The Upcoming Blame Game

Alexander Privitera

AGI Non-Resident Senior Fellow

Alexander Privitera a Geoeconomics Non-Resident Senior Fellow at AGI. He is a columnist at BRINK news and professor at Marconi University. He was previously Senior Policy Advisor at the European Banking Federation and was the head of European affairs at Commerzbank AG. He focuses primarily on Germany’s European policies and their impact on relations between the United States and Europe. Previously, Mr. Privitera was the Washington-based correspondent for the leading German news channel, N24. As a journalist, over the past two decades he has been posted to Berlin, Bonn, Brussels, and Rome. Mr. Privitera was born in Rome, Italy, and holds a degree in Political Science (International Relations and Economics) from La Sapienza University in Rome.

For a White House in full campaign mode, almost everything Barack Obama says or does right now is about energizing his base and getting ready for November 2012.

Observers across the Atlantic have noted his new populist tone that takes aim at Republicans, Congress, rich people and even some of the members of his own party. At first sight there is nothing unusual about the heated rhetoric. Politics is a rough contact sport, especially during election campaigns.

But these are unusual times, and what governments in the European capitals did not expect was to be turned into a piñata to be bashed by a U.S. president increasingly worried about his own re-election prospects.

It should not have come as a surprise. For months Obama has tried to explain the sluggish U.S. economic growth by pointing at external, foreign factors: the Libyan war and the resulting rise in oil prices, the nuclear disaster in Fukushima and its effect on the global supply chain, and, last but not least, the deepening crisis in Europe. In the past few weeks, Obama has focused almost entirely on the Old Continent. He has repeatedly criticized Europe’s response to the crisis. At one point, he even described Europe’s financial crisis as “scaring the world.”

Just a few days ago, the Washington Post argued that Angela Merkel could be pivotal in deciding Barack Obama’s re-election prospects : “What she and a handful of European leaders do over the next few weeks could well decide whether the American economy tips back into recession this year and thus, quite inadvertently, decide who wins the U.S. presidency….”

So far, the European response to the barrage of criticism coming from the U.S. administration has been quite muted, in part because Eurozone countries are experiencing deep “bashing fatigue.” Having been at each other’s throats for most of the past 18 months, they seem to have finally recognized that this exercise is not only exhausting but also counterproductive.

But the German chancellor is clearly worried about the tone in Washington. When asked after a meeting this week in Brussels whether she supported the International Monetary Fund’s (IMF) position on the forced recapitalization of banks, she ignored the question and instead replied: “What is important here, is that America and Europe are in proper communication, because that is how we are going to get the results we need, rather than just directing critical remarks at each other.”

But ensuring that all sides maintain a level of restraint may prove to be virtually impossible. Obama is not the only politician facing a tough election in the near future. There is French President Nicolas Sarkozy. The general elections taking place in Spain later this year, as well as in Germany in 2013. A leadership transition will also take place in China and Russia next year. And in Italy, Prime Minister Silvio Berlusconi, who now looks unlikely to be able to hang on to power for much longer, will likely be forced into early elections. These politicians will be tempted to look for external scapegoats to blame for the ills in their own countries.

In fact, one of the IMF’s biggest worries is that the spirit of global cohesion that helped stave off the worst in the wake of the 2008 Lehman collapse has been lost. Hopes that the G20 would provide the structure for a unified global response to the economic challenges facing the world have not materialized. For months, the IMF, both under its now disgraced former head Dominique Strauss Kahn and his successor Christine Lagarde, has appealed to world leaders to set aside the temptation to focus on short-term, domestic gains and focus instead on the big, common challenges. If the U.S., Europe and the emerging powers turn inwards and start blaming each other, rather than looking for a common approach, so the thinking goes, things could turn very ugly, very soon.

But the risk of a blame game is not the only cause of sleepless nights, both inside and outside the IMF. Harvard Economist Kenneth Rogoff has pointed to another danger. In a climate of campaign fever, argues Rogoff, we are not only in danger of a lack of unified decision making. We are also in danger of a period in which no decisions are made at all − something the world economy cannot afford. “If the overhang of elections exacerbates paralysis around difficult policy decisions,” argues Rogoff, “it will create huge potential for amplification at the worst possible time. Even under the best scenario, 2012 promises to be a year of even greater politically induced volatility than 2011.”

Even if the worst fears of a new recession do not materialize, it is highly unlikely that the U.S. economy will suddenly begin to grow at a sustained pace able to reduce unemployment significantly over the next twelve months. And even in the most optimistic scenario, Obama’s economic policies will still be a very hard sell. As the election nears, the temptation to take the easy route and blame others inside and outside the country for America’s woes will only become stronger.

If Europe does not turn the corner in the next few months, Obama’s critical, but still fairly measured remarks could quickly turn into more aggressive frontal attacks. Europeans would likely feel the need to fire back with the same rhetoric, thereby abandoning the more diplomatic, careful response they have adopted up to now. A heated trans-Atlantic blame game would mark the beginning of a new and dangerous phase in this crisis.

Alexander Privitera is a news anchor for the German television station N24 and has frequently participated in AGI events.

This essay appeared in the October 7, 2011 AGI Advisor.