Ten months into President Barack Obama's first year in office, reports emerged that Greek budgetary figures simply weren't adding up. Six months later, an emergency European summit was held to approve the first $147 billion bailout of Greece. The Greek crisis nearly brought the global economy to a standstill -- not bad for an economy that represents just 2 percent of Europe's GDP.
Fast forward to November 2012. Twenty-one European summits have been held; three eurozone countries have bailout packages (Ireland, Portugal, and Greece, which is negotiating its third package); two more countries (Cyprus and Spain) are on the verge of receiving bailouts; and 17 European governments have changed or collapsed since the beginning of crisis. Eurozone unemployment is at an historic high of 11.6 percent (in Spain, the figure is 25.8 percent) and the economic growth of eurozone economies is projected to contract by 0.5 percent in 2012, according to the International Monetary Fund (IMF).
Washington, we have a crisis -- a potential decade-long geoeconomic disaster that will extend well into Obama's second term or Romney's first.
Washington has not fully come to terms with the fact that its closest allies and partners are facing the most significant existential crisis since the Second World War. Can the United States exert influence over Europe's response? While we have the luxury of critiquing three years of the Obama administration's approach toward the European debt crisis, we can only guess what a Romney administration might do.
From the earliest days of the crisis, the Obama administration diagnosed Europe's problem as purely economic -- not an all-hands-on-deck, hair-on-fire 3 a.m. phone call possessing the global earthshaking qualities of the Lehman Brothers collapse in September 2008, but a worrisome economic problem nonetheless. The response was to dispatch senior Treasury officials and to ensure close consultation between the Federal Reserve, the European Central Bank (ECB), and other central banks to provide needed liquidity and credit. Other suggestions based on Washington's own experience in 2008-2009 included a TARP-like mechanism and rigorous stress tests to help shore up shaky European banks; a ‘lender of last resort' in the form of the ECB to ensure full confidence in the European banking system; and an increase in government spending to stimulate the private sector rather than German-enforced austerity -- all sound, rational economic advice that was perceived as successful (depending upon your perspective) in resolving the U.S. crisis.
But as the crisis deepened and, when it became increasingly apparent that Europe's economic problems were causing serious disruptions to America's own tenuous economic recovery, the Obama administration adopted a more forceful approach. Frequent visits to Europe -- on occasion uninvited and unwanted -- by Treasury Secretary Timothy Geithner and Under Secretary Lael Brainard, who made more than 17 trips to Europe from 2010-2011; more urgent phone calls between President Obama and German Chancellor Angela Merkel and other European leaders. Yet the United States did not contribute to the IMF emergency fund created to help Europe and other countries affected by the debt crisis, although Brazil, China, India, and Russia did donate funds. Interestingly, European governments have repeatedly turned to Beijing for help during the crisis.