Nations' fiscal reality swaying

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As President Barack Obama begins an annual G-8 meeting with the leaders of some of the world's richest nations today in Northern Ireland, the economic-policy gulf that has divided them since the global crash in 2008 has narrowed significantly -- just not exactly in ways that the White House would have liked.

The Europeans lately have slightly eased their austerity policies, after four years of deep spending cuts and rising taxes that many economists blame for keeping the continent in recession long after America's ended.

In contrast, the Obama administration, after years of pressing Europe to adopt American-style stimulus measures, is now presiding -- if reluctantly -- over European-style austerity that is measurably slowing its recovery.

Much of that austerity is in the form of across-the-board spending cuts known as sequestration that were forced by Republicans in Congress. But Mr. Obama supported an end this year to both a temporary payroll-tax cut, which the Congressional Budget Office and private analysts credited with spurring consumer spending and creating jobs, and the Bush-era income tax cuts for the wealthy. What stimulus remains in the U.S. economy can be credited to the expansionary monetary policies of the independent Federal Reserve System.

That new reality in the United States reduces the president's already limited leverage in his fiscal debate with Europeans, analysts on both sides of the Atlantic say, even as Europe's woes continue to act as a drag on its trading partners, including the United States.

"President Obama will continue trying to lead by persuasion rather than by example," said Eswar Shanker Prasad, an economics professor at Cornell University and a former official of the International Monetary Fund. "The U.S. is likely to push other countries towards adopting measures to support growth, including a slowdown in the drive for fiscal austerity, but against the backdrop of its own premature fiscal tightening."

With the United States "just beginning to solidify its recovery, the last thing it needs right now is a major shock emanating from Europe," Mr. Prasad added. "But the reality is that the U.S. can only jawbone. It cannot really influence policies in any substantive way."

American and European officials said in interviews that arguments over austerity vs. stimulus, so prominent at international gatherings in recent years, are likely to be muted at the two-day summit conference of the Group of Eight industrialized countries that is being held at the lakeside Lough Erne resort in Enniskillen, Northern Ireland. Besides Mr. Obama, participants include the leaders of Canada, Britain, France, Germany, Italy, Japan and Russia -- countries that account for about half of the world's economic activity.

Administration officials say Mr. Obama is likely to make his most fulsome economic arguments against Europe's continued emphasis on budget cutting -- and for the relatively successful American model -- after the G-8 meeting, when he flies to Germany. On Wednesday, he is to be in Berlin for a state visit with Ms. Merkel.

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