Obama Pushes For Economic Stimulus Over Austerity at G8 Summit

This weekend, President Obama held an informal summit of the G8 leaders at Camp David, prior to the NATO summit being held in Chicago on Sunday and Monday. The talks of the this first-of-its-kind Camp David meeting focused primarily on the volatile economic woes plaguing much of Europe and its effects on the U.S.’s tepid economic recovery.

President Obama offered his take on the situation in Europe, addressing concerns of Spain’s worsening fiscal crisis and Greece’s possible exit from the European Union, and the disastrous effects a Greece default will have on the rest of Europe, which would surely send shockwaves throughout much of the world and certainly have an impact on the economy here at home. The President pushed for the G8 leaders to assure Greece’s stability and the rest of Europe’s commitment to keeping Greece in the Union, but more importantly spoke of the necessity for Europe to relinquish their intractable stance on austerity measures that have recoiled Europe back into recession. The good news for President Obama is that he will surely have a new ally in his calls for less austerity and more stimulus in France’s newly-elected President, Francois Hollande. Hollande is the first socialist president France has elected since the early 1990′s, and won the French election a few weeks ago on a populist wave amidst growing criticism of the austerity measures that has left Europe reeling with record unemployment.

Obama’s increased pressure on Europe to enact stimulus measures should come as no surprise to those familiar with the President’s leanings. The stimulus plan the President passed after taking office in 2009 was nearly a $1 trillion, but he wanted more. Republicans wouldn’t do it, and Obama compromised, partly because the severity of the recession was still unknown to many, and the administration reduced the amount from $1.2 trillion to about $800 billion. The stimulus, by most accounts, saved anywhere from 2-4 million people from losing their jobs during the worst of the recession. Since that time, Obama has spoken often of the need for more spending and stimulus, but a Republican-controlled Congress is absolutely unwilling to negotiate any new spending measures unless offset by cuts in other departments (excluding defense, of course…), and will do nothing at this point if it will add to the deficit, nothing except reduce taxes on the wealthy, which account for an immense portion of our current deficit.

I feel Obama’s posturing on the plight facing Europe will be viewed as strictly political. I’m anticipating pundits dismissing the President’s recommendations to his fellow G8 allies as a way to stave off critique should the economies in Europe continue to decline and those effects make their way across the Atlantic. If our economy should falter, unemployment rise, stocks dip, any of these things, Obama’s re-election chances become even slimmer.

But aren’t Mitt Romney’s attacks on the President’s handling of the economy after the recession also political? Aren’t the things pretty much any elected politician do political? Yes, they are. Obama’s hardened stance on Europe’s austerity failure should not be viewed as political, should not be construed as ‘saving his skin’ when it comes to criticism for the country’s economic woes. The President was elected to help the American people. A weakened economy in Europe will certainly be felt here before too long with our economic situation so anemic. The President is trying to prevent hardship on the people he was elected to protect. And, you know, he’s trying to lessen the burden so many Europeans are feeling because of the failed policies of austerity economics.

France, Greece Elections Referendum on Austerity Economics

Over the weekend, several countries in Europe held elections and the changes were wide-spreading. But it was in France and Greece where the largest impacts of Europe’s economic crisis could be felt.


In Greece, voters made apparent their displeasure with the country’s handling of their debt crisis, specifically the eurozone deal signed by the former Parliamentary leaders which has led to strict austerity measures increasing the countries economic issues with rising unemployment (now at 21%) and thousands of small businesses shuttering their doors. New Democracy and PASOK, the country’s political powerhouses over the last 40 years, suffered immense losses, receiving only 33% of the total vote – less than half of the vote total they received during the last elections in 2009. The two parties will hold 150 seats in Parliament, not enough to form a coalition government. Rejecting the policies of Greece’s ruling elite, voters instead turned to other political factions, notably the Syriza party, which came in second behind New Democracy’s 19% with 16.6% of the vote. The broad consensus of voters want Greece to remain in the Eurozone, but reject the notion of austerity as the most pressing option for handling the debt crisis. Antonis Samaras, the New Democracy party leader said the newly formed government should have two exclusive aims: first, to stay in the euro; second, to “amend the terms of the loan agreements so there is economic growth and relief for Greek society.”

Renegotiating the terms of the euro bailout likely just became much easier for Parliament in Greece with France’s Nicolas Sarkozy losing to socialist challenger Francois Hollande. Sarkozy and Angela Merkel, Germany’s Chancellor, were the most vocal proponents of the austerity measures taking hold throughout much of Europe, arguing for strict budget cuts to reduce deficits, which would in turn restore “confidence” to the markets and that would spur growth. However, that has yet to happen and most countries that adopted austerity have now dipped back into a recession, as we pointed out in this column last week. Austerity has failed in Europe, and voters saw Sarkozy as having failed to restore the country to its pre-recession levels. Now, with Hollande as President, France can be assured to take a more proactive role in the budget cuts imposed by the Merkel-Sarkozy European treaty, opting instead for increased spending and more government stimulus to return the french, and Europeans in general back to work.

And how does this affect the United States? The implications are varied. Are most Americans aware of the failure of austerity economics in Europe, and thus reject the calls of many conservative politicians to cut spending? Will Americans view the rise of a “socialist” leader in France as threatening and thus reject any idea of ‘wealth redistribution’? (There has been plenty of ‘wealth redistribution’ in the country over the last 3 1/2 decades from the poor and middle classes to the top, but not many see this as such a bad thing; it’s only when it works the other way do some cry foul.) Is the impatience of the Greeks and the French indicative of the impatience of Americans, that no matter who is in office, if they failed to fix things quick enough, the voters are looking for someone different? Will the changing governments in Greece and France be able to enact any palpable, substantive change in the next 6 months prior to our own election to act as a marker? It’s hard to say. All we know right now is Europeans were unhappy and they sent a clear message to their own governments and the other governments around them: it’s high time someone was held accountable.

Eurozone Unemployment Hits Record High

Unemployment in the Eurozone has risen to a record high of 10.9%, continuing a worsening trend since last year. In the 17 countries comprising the Eurozone, the countries whose currency is based on the euro, there was only a rise in unemployment of 169,000 from February’s mark, but enough to raise unemployment up from 10.8%. By contrast, the U.S. has seen unemployment fall from 9.1% last August to 8.2% in March. Europe’s growing crisis has lead to renewed calls to shift their economic focus from austerity to spending, with the president of the European Central Bank calling for a growth pact.

Led by Germany, Europe’s #1 economy, and Britain, Europe has tested austerity economics – reduced spending and raising taxes – championed by many conservatives and Right-wing analysts who say that tackling debt is the best way to revive a faltering economy, claiming reduced debt will restore confidence in the markets for people to start investing again.

But progressive economists, such as Dean Baker and Paul Krugman, have been arguing for years a Keynesian approach to restoring growth after the recession, that deficit spending is not only the best way to resuscitate the economy, but austerity actually exacerbates a recession, prolonging the downturn and increasing unemployment.

And now, it seems, their projections are in fact coming to fruition. After some initial upticks in some European economies (Ireland was lauded early as a prime example of austerity success), half of Europe has now slipped back into a recession. Unemployment in Spain and Greece is over 20%, and, even worse, unemployment for people under 25 is staggeringly over 50%. Even Germany has begun contracting.

With elections set this week in Greece and, more importantly, France, where the likely winners will push for less austerity and more pro-growth initiatives, it’s likely Europe will see even more opposition to their failed fiscal adherence to austerity of the last two years.