The interdependence of global capital markets means that President Barack Obama seeks reelection in a year when the decisions made — and more importantly, avoided — by European leaders could have a profound effect on the U.S. economy (and therefore on his prospects of victory).
Increasingly exasperated, the Administration is trying to press the Europeans to mount the sort of bailout and stimulus operation that Team Obama did in 2009, but to little avail. Unwilling to acknowledge that some of their member states are effectively bankrupt, the European Union muddles along — not unlike the U.S. Congress in its way of making short-term deals that postpone the moment of reckoning by a matter of months or weeks at a time. While some saw the Libya intervention as a hopeful moment of Europeans shouldering a share of the global policing role that has since World War II been the perceived responsibility of the United States, it may instead have been the last hurrah of a continent whose long-term fiscal challenges are prompting it to slash rather than expand spending on its military capability. So caught up are Europe’s leaders in managing their fiscal and economic crises that the idea of them taking a hand in responding to global crises appears increasingly fanciful, but the more immediate concern may be their failure to agree on decisive action to deal with their debt issues and the need to restore economic growth — failures that could have dire consequences for U.S. banks exposed to European debt, and for the world economy more generally, as America’s own economy remains sluggish and China’s is expected to slow down.
Unfortunately, the globalization of capital flows, interdependence and of risk has not been accompanied by the equivalent globalization of economic governance. We may all be in the same boat, but nobody seems to have the wheel — if, indeed, there is a wheel.