29 - Relations with the US on the euro crisis

Anxious Americans were supportive of European efforts to save the euro, while siding with the pro-growth camp in the crisis.

In 2012, the Obama administration feared an unravelling of the eurozone, which would have triggered a new economic recession and endangered the president’s chances of re-election in November. But the administration had few policy tools at its disposal that could make a difference: it could not contribute to rescue funds directly and had no margin of manoeuvre to contribute more through the IMF. In fact, all it could do was publicly support European efforts and thus reassure nervous markets – a task it usefully fulfilled, and which satisfied Europeans’ expectations. As was the case in 2011, the US Federal Reserve also kept swap lines open with the ECB in order to facilitate the provision of liquidity.

Privately, President Barack Obama, Treasury Secretary Timothy Geithner, and their emissaries urged eurozone leaders to do more to contain the crisis. The US preference for more action led to tensions between Washington and Berlin, which were visible at the G8 summit at Camp David in May. Obama sided with the pro-growth camp of French President François Hollande, Spanish Prime Minister Mariano Rajoy, and Italian Prime Minister Mario Monti rather than the pro-fiscal consolidation camp of German Chancellor Angela Merkel. But, here again, there was little the US president could do.

The euro crisis was also at the centre of the discussions at the G20 meeting in Los Cabos the following month, with the US and other powers insisting that European leaders commit all possible resources to solving the crisis. This elicited an angry response from European Commission President José Manuel Barroso, who said that Europe didn’t need economic lessons from the US – where the crisis originated. The US administration was satisfied with the decision to create a banking union announced at the following European Council in June, and, most importantly, with the ECB decision to buy euro area government bonds, thereby assuaging fears of a collapse of the euro.