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The European public and their governments were big backers of an Obama presidency, hoping that the election of a new president would change the dynamics of the relationship between the two continents. But, as often happens, now that money, power and influence is on the line, it's all in the details.
And as we researched this article, we found the following lead in the Financial Times, which clearly sums up the current situation for U.S. president Obama: "Barack Obama enters his first real moment of global diplomacy in London on Wednesday with a paradox: he is the most popular US president in a generation, but you would have to go back more than two generations to find one with fewer cards to play."
Stratfor.com's George Friedman puts the situation together quite nicely, noting: "There is no question that Obama and the major European powers want to have a closer relationship. But there is a serious question about expectations. From the European point of view, the problem with Bush was that he did not consult them enough and demanded too much from them. They are looking forward to a relationship with Obama that contains more consultation and fewer demands. But while Obama wants more consultation with the Europeans, this does not mean he will demand less."
In fact, Friedman succinctly added: "Europe and Obama loved each other, but for very different reasons. The Europeans thought that the United States under Obama would ask less, while Obama thought the Europeans would give more."
So, as the U.S., Europe, and a cast of newly risen players in the global economy, such as China, Russia, and India start to haggle about how to handle the current economic crisis, Obama's position, and potential tactics and strategies are important, to the U.S. economy, and to the financial markets.
The Financial Times observed: "Unlike his predecessors who created the Bretton Woods currency system in 1945 and then brought it to a close in 1973 by going off the gold standard, Mr Obama can only achieve the changes he wants through persuasion," and "Even then, he is unlikely to get everything he desires. In each of the four areas that Mr Obama wants to see progress, the president is likely to bump up against the realities of reduced US power."
To be sure, the thought that the U.S. is now a smaller super power is not something talked about openly in the U.S., although it has been mentioned. Yet, around the world, it's a given, especially if you ask the likes of Hugo Chavez, the Russians, or Iran.
But, if we stick to business, we can find something to consider. According to Stratfor.com, a key to what happens in the future depends on what the U.S. and the U.K., on one side, can extract from Germany and France on the other. As Stratfor notes, the U.S. and the U.K. "that the heavily export-oriented Germans in particular will use the demand created by U.S. and British stimulus on their economies to surge German exports into these countries as demand rises. Germany and France would thus get the benefit of the stimulus without footing the bill, enjoying a free ride as the United States builds domestic debt."
Further complicating matters is the current economic meltdown in Central Europe, a situation, that as Stratfor sees it "Western European banks took dominant positions in Eastern Europe in the past decade. They began to offer mortgages and other loans at low interest rates denominated in euros, Swiss francs and yen. This was an outstanding deal unless the Polish zloty and the Hungarian forint were to plunge in value, which they have over the past six months. Loan payments soared, massive defaults happened, and Italian, Austrian and Swedish banks were left holding the bag."
In other words, contratry to popular perception, not all of the world's economic problems stem from the U.S. subprime mortgage crisis. The U.S. sees this problem, which affects Germany and other European nations, as a European problem, while Europe sees all of the world's economic problems as stemming from the U.S.
This Central European issue is not so peripheral, as it mirrors the U.S. subprime situation, if not in scope, in methodology, and in results.
In the middle of it all is the International Monetary Fund (IMF), which Germany feels should be the body that deals with the Central European problem, thus leading Germany to block a U.S./U.K style, Europe-funded bailout for the old Iron Curtain countries. But, since the U.S. is the largest benefactor of the IMF, the Obama administration is likely to think that Germany is wanting the U.S. to indirectly bailout Central Europe, without giving something to the U.S. in return.
So here's the major issue, according to Friedman: "The Germans will not yield on the stimulus issue and Obama will not press, since this is not an issue that will resonate politically. But what could be perceived as a massive U.S. donation to the IMF would resonate politically in the United States. The American political system has become increasingly sensitive to the size of the debt being incurred by the Obama administration. A loan at this time to bail out other countries would not sit well, especially when critics would point out that some of the money will be going to bail out European banks in Central Europe."
Conclusion
All politics are local, and have to do with who gets how much of what there is to split up among the potential recipients of the intended bounty. But, for at least the next few days, local politics will be played out in London, at the G-20 summit.
In this case, you have the U.S. and Germany at odds over how much money each country is going to provide to Central Europe, and what each country is going to extract from the other in exchange. Germany wants the U.S. to foot the bill. And the U.S., if it does to any degree, wants something from Germany in return.
Obama may want to bargain with money on his side, and may want to get more European troops for his war in Afghanistan. But the Germans don't seem to want any part of that.
So where does this all end? According to Stratfor: If Obama "donates money to the IMF, some of it earmarked for Europe, while the Europeans not only refuse to join the United States in a stimulus package but refuse to send troops to Afghanistan, the entire foundation of Obama’s foreign policy will start becoming a public issue. Obama argued that he would be more effective in building cooperation with European allies than Bush was or U.S. Sen. John McCain would have been. If he comes home empty-handed, which is likely, the status of that claim becomes uncertain."
It could take some time for the public to figure this highly complex set of cirmcumstances out. But the markets, already jittery, are not likely to take long to act if there is any kind of hint that Obama has struck out at the G-20 summit.
Of course, these summits are known to be all circumstance and little substance. But, somehow, when Russia is calling for a return to the Gold Standard, and china is pushing for a new world currency to replace the dollar, this summit is much more than a photo opportunity.
Volatility is likely to be in place for the next several days.
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