Uh-Oh

The unions that matter most to President Obama and Mitt Romney are not between same-sex couples, but between France and Germany and Greece and Spain. We are about to enter the third consecutive election where social issues will not dominate. The latest CBS News/New York Times poll shows 62 percent of registered voters describing the economy and jobs as the top issue in the presidential campaign. Next is the budget deficit, with 11 percent. Broadly defined, 73 percent of registered voters consider fiscal or economic issues most important. When nearly three-quarters of those most likely to vote focus on one issue, nothing else matters.

That brings us to Europe and the slow-moving train wreck that has been the euro crisis. Greece will likely soon expel itself from the eurozone. Quiet preparations have already begun in the “grey market” to begin trading the drachma, which Greece used before the euro became the harmonizing currency for 17 nations in 1999.

On Tuesday, Treasury Secretary Timothy Geithner declined direct comment on Greece or the future of the euro, but said the woes of the eurozone economies were “different” from the fiscal challenges in the U.S. “Ours are so much more modest,” Geithner said. This is true. Europe’s fiscal woes and political chaos are much more severe. The market knows the difference. America continues to borrow at phenomenally low interest rates, while Greece pays the kind of rate offered by a loan shark.

Geithner also said Europe has a “strong incentive to make monetary union work.” Absolutely. The incentive is there not to go back to a world of lire and francs and deutsche marks. But the political will is not. Governments bound by austerity have either collapsed or their voters have rebelled. Austerity is the language of bond-holders. Anti-austerity is the passion of European voters.

Why does this matter to America and its presidential campaign? Because the U.S. economy has slowed. Two months ago, Jared Bernstein, former chief economist to Vice President Joe Biden, told me he thought the euro crisis—which then, deceptively, appeared to be receding—could shave one-quarter of a percentage-point off real U.S. gross domestic product. Bernstein now estimates the crisis will knock one-half of a point off real GDP.

The U.S. economy grew at 2.2 percent in the first quarter of this year, down from 3 percent in the fourth quarter of 2011. The euro crisis is stalking a slow-moving U.S. economy, and Bernstein and every other reputable economist can’t predict with certainty the actual consequences.

But what happens in Europe won’t stay in Europe. And that means voters’ anxiety won’t subside by November. Europe won’t drive America into a recession. But it will darken the horizon and make the economic debate resonate that much more about this country’s future. That could create more problems for Obama.

Think about the Detroit Three automakers. Their story of rebirth, a plus for Obama, threatens to be undercut by economic woes in Europe. All three car manufacturers have strong product lines and robust sales in America. Europe, however, is also a part of the story. Ford and General Motors have big operations there and both of them are taking big hits in the eurozone. The credit crunch and economic malaise in Europe smashed GM, turning a $256 million profit one year ago into a $1 billion loss this year. Ford suffered similarly and projected in March that it would lose up to $600 million in Europe this year. What about Chrysler? Remember, the full company name is Fiat SpA and Chrysler Group. Fiat owns 50 percent of Chrysler and also operates five plants in Italy—each one a money-loser.

In late April, Fiat/Chrysler CEO Sergio Marchionne predicted the euro crisis would ease. “In the next 30 to 60 days, we should see the Euro reacquiring credibility,” he told Reuters Insider television.

That was before the Greeks failed to create a coalition government, before Francois Hollande defeated French President Nicolas Sarkozy, before data showed Germany alone kept the 17-nation eurozone out of its second recession in three years—thus intensifying German desires, and those of the European Central Bank, to enforce austerity. Obama might be able to claim that his anti-austerity stimulus package helped prevent a euro-style cave-in. But that’s a tough sell to Americans who are worried about government debt.

And so crisis is the watchword among European politicians. In a globally-connected economy where risk avoidance now dominates, it’s bad news for a politician named Obama.

This article appears in the May 16, 2012, edition of National Journal Daily.

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