France's President François Hollande smiles at the end of a news conference at the G-20 summit in Los Cabos, Mexico, Tuesday, June 19, 2012.
All the bland platitudes coming out of the Group of 20 Meeting in Mexico can’t disguise the absence of progress on the European crisis. German Chancellor Angela Merkel is totally dug in on the proposition that Greece, Portugal, and Spain need to stick to the austerity medicine that will only deepen the collapse and embolden more speculative attacks on government bonds.
President Obama has just about no leverage in this situation. On Monday, the European Commission President, Jose Barroso, a conservative former Portuguese prime minister, and close Merkel ally, broke his diplomatic cool and declared that he was in no mood to be lectured by Americans on what Europe needed to do to restore growth.
This crisis was not originated in Europe," Barroso said. "This crisis was originated in North America. Many in our financial sector were contaminated by unorthodox practices from some sectors of the financial market."
True enough—but the fact that toxic American financial products caused the crash in 2008 doesn’t mean it’s a good idea for Merkel and Barroso to pour oil on the flames in 2012
On Tuesday afternoon, stock markets were up because the orthodox parties were likely to form a government in Greece. The New Democracy Party, which came in first and will select the prime minister, is the gang that cooked the government’s books and thereby invited the speculation against Greek government bonds. Its coalition partner, the center-left PASOK is the party that accepted the austerity demands that are crushing the Greek economy.
In today’s economy, a Greek government that seems willing to roll over and stay the course on austerity passes for good news.
French President Francois Hollande, armed with an absolute legislative majority thanks to last Sunday’s elections, will press for a new growth program in the range of $120 billion euros. But even if Merkel and company agreed, which is a stretch, the failure to contain speculative attacks and the continued austerity pressure mean that a very modest growth program won’t pull Europe out of its downward spiral.
This, of course, is not good news for Barack Obama. You have to wonder just how bad things must get before Europe’s leaders conclude that austerity is no road to growth.
One has to suspect: a lot worse.