Bloomberg News

Obama Says Europe Must Act as Crisis Threatens Recovery

June 08, 2012

Obama Says Congress Must Act as Europe Drags on U.S.

President Barack Obama speaking about pushing Congress to pass his proposals to create jobs and improve the economic standing of middle class families. Photographer: Jewel Samad/AFP/Getty Images

President Barack Obama pressed Europe’s leaders to take “decisive” action to stimulate growth while dealing with debt, saying the euro-zone crisis is putting a serious drag on the U.S. economy.

“The sooner they act, the more decisive and concrete their action, the sooner people and markets will regain some confidence,” Obama said at a White House news conference.

The president also cited Europe’s financial woes to pressure Congress for action on jobs measures that have been stalled since he proposed them last September.

A U.S. slowdown would deal a blow to Obama’s bid for re- election and reinforce Republican Mitt Romney’s main line of attack against the president. A Labor Department report a week ago showed only 69,000 new jobs were created by employers in May and the unemployment rate rose to 8.2 percent, up 0.1 percent.

With the state of the economy the dominant issue in the campaign, most national polls show Obama and Romney tied for support among Americans. Speaking shortly after Obama’s remarks, Romney said at a campaign appearance in Council Bluffs, Iowa, that Obama is “out of touch” for saying the private sector of the economy “is doing fine.”

Growth Push

On Europe, Obama repeated the prescription for the 17- nation euro zone that he outlined when he met with other leaders from the Group of Eight countries May 18 and 19.

“Even as European countries with large debt burdens carry out necessary fiscal reforms, they’ve also got to promote economic growth and job creation,” he said.

European leaders including German Chancellor Angela Merkel and French President Francois Hollande are “working to put in place a growth agenda” along with “responsible fiscal plans.”

“They have America’s support,” Obama said. “Their success is good for us.”

Hollande and Obama spoke by telephone today, both governments announced. They “agreed on the importance of steps to strengthen the resilience of the euro zone and growth in Europe and globally,” according to a White House news release.

In focusing on Europe, Obama is seeking to balance his domestic political priorities with the prospect that more pressure may be counterproductive, particularly with Merkel, who has advocated austerity measures to rein in debt.

“The Merkel government is really getting sick of all the complaining and lecturing from the Obama administration,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said by phone before Obama spoke.

G-20 Meeting

Obama will be meeting with Merkel and other Group of 20 leaders at a summit in Los Cabos, Mexico, on June 18-19, nine days before the next EU crisis summit in Brussels.

Obama said the U.S. financial system can absorb “shocks” better because of reforms put in place since he took office. Still, he said, if Europe goes into a recession, “that means we’re selling fewer goods, fewer services, and that is going to have some impact on the pace of our recovery.”

Federal Reserve Chairman Ben S. Bernanke told a congressional committee yesterday that policy makers will discuss later this month whether to do more to spur growth in the U.S., though he said the steps they could take may have “diminishing returns.”

Treasuries rose for a second day amid concern Spain may become the fourth of the euro-bloc countries to require emergency aid. The 10-year note yield declined one basis point today, or 0.01 percentage point, to 1.63 percent at 4:10 p.m. New York time, according to Bloomberg Bond Trader prices.

The Standard & Poor’s 500 Index (SPX) advanced 0.8 percent to 1,325.58 at 4 p.m. New York time, extending its rally this week to 3.7 percent, the biggest weekly gain since December.

Spain’s Banks

Obama’s remarks came ahead of weekend talks among euro zone finance chiefs on a potential assistance request from Spain to shore up the nation’s lenders.

A bailout for Spain, reeling from a recession and the bursting of a property bubble, may dwarf previous rescues in the effort to stem the turmoil that began with Greece’s disclosure in 2009 that its finances were in worse shape than was previously known.

Obama said today it is in “everybody’s” interest for Greece to stay in the euro zone and he warned Greece that its hardships will increase if the nation exits.

Obama said Congress should adopt major portions of the $447 billion jobs plan he offered in September that the administration says would put construction workers back to work upgrading roads and bridges, teachers back in the classroom and police and firefighters on the job.

Government Workers

While private sector employers have added 4.3 million jobs, he said, “state and local government hiring has been going in the wrong direction.”

“Given signs of weakness in the world economy,” he said. “It’s critical we take the actions we can to strengthen the U.S. economy right now.”

The September jobs package called for $35 billion to re- hire teachers and first responders, $30 billion to modernize schools and $50 billion for so-called “surface transportation,” such as road and bridges.

Republican Response

Republicans rejected Obama’s message.

“He said the private sector is doing fine,” Romney, a former governor of Massachusetts, said in Iowa. “Is he really that out of touch?”

Romney said Obama’s plea to spend on hiring government workers shows he didn’t “get the message of Wisconsin,” referring to the June 5 victory of Republican Governor Scott Walker in a recall election sought by supporters of public employee unions.

Obama later sought to clarify his remarks. “It is absolutely clear that the economy is not doing fine, that’s the reason I had the press conference,” he said in the Oval Office after meeting with Philippine President Benigno Aquino.

Republican leaders in Congress said that Obama’s policies and government deficits are as much to blame for the lackluster U.S. economy as Europe’s debt crisis.

“Remember one thing,” House Speak John Boehner, an Ohio Republican told reporters. “It’s the debt in Europe, and if we don’t get busy dealing with our debt, we’re going to be in the same shape.”

Senate Republican leader Mitch McConnell of Kentucky said Obama’s proposals are off base.

“It’s baffling that, in the face of all evidence to the contrary, this president still believes that spending money we don’t have to inflate the government is the answer to America’s economic problems,” McConnell said in an e-mailed statement.

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; Kate Andersen Brower in Washington at kandersen7@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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