"The U.S. Response to the Crisis Has Been a Failure."
It's complicated. Washington's reaction to the eurozone crisis was almost certainly too slow, too small, and too stove-piped. Not only did U.S. policymakers fail to initially recognize the severity of the crisis, but they focused for far too long solely on purely financial, not strategic considerations. With Treasury taking the lead under Timothy Geithner and in spite of Secretary of State Hillary Clinton's laudable efforts to include economic tools in our foreign policy toolkit, the U.S. approach was purely "economic" without the "statecraft." Some U.S. officials seemed complacent, assuming that the European crisis was not of their making and the impacts likely to remain largely localized on the continent. The Europeans would, as they themselves insisted, figure things out for themselves at the end of the day. As a result, President Obama's personal involvement was not seriously sought until the summer of 2011, and when it did come, it was largely limited to high-level political efforts to cajole his European counterparts to reach a solution. The crisis had by this time evolved, and his interventions were neither universally welcomed nor terribly effective.
But there are mitigating factors that explain, though don't fully excuse, U.S. failures to play a more constructive role in solving the crisis. For one thing, the size of Europe's mess is far larger than anything we have had to help clean up before, and the United States alone simply does not have enough money to lead a robust international response with the vast sums of cash required to backstop Europe. With the U.S. economy recovering slowly from the 2008 financial crisis, the government deeply in debt, and some in Washington increasingly skeptical about U.S. support for international financial institutions, the Obama administration's ability to intervene decisively was hamstrung from the inception of the crisis. That hasn't changed, and in an era of fiscal retrenchment, it won't.
When the Europeans finally dropped their opposition to IMF involvement in May 2010 and agreed to allow the Fund to play a central role in the crisis response, the United States made it clear that it would not be providing more funding to the IMF to boost its war chest. Earlier this year, when the IMF announced an increase in its emergency funding to the tune of some $450 billion, the United States was conspicuous in its absence, arguing both that Europe should use its own resources to solve its own crisis and that the U.S. Federal Reserve has been quietly providing enormous amounts of dollar liquidity to the European financial sector, averting a much worse crisis. All true, but U.S. absence was glaring.
But let's be honest -- the Europeans have been less than eager to accept any U.S help. Certain that their collective wisdom, processes, and minimal financial commitments would be sufficient and mindful of the stigma that supplicant status would bring, Europe has kept Washington at arm's length for most of the last two years. When the United States did finally move publicly and decisively to help broker a solution, at the eurozone finance ministers' meeting in Poland in September 2011, Secretary Geithner was greeted with dismissal (Eurogroup President Jean-Claude Juncker huffily sniffing that Europe would not "[discuss] the increase of expansion of the EFSF with a non-member of the euro area"), ridicule (Austrian Finance Minister Maria Fekter: "I found it peculiar that, even though the Americans have significantly worse fundamental data than the eurozone, that they tell us what we should do") and outright rejection (Belgian Finance Minister Didier Reynders said Geithner should "listen rather than talk"). In private discussions, European ministers were more receptive than the heated rhetoric suggested, but their public rejection sent a clear message: Washington should butt out.
In past financial crises, such as the 1994 Mexican peso crisis, the United States kept publicly quiet and worked behind the scenes to provide necessary financial backstops, while building global coalitions to address the situation at hand. But when Europe began to come apart at the seams, Washington adopted a new strategy: speaking a bit more loudly and hoping that the markets would carry the stick. The United States, perhaps a bit wishfully, believed that expressing public concerns would drive market activity to increase pressure on European leaders for speedier and expeditious action. Europe wanted a quiet and quiescent America that would offer funds; what it got was an America offering lectures. But while it's tempting to pin the ineffectiveness of this approach on U.S. policymakers, they had few other choices; it's a more a sign of the times and the size of the crisis than an outright policy failure.
SUBJECTS:
