After seemingly sitting on the sidelines during the Eurozone crisis, and watching Tim Geithner rebuffed by his Euro colleagues, the Obama Administration is now publicly pressuring the Euro nations, specifically Germany and France. But the pressure is more of the “do something!” variety:
The Obama administration, increasingly alarmed by the spillover effects of Europe’s financial crisis, has begun an intensive lobbying campaign to persuade Chancellor Angela Merkel of Germany and other leaders to act decisively to stem any contagion from the Greece debt crisis.
In phone calls and meetings over the last week, President Obama urged Mrs. Merkel and President Nicolas Sarkozy of France to take coordinated measures — including spending billions in additional funds to bail out Greece and bolstering European central financial institutions — to prevent Greece’s debt woes from spreading to its neighbors [...]
“The biggest single risk to the United States today is that the European situation will spiral out of control,” said Edwin M. Truman, a former Treasury official who is now at the Peterson Institute for International Economics. “Europe is not going to save the U.S. economy, but it could be the straw that breaks it.”
That’s actually true. But it doesn’t appear that the Administration has any specific measures in mind – they just want France and Germany to do whatever is necessary to stop contagion. Isn’t the cat out of the bag on this? Portugal, Spain and Italy are all feeling the heat. The ECB bond purchases stopped that for a short while, but nobody believes the problem is solved in those peripheral countries.
There is some indication, however, that the US is saying some of the right things to the Germans:
In their most recent call, on Monday, Mr. Obama encouraged Mrs. Merkel to throw more financial firepower at the crisis. The conversation delved into technical details, as well as the risk of financial contagion, a senior administration official said.
The administration’s lobbying effort takes two main forms. One is to press the argument, supported by many economists, that Germany benefits enormously from preserving the euro in its current form rather than abandoning it or standing by as it unravels.
By combining its Deutschmark with the currencies of poorer countries, like Greece, Germany has been able to have a cheaper currency than it would on its own and to export far more than it otherwise might. And exports, which account for a larger share of the German economy than the American economy, have been the main engine of Germany’s recovery [...]
The second part of the American effort involves pushing European leaders to strengthen the institutions at the center of their response to the crisis: the European Financial Stability Facility, which is the Continent’s main bailout fund, and the European Central Bank.
This is kind of comical. The White House is right to say that Germany benefited from the euro currency union, and now these other countries are being strangled by it. But instead of making the logical leap from that to say that the only option is to break up the euro, their second piece of advice is a plea to use the bailout fund more aggressively.
This story follows an unusual announcement by the finance ministers of the 20 largest economies, which was largely an effort to soothe concerns by investors over volatile markets.
The truth is that global elites everywhere have failed to react to the current financial and economic crisis. This has grown into a bigger and bigger problem over the past 40 years, and now the world cannot sustain the consequences.