The Obama administration has been fiercely lobbying European governments and central banks to shut up and do something. No more disagreements in public, Timothy Geithner told them in Poland. No more disputes over fundamental issues. To heck with democratic problem resolution. The world is collapsing, and it’s time to act boldly and decisively. Hank Paulson’s extortion racket is back.
This time, it isn’t Congress and American taxpayers that are targeted, but the Europeans, or rather a select few, in particular certain recalcitrant elements in the German government and in the Bundesbank. The White House brandishes the big fix of 2008 and 2009. That’s how we fixed our crisis, that’s how you should fix yours, they say.
Alas, the big fix of 2008 and 2009 today: Withered green shoots, high unemployment, annual budget deficits near 10% of GDP, and a gargantuan pile of debt. The Fed printed trillions. Inflation in goods and services is getting ugly. Real wages and purchasing power continue their long decline. Negative real yields on treasuries, high-rated bonds, and CDs are guaranteeing their owners insidious losses, while income streams are drying up. Lower real wages and disappearing income streams are a powerful drag on the economy. And despite all this, the financial sector is tottering again.
The big fix did buy a couple of years of hope. And that’s the lesson Obama wants these recalcitrant elements in Germany to learn: One year and two months is all he needs. Till the election.
28 times, that’s how often he has spoken recently with the German Chancellor, Angela Merkel, the New York Times reported. The goal: persuade Merkel to act forcefully—rather than democratically. But Merkel is zigzagging through a minefield between battle lines.
On one side are German banks and corporations. For years, they have been the primary beneficiaries of the euro, which gave their Eurozone trading partners a strong currency and easy access to cheap loans with which to buy German goods and services. Now, that gravy train is slowing down, and they’re panicking. Very loudly. They remember how exports collapsed during the last crisis. GDP collapsed as well. The numbers were stunning. The worst quarterly GDP declines ever in the Federal Republic of Germany, down 2.1% in the fourth quarter of 2008, and down a horrid 3.8% in the first quarter of 2009. Annualized, those two quarters printed a double-digit decline. The German economy lives and dies by its exports.
(Ironically, it got pulled out of its funk by bailout moneys the Fed and Treasury handed out, a good chunk of which went directly to German banks, and indirectly to German exporters. Yet, I’ve never heard them thank American taxpayers and wage earners who are footing the bill).
On the other side of Merkel’s minefield are various politicians, the Bundesbank, and the vast majority of the population. 89% oppose the expansion of the bailout mechanisms. Ominously, 60% don’t want to be part of the Eurozone anymore. They oppose the bond-buying spree the European Central Bank has embarked on. They don’t want inflation as a solution. They don’t want to be burdened by southern Europe’s sovereign debt.
Obama is also talking intensely with French President, Nicolas Sarkozy, former bosom buddy of George W. Bush. France being the second largest economy in Europe, it must figure into the equation.
Sarkozy too faces a difficult election in 2012 and wants something done to paper over the debt crisis. In contrast to Germany, the French political establishment isn’t engaged in public soul searching about the bailouts and seems to support whatever measures of borrowing, printing, and guaranteeing are proposed. But what is on the front pages every day? The reeking corruption scandals Sarkozy and his people are embroiled in. Lurid stories about briefcases filled with cash have replaced reports about the current run on French banks. It keeps the people distracted.
So the White House is out in force this weekend at the G-20 meeting in Washington, coaxing, lobbying, persuading, and twisting arms. Throughout, they’re holding up the big fix as a model for the bold and decisive action they expect Europe to take. That the big fix will make things worse long term isn’t the issue. The issue is the election. Having studied how the Bush White House ran over Congress to impose TARP on the American people, Obama now urges the German government to deploy the same strategies.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
