President Barack Obama’s path to re- election may pass through Berlin and Paris.
The European debt crisis that German Chancellor Angela Merkel and French President Nicolas Sarkozy are struggling to contain looms as the most visible threat to the U.S. economy as Obama heads into his re-election campaign.
European leaders took a critical step toward curbing the crisis yesterday, agreeing to expand their rescue fund. Further details need to be worked out, and the negotiations could still fall prey to political infighting or an investor revolt.
Obama has limited capacity to influence the discussions even with the significance of the outcome for the U.S. economy and the his re-election prospects. He will meet with European leaders at the Group of 20 summit in Cannes, France, on Nov. 3- 4.
A cascade of defaults that spread from Greece to other nations such as Portugal, Ireland, Spain and Italy would risk a financial panic and freeze in U.S. credit markets, as well as a surge in the dollar’s value that would raise the cost of U.S. exports, said Nariman Behravesh, chief economist for IHS Inc., a forecasting firm. U.S. corporate profits from European operations could face a sharp decline as the continent sank into recession.
Obama must try to nudge the European leaders toward consensus at a time when U.S. prestige as a global economic leader has been tarnished by the 2008 financial crisis, rising U.S. government debt and a domestic political standoff that took the country to the brink of default in August.