June 23, 2018
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US will lack muscle at eurozone crisis meeting

By Kevin G. Hall, McClatchy Newspapers

WASHINGTON — When President Barack Obama arrives in Europe for meetings next Thursday and Friday with leaders of the 20 most-industrialized nations, he’ll have limited influence over deliberations on how Europe should proceed in fleshing out its new but incomplete debt-crisis plan.

The U.S.-led global financial crisis in 2008 and subsequent inability of the U.S. political system to deal with federal budget deficits and debt have stripped the United States of the moral authority to tell others how to fix their finances.

In fact, Europeans are looking to Asia and the developing world, not the United States, to help them recover.

The head of the European Financial Stability Facility, Europe’s huge bailout fund, was in China on Friday on a beggar’s mission to plead for investment as part of a still-unfolding rescue plan.

Klaus Regling, the facility’s head, met with China’s No. 2 finance official to discuss a special fund in which countries such as China and Brazil would invest. Regling said he was optimistic that China would help Europe resolve its problems through “safe, attractive investment opportunities.”

Brazil, a Latin American giant that plays an ever larger role on the international stage, also is being pitched. If European Union leaders succeed, these big developing economies would buy insured or guaranteed European bonds in quantities large enough to show that it’s safe to invest there again, restoring confidence.

U.S. Treasury officials privately dispute that they haven’t been engaged in the European negotiations, noting many of the proposals came after prodding from the United States.

Publicly, the Treasury Department was supportive of the European plan. “We will continue to support the EU and our European allies in their efforts to address this crisis as we work together to sustain the global recovery and put our people back to work,” said Treasury Department spokeswoman Natalie Wyeth.

“On one level, we don’t have the power to help, but we somehow still have the power to not be of too much help. Given that we can’t help, we don’t want to create the space for others to help,” said Kevin Gallagher, an international relations expert at Boston University who specializes in global finance and development. “It’s really shocking how little of a role the United States has had in this whole eurozone crisis.”

“What is the U.S. proposal for the eurozone? I follow this stuff every day, and I can’t articulate it,” Gallagher said. “You have no idea what their Greek sovereign debt idea is. You never hear there should be a 50 percent ‘haircut,’ that a European fund should buy out all the bonds. Historically, we would clearly have a statement. That’s a lack of ambition. … It’s actually retreating.”

U.S. politics added to the reduced communication across the Atlantic Ocean. At the beginning of the Obama administration, the United States lacked a treasury undersecretary for international affairs for more than a year. Republicans blocked the confirmation of Lael Brainard, a seasoned expert in international finance, relenting in late April 2010. During this delay, finance officials across the globe were trying to coordinate policies to thwart a downturn and build a recovery, but the Treasury lacked a manager for international financial relations.

Another reason for the low U.S. profile is the humbling that accompanied the near-collapse of the financial sector in late 2008. Policymakers, especially the Federal Reserve, responded boldly to prevent a depression, but their actions are widely blamed for the rising cost of food and energy around the world.

Europeans blame the U.S. crisis and the U.S. lack of regulation over mortgage finance and Wall Street for causing theirs. That’s how Jean-Claude Trichet, the departing head of the European Central Bank, has described the origin of Europe’s crisis.

“Trichet is not correct, but that is what Trichet says and what Europeans think,” said Sebastian Mallaby, a senior fellow for economics at the Council on Foreign Relations, a research center based in New York. “Lecturing from American leaders … doesn’t work at this point.”

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