all warm and fuzzy and excited when they got checks for something like $250.
May I suggest that before you start spitting out rhetoric and things you hear on Obama media that sound like they make sense, you actually understand what you are saying.
Pingback posted July 8, 2010 @ 5:02 pm
[...] European Rejection of Obama's Call for Stimulus Threatens US EconomyThe Washington IndependentBERLIN — President Obama's push for additional economic stimulus is not just hitting a wall in Congress. The president has also been rebuffed by the largest European countries — with potentially profound consequences for …Ask George W. Bush How to Avert a Double Dip: Kevin HassettBusinessWeekWhat should Obama do on jobs?PoliticoObama inherited country's problemsLas Vegas SunOpposing Views -Big Government (blog) -Tehran Timesall 21 news articles » [...]
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Comment posted July 16, 2010 @ 7:54 am
We are STILL blaming Bush for everything? Really?
How long has Obozo been in office now?
Get a grip MrsD
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[...] of the left-leaning Center for Economic and Policy Research in Washington said it best when he refuted the President stimulus-promoting strategy in stating: “You don’t win something in Congress by [...]
Comment posted July 31, 2010 @ 6:40 pm
How well does this work when your site has a lot of unrelated visitors though?
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