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How Much Credit Can Obama Claim on the Economy?

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Presidents regularly get the credit or blame for developments beyond their control. Sometimes, they also get no credit or blame for the decisions they do take. Barack Obama fits both molds. A fresh example of the second pattern is the president's surprising semi-breakthrough on European debt, at this week's G20 meeting in Los Cabos, Mexico. For months, President Obama and Treasury officials have quietly urged eurozone leaders to do what it takes to avoid a sovereign debt meltdown, before they tackle long-term reforms. This week, it looks like it might pay off.

According to reports, Obama emerged from a private huddle with German Chancellor Angela Merkel with her grudging agreement to use eurozone funds to directly support Spanish and Italian bonds. For the first time since the crisis began more than two years ago, the country with the deepest pockets has tacitly agreed to stand behind the full faith and credit of its member countries. If these reports are true, this week's agreement should hold off a full-blown debt crisis for a while, and with it, the prospect of a deep global recession this year. Yet, how many Americans will give Obama any credit for all this, come November?

In a similar fashion, Mr. Obama inherited an economy seized by an historic financial meltdown. His predecessor mismanaged the crisis so badly that it drove the country into the worst recession in 80 years. Steeling himself against opponents united only by their partisanship, the president unleashed a flood of fiscal and monetary stimulus to arrest America's downward spiral towards genuine depression. Six months later, growth resumed and private employment began to increase. Yet, in November, how much credit will voters give the president for avoiding the worst case scenario?

Instead, the president finds his reelection threatened by an economic reality he can do little to change -- namely, that an economy shaken by financial crisis usually recovers very slowly. In principle, to be sure, his administration might have done more to overcome the economic drag he inherited from Bush. He might have pressed harder to stabilize the housing market with short term loans for homeowners facing foreclosure. He might have tried harder to nail down a grand bargain for long-term fiscal balance.

But the president also recognized the new political reality following the 2010 elections. However hard he pressed or pushed Congress, neither deal was possible with Tea Party members calling the shots in the House, and Tea Party activists threatening to take down any Republican willing to work with the "enemy." Obama did successfully block the hard right program of slash-and-burn budget austerity, which almost certainly would have plunged the economy back into recession, as it did in Britain. But once again, come November, how much credit will he get for avoiding another downturn?

This president has shown that he can take care of himself politically. He may not be able to point to the dismal hand he inherited from Bush, at least not without seeming to whine. But he can point voters to the numerous problematic aspects of Romney's economic record in Massachusetts and Bain Capital. Obama also has the political advantage in many policy areas, since the public generally favor his approach to taxes, Medicare and Medicaid, higher education, and the deficit.

Unhappily, however, the economy is still far from safe and sound. This week's news from the G20 meeting will not settle the eurozone's economic problems. That leaves the president's reelection still hostage to the sovereign debt crisis. On top of the Obama-Merkel meeting of minds, the other good news is that Greece's new government should be able to avoid a precipitous default and chaotic exit from the euro. Eventually, Greece almost certainly will default and leave the euro, but hopefully not before the eurozone has prepared for it.

The question remains, then, of what additional arrangements Frau Merkel will accept to reassure international investors that Spain and Italy will not follow Greece's path. Time is short, because Europe is already in recession, and such deals are usually pricey. Moreover, at this moment, European leaders cannot even agree on whether the next step should be uniform banking regulation, a fiscal union, or expanded political authority for the eurozone. All of these measures are important for the eurozone to become a stable economic entity. But first, the eurozone has to survive. That will require what the president has called for all along -- measures such as Eurobonds or central bank authority to guarantee that after Greece, no other eurozone country will ever have to default.

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