For Obama, eurozone crisis takes precedence at G20

[November 01, 2011]  WASHINGTON (AP) -- The stage this time will belong to German Chancellor Angela Merkel and French President Nicolas Sarkozy.

President Barack Obama, once the center of global attention, heads for an economic summit in the French resort of Cannes this week, no longer as the rock star he once was internationally, but as the leader of the world's largest economy while it's vulnerable to an unfolding European debt crisis.

The meeting of the 20 largest industrial and developing nations comes just a week after European leaders devised a broad plan to cut Greece's debt in half and contain any turmoil caused by Greek default fears. But the plan lacks specificity and Europe still needs to find out how it will finance a key feature of the plan -- a $1.4 trillion bailout fund designed to prevent Greek troubles from spreading to Italy and Spain, at which point they could let loose a global financial emergency.

That makes the troubled eurozone the urgent topic in Cannes, pushing aside Obama's central message to G-20 nations that they need to focus on short-term growth and longer-term debt. Throughout his presidency, Obama has pressed countries with trade surpluses such as China, Germany and Japan to do more to promote domestic spending and more to support global economic growth.

"The only overriding international issue for the G-20 is the continuing crisis in Europe," said Rob Shapiro, a former undersecretary of commerce in the Clinton administration and now chairman of Sonecon, an economic consulting firm.

Obama's best result from the summit, Shapiro said, would be for European leaders to specify the steps they will take to stand behind the sovereign debt of Italy and Spain.

"In the international economy, there's nothing else that comes close to the significance of that," he said.

For Obama, it means walking a fine line between pushing the Europeans to act swiftly and expressing confidence that they will.

Administration officials on Monday played down any financial role for the United States in helping eurozone leaders create a firewall that would stop Greece's crisis from spreading. However, they noted that the International Monetary Fund, with U.S. financial assistance, could be called on to assist.

"Obviously the challenges facing Europe have significant implication for the U.S. economy and for the global economy," said Lael Brainard, the Treasury Department's undersecretary for international affairs. "Fortunately, Europe has the resources and capacity to overcome these risks."

In an opinion piece Friday in the Financial Times, Obama called on the crisis in Europe to be resolved quickly. But the president otherwise reiterated his commitment to push for a short-term stimulus and midterm fiscal restraint in the U.S. and for balanced international growth and global banking reforms.

A key question during the Thursday and Friday meetings will be how willing China or Japan is to dip into their cash reserves and contribute to the European bailout fund. For the U.S. that proposition is essentially out of the question.

"The Americans don't have any money to put on the table," said Simon Johnson, a former chief economist at the International Monetary Fund. "If they had a little bit of money, they could match the Chinese and that might change the dynamic a little bit. But good luck going to Congress on that one."

To be sure, Obama has a huge vested interest in a healthy European economy. But his influence at the G-20 summit is driven less by what the United States can do than by the fact that the United States remains the largest world economy. Obama has frequently mentioned the situation in Europe as one of the factors that have contributed to anemic economic growth in the U.S.

Underscoring U.S. vulnerability are new unemployment figures for October that will be released Friday by the Labor Department, just as the G-20 meeting is wrapping up. Unemployment in the United States has been stuck at 9.1 percent for three months.

On Thursday, Obama will hold individual meetings with German Chancellor Angela Merkel and French President Nicolas Sarkozy, this year's summit host by virtue of France's yearlong presidency of the G-20 meetings.

In his Financial Times opinion piece and in remarks by administration officials, Obama and the White House insist the U.S. is playing a leadership role in the global recovery.

U.S. officials point to the $800 billion stimulus in 2009 and to Obama's push for an overhaul of financial regulations as key steps needed to stabilize the economy. More recently, however, the president has been struggling to win support for a $447 billion jobs bill and for a longer-term deficit reduction package that relies in part on tax increases.

The summit occurs one year before next year's presidential elections, a campaign the president enters with job approval ratings of 46 percent, according to the latest AP-GfK poll. Obama's precarious political position places him in common company at the G-20. Merkel is facing strains with her governing coalition over the Greece bailout and Sarkozy, also heading for a re-election bid, is trying to turn around his unpopularity.

When the G-20 leaders line up for their end-of-summit portrait, many might be appearing for their final time, noted Heather Conley, a senior fellow at the Center for Strategic and International Studies.

"When you see the family photo and look at the G-20 table, you'll see political leaders in peril," she said. "These are leaders having a difficult time domestically."

[Associated Press; By JIM KUHNHENN]

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