The Crisis That Dare Not Speak Its Name

LONDON — In a campaign dominated by serious domestic policy concerns, perhaps it’s no surprise the only person asking the presidential candidates about the greatest threat to global financial stability is a comedian.

Until Tonight Show host Jay Leno raised the European debt crisis with President Barack Obama last week, the Eurozone was almost completely absent from the presidential campaign. Indeed, the closest the candidates got to discussing the issue in any of the debates was Romney’s admonition that the United States would end up like Spain — or Greece — if it doesn’t trim its spending.

Perhaps it took a late-night jokester to finally talk about Europe because, well, it’s complicated. The eurozone is a $17 trillion behemoth, the largest economic bloc in the world, whose members are struggling to solve a complex crisis across 27 countries and nearly as many different economic cultures. And the debt crisis consuming the United States’ largest trading partner is arguably a much more immediate threat than Iran, Libyan terrorism, or any other foreign policy issue the candidates have discussed. What’s more, while the two candidates tend to spar on style rather than substance when discussing Iran, al Qaeda, or Afghanistan, Obama and Mitt Romney genuinely disagree about how to fix the debt crisis. In Obama’s view, austerity is part of the problem; in Romney’s, it’s part of the solution.

In the last year, Obama’s Treasury Secretary Tim Geithner has been in repeated contact with European officials, urging them to consider infusing struggling economies with government stimulus — and not just impose German-led programs of austerity. And over the summer, when the European crisis was so acute that it threatened to derail the U.S. economy and the president’s reelection bid, Obama surrogate Bill Clinton reshaped the administration’s message toward Europe into a pointed political attack against Romney.

"Who would have ever thought that the Republicans who made a living for decades deriding ‘old Europe’ would embrace their economic policy?" Clinton said at a $40,000-a-plate fundraiser in June as he introduced Obama. "But that’s what they’ve done. Their economic policy is austerity and unemployment."

Two weeks later, Romney economic advisor Glen Hubbard used a newspaper op-ed in Germany — Europe’s largest creditor — to accuse Obama of "ignorance of the causes of the crisis." Romney understands that European governments needed to cut spending, he wrote, noting that the governor "advises a gradual fiscal consolidation for the U.S.: structural reform to stimulate growth."

The debate over Europe seems to echo perfectly the one over domestic economic policy, by far the most critical issue in this year’s election. So why is neither campaign talking about the European debt crisis? (Indeed, a Romney spokeswoman declined to comment for this article and Obama campaign spokespeople ignored three requests for comment.) The answer, it seems, is that both sides benefit from not speaking about it at all.

Earlier this year, when the International Monetary Fund (IMF) went, hat in hand, to the richest countries in the world asking to double the size of an emergency fund for Europe, the United States refused to pony up. Brazil, Mexico, and India contributed to a $500 billion "second line of defense" fund, but Washington said it was helping in other ways that were "most effective for what Europe needs right now," as Geithner put it at the time.

European officials expressed some sympathy that the Obama administration — struggling with its own economic crisis — was in no political position to offer assistance publicly, though it continued pushing for solutions behind the scenes. And yet the underlying reality marked a clear turning point: America no longer had the finances to tell Europe what to do.

The European response was equally clear. "This remains a sovereign European problem and they certainly will not take any lectures about this, beyond what they’ve already had to listen to from Obama," Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics and a former member of the Danish government, said in a phone interview.

David Gordon, a former director of policy planning under Secretary of State Condoleezza Rice, had a similar take: "This is one of these cases where you pay to play, And we are not paying."

In the past, the United States might have led the IMF into battle, putting up most of the financial and political capital to ensure a pro-American result. But today, with a "fiscal cliff" looming and  economic approval ratings threatening Obama’s second term, the president can’t dare admit that U.S. economic strength is waning. And Romney surely doesn’t benefit from acknowledging that Europe’s mess could imperil his plan to kickstart the American economy — and that there’s little he could do about it.

"The reality is that both the campaigns won’t have that much influence," said Kirkegaard. "Therefore it’s not something that either of them wants to highlight, this degree of U.S. overseas economic impotence."

If "impotence" is a little strong — Obama would argue he has kept the issue on the table — the United States has surely lost much of its ability to shape European economic policy, particularly during this extended campaign season.

"The candidates aren’t talking about it partially for the same reason that they’re not talking about Afghanistan," said Gordon, who is now the director of global macro analysis for the Eurasia Group. "They have an implicit bargain to keep these things where the U.S. is not in the drivers’ seat — and where neither of them has an effective plan — off the table."

When it comes to the markets, there is nothing an incumbent president hates more than risk. The Obama administration has pushed Europe — often in private, sometimes in public — to make bold choices, convince the markets that it is confronting the problems, and reduce volatility in Americans’ 401Ks. If that’s the goal, might Romney act similarly if elected president?

Matthew Goodman, a former director of international economics on Obama’s National Security Council, argued that Hubbard’s endorsement of German-led austerity and Geithner’s push for stimulus actually have a lot in common. 

Both sides are equally concerned about "providing greater certainty to the marketplace that Europe is on top of this and that they’re going to move forward in addressing the risks to the financial system," said Goodman, who currently holds the William E. Simon chair in political economy at the Center for Strategic and International Studies. "The U.S. is in some sense agnostic about specifically how Europe manages these issues…. The U.S. may have some opinion, but it doesn’t have any particular national interest in defining for the Europeans what choices they should make."

At least, not in public. Europeans bristle when told what to do during U.S. press conferences. And despite the optics, both candidates know that there’s little to be gained by criticizing European leaders openly during the campaign — since whoever is president will need their cooperation in the future, much of which will happen behind closed doors.

And that’s where some argue that Obama benefits. European love for America’s first black president has barely diminished since 2008. Seventy-five percent of Europe says it would vote for Obama, according to a poll released last month by the German Marshall Fund and the Italian foundation Compagnia di San Paolo. Romney fails to hit double digits.

A popular American president, suggests Kirkegaard, might have more influence in Europe than an unpopular one. "A Vice President Ryan describing the economy to Europe," Kirkegaard quipped, "would meet with a very skeptical audience."

But if the debt crisis has been largely seen in the United States as an economic challenge, most Europeans now would argue it is now a political problem. Can German Chancellor Angela Merkel ease the draconian austerity measures the EU imposed on Greece when she is fighting for reelection amid a voting public that rejects conciliation? How much austerity can Greek Prime Minster Antonis Samaras push onto his public when youth unemployment is already over 50 percent?

This is a "transformative moment" in both the United States and Europe, said Heather Conley, a former deputy assistant secretary of state who oversaw bilateral relations in northern and central Europe during the Bush administration. In her view, it’s time to strengthen the transatlantic relationship rather than squabble over it. "This is the moment we really need to think about bigger, bolder thoughts about the political relationship, not the tactical thoughts about the economic relationship," said Conley, who is currently the director of the Europe Program at the Center for Strategic and International Studies. 

But both campaigns have focused mostly on the economics of Europe — rather than the politics. And both have used Europe as a foil. Romney threatens a Greek-style future if Obama’s level of government spending continues, while Obama ties Romney’s economic plan to Greece’s soaring unemployment and increasing inability to provide basic requirements.

The curtains have not drawn on the Greek tragedy currently unfolding in Athens — and the European threat to the global economy remains high. If the United States has any hope in finding a stable economic path within its own shores, the next administration will have to figure out a way out of the Eurozone debt crisis. Maybe it’s time they started talking about it.