Today will probably be remembered as the day that the U.S. became firmly and publicly involved in the Eurozone crisis. Late this morning, the President held a press conference that was unusual in at least two respects: (1) it was on a Friday – and a summer Friday, at that, and (2) after an introductory paragraph, the next six paragraphs dealt with the Eurozone crisis. Here’s the six paragraphs, with my highlighting:
Right now, one concern is Europe, which faces a threat of renewed recession as countries deal with a financial crisis. Obviously this matters to us because Europe is our largest economic trading partner. If there’s less demand for our products in places like Paris or Madrid it could mean less businesses — or less business for manufacturers in places like Pittsburgh or Milwaukee.
The good news is there is a path out of this challenge. These decisions are fundamentally in the hands of Europe’s leaders, and fortunately, they understand the seriousness of the situation and the urgent need to act. I’ve been in frequent contact with them over the past several weeks, and we know that there are specific steps they can take right now to prevent the situation there from getting worse.
In the short term, they’ve got to stabilize their financial system. And part of that is taking clear action as soon as possible to inject capital into weak banks. Just as important, leaders can lay out a framework and a vision for a stronger eurozone, including deeper collaboration on budgets and banking policy. Getting there is going to take some time, but showing the political commitment to share the benefits and responsibilities of a integrated Europe will be a strong step.
With respect to Greece, which has important elections next weekend, we’ve said that it is in everybody’s interest for Greece to remain in the eurozone while respecting its commitments to reform. We recognize the sacrifices that the Greek people have made, and European leaders understand the need to provide support if the Greek people choose to remain in the eurozone. But the Greek people also need to recognize that their hardships will likely be worse if they choose to exit from the eurozone.
Over the longer term, even as European countries with large debt burdens carry out necessary fiscal reforms, they’ve also got to promote economic growth and job creation. As some countries have discovered, it’s a lot harder to rein in deficits and debt if your economy isn’t growing. So it’s a positive thing that the conversation has moved in that direction, and leaders like Angela Merkel and Francois Hollande are working to put in place a growth agenda alongside responsible fiscal plans.
The bottom line is the solutions to these problems are hard, but there are solutions. The decisions required are tough, but Europe has the capacity to make them. And they have America’s support. Their success is good for us. And the sooner that they act, and the more decisive and concrete their actions, the sooner people and markets will regain some confidence and the cheaper the costs of cleanup will be down the road.
As far as I know, this is the first time that the Eurozone has taken center stage in a presidential statement. The timing and content suggest to me that some important decisions by European leaders may be taken over the weekend. Further, despite the nod to Merkel, Obama’s words can be interpreted as an attempt to exert pressure on the German Chancellor to relax Germany’s insistence on austerity. Having said this, however, it’s far from clear to me what concrete steps the U.S. can take that would persuade the German government to alter its policies.