Right-wing media have attacked President Obama's recent remarks about Greece, claiming that Obama “offered bailout” money to Greece, which is again nearing default. In fact, while Obama did suggest that the U.S. could play a role in shaping a second Greece bailout through the International Monetary Fund (IMF), his speech largely focused on urging German Chancellor Angela Merkel to take the lead in working with European Union officials to reach a deal; moreover, experts say Obama is correct that it would be “disastrous” if Greece defaulted on its debts.
Obama Warns Greece Default “Would Be Disastrous,” Pledges U.S. Will “Cooperate Fully” Through IMF
Obama: “We Have Pledged To Cooperate Fully In Working Through [Europe And Greece's] Issues Both On A Bilateral Basis But Also Through International And Financial Institutions Like The IMF.” On June 7, President Obama gave a joint press conference with German Chancellor Angela Merkel. He responded to several questions about Greece, which, as The Washington Post reported, is “again nearing default.” From the White House transcript of the press conference:
Q: Thank you, Mr. President. You both face economic troubles. Mr. President, how worried are you about the threat of a double-dip recession? What specific policies are you considering to help head it off? And abroad, do you expect Germany to fund another bailout for Greece?
PRESIDENT OBAMA: With respect to the European situation, I have had extensive discussions with Angela about the situation there. It's a tough situation and I think we all acknowledge it.
Greece's debt is significant, and it is taking some difficult steps to improve its situation. But they're under the gun from the international capital markets, and as part -- as a member of the euro zone, they necessarily are going to be looking to other members of the euro zone to help them figure out a path forward.
Germany is going to be a key leader in that process. And the politics of it are tough. You recall how difficult it was for us to make investments in our own auto industry or to make sure that we didn't have a financial meltdown here. Well, imagine if you're having to make those same decisions with 27 other countries with respect to somebody else's economic problems. That gives you some sense of how tough the politics are.
But I am confident that Germany's leadership, along with other key actors in Europe, will help us arrive at a path for Greece to return to growth, for this debt to become more manageable. But it's going to require some patience and some time, and we have pledged to cooperate fully in working through these issues both on a bilateral basis but also through international and financial institutions like the IMF. [The Washington Post, 6/7/11; WhiteHouse.gov, 6/7/11, emphasis added]
Obama: “We Think It Would Be Disastrous For Us To See An Uncontrolled Spiral And Default In Europe, Because That Could Trigger A Whole Range Of Other Events.” From the White House transcript of the press conference:
Q: And on the European economic question, did you ask [Chancellor Merkel] specifically to drop her insistence that the private sector become involved in the Greek debt bailout, which is holding up that and which you've blamed the European sluggishness for America's own stalled recovery?
PRESIDENT OBAMA: With respect to the economy, as I said before, this is a tough and complicated piece of business. And ultimately, Europeans are going to have to make decisions about how they proceed forward. What you have to do is balance the recognition that Greece has to grow, and that means that there has to be private investment there. They've got to make structural reforms that make them more competitive. They have to have greater transparency in their economic system.
But given their level of debt, it also means that other countries in the euro zone are going to have to provide them a backstop and support. And frankly, people who are holding Greek debt are going to have to make some decisions, working with the European countries in the euro zone about how that debt is managed.
What we've done is to say to Germany and other countries that are involved; we will be there for you; we are interested in being supportive; we think that America's economic growth depends on a sensible resolution of this issue; we think it would be disastrous for us to see an uncontrolled spiral and default in Europe, because that could trigger a whole range of other events. And I think Angela shares that same view.
And so we're going to have to work through this issue methodically, and we will be supportive in any ways that we can to make sure that all the best ideas are brought to bear on the problem. [WhiteHouse.gov, 6/7/11, emphasis added]
Right-Wing Media Claim Obama “Offer[ed] Bailout” Money For Greece, Attack Potential Aid Package
Drudge: “OBAMA OFFERS BAILOUT $$ FOR GREECE.” On June 8, the Drudge Report linked to a Reuters article about Obama's remarks on Greece with the following image and headline:
Wash. Examiner: Obama And Greece Are Like Alcoholics And A “Fifth Of Old Crow Is A Bailout Package From The [IMF], Paid For By The United States ... [And] European Nations.” A June 8 Washington Examiner editorial attacked Obama for promising U.S. support for ongoing negotiations over solutions to Europe's debt crisis, likening him to an alcoholic helping give Greece “another 'drink.' ” Although the editorial referred to “the next installment payment on the $160 billion bailout package approved last year by the IMF,” negotiations over a potential second aid package, and the IMF's role in that aid, are still ongoing. From the editorial:
Imagine two alcoholics sitting on a bench. Bill complains that he's out of booze and has no cash to buy any more. “Hey, no problem, friend, I've got a fifth of Old Crow here,” Jack says. “That's great because, man, I need it right now,” Bill pleads. “There's just one thing. We've both got to do something about our serious drinking problem and I'm going to help us lick it,” Jack responds. “Oh, and how do you propose to do that,” Bill demands, as his shaky hand reaches for the booze. “I'll share this bottle with you now, but we have to promise we'll cut back our drinking, starting tomorrow,” Jack explains. “Sure, anything you say, Jack. First thing tomorrow morning. Now gimme that bottle,” Bill shouts.
A similar scene can be seen right now on the world stage. Imagine that President Obama is Jack, Greece is Bill, and the fifth of Old Crow is a bailout package from the International Monetary Fund, paid for by the United States, Germany, France and other European nations who fear the economic consequences of a Greek default. Just as in the imaginary scene on the bench, Obama has offered Greece another “drink,” the next installment payment on the $160 billion bailout package approved last year by the IMF. The U.S. share of the Greek bailout will be approximately 18 percent of the total loan. Whatever the amount, it merely staves off the withdrawal pain of austerity that Greeks -- whose welfare-state government has for several decades been on a deficit-spending binge -- must endure sooner or later, and which their government agreed to implement in return for the IMF help. [The Washington Examiner, 6/8/11]
Big Government: “Obama Wants American Taxpayers To Bail Out Greek Politicians And Dig The Debt Hole Even Deeper.” A June 8 post on Andrew Breitbart's blog Big Government linked to the same Reuters article as Drudge did and claimed it showed that “President Obama is putting American taxpayers on the chopping block to bail out Greece's corrupt politicians.” It went on to claim that Obama “also encouraged the German Chancellor to rape her nation's taxpayers for the same purpose” and that any additional aid will “exacerbate the economic damage by delaying the economic reforms that are needed to put Greece's economy in better shape.” [Big Government, 6/8/11; Reuters, 6/8/11 via CNBC.com]
Obama Did Not Promise U.S. “Bailout” -- He Acknowledged Potential Role Of IMF In Assisting Greece
Reuters: Obama “Stressed The Importance Of German 'Leadership' On The Issue,” And “His Main Message Was Aimed At EU Countries ... To Step Up To Help Athens.” From the June 8 Reuters article linked to by the Drudge Report and Big Government:
President Barack Obama on Tuesday urged European countries and bondholders to prevent a “disastrous” default by Greece and pledged U.S. support to help tackle the country's debt crisis.
After a meeting with German Chancellor Angela Merkel, he stressed the importance of German “leadership” on the issue -- a hint that he expects Berlin to help -- while expressing sympathy for the political difficulties European Union countries face in helping a struggling member state.
“I'm confident that Germany's leadership, along with other key actors in Europe, will help us arrive at a path for Greece to return to growth, for this debt to become more manageable,” Obama said.
“But it's going to require some patience and some time. And we have pledged to cooperate fully in working through these issues, both on a bilateral basis but also through international and financial institutions like the IMF.”
A proposal for a second Greek bailout package worth 80 billion to 100 billion euros over three years was taking shape, euro zone sources said.
Obama said Greece had to make structural reforms and instill greater transparency in its economy.
But his main message was aimed at EU countries -- and, by default, wealthy Germany -- to step up to help Athens. [Reuters, 6/8/11 via CNBC.com]
Wash. Post: Greece “May Run Out Of Money ... This Summer If It Does Not Receive More Help From The International Monetary Fund And Its European Neighbors.” From a June 7 Washington Post article:
Despite getting a $161 billion international bailout last year, Greece is again nearing default. The nation may run out of money to pay workers, pensioners and creditors this summer if it does not receive more help from the International Monetary Fund and its European neighbors.
The IMF, the ECB and the European Union have tentatively agreed to extend more aid to Greece. But that program hinges on the Greek parliament's willingness to impose a new round of austerity on a population already reeling from high unemployment, a deeper than expected recession, and a year of cuts to social programs and public payrolls.
Meanwhile, European politicians and financial officials are jockeying over the terms of any new bailout, which may require a commitment of as much as $100 billion from the IMF and European nations. [The Washington Post, 6/7/11]
And Moreover, Experts Agree: A Greek Default Could Indeed Be “Disastrous” -- Both For Europe And The U.S.
Bloomberg: JPMorgan Economist Says, “A Crisis Provoked By A Default On Sovereign Debt Could Plunge The U.S. Back Into Recession.” From a June 7 Bloomberg article:
While the European debt problems have not been a significant drag on the U.S. economy this year, a crisis provoked by a default on sovereign debt could plunge the U.S. back into recession, said Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York.
“We believe Europe will continue to find short-term patches for the situation there,” Feroli said. “If we're wrong, the U.S. expansion could be at risk.” [Bloomberg, 6/7/11]
Moody's Investors Service: “The Fallout [From A Default] Would Have Implications For The Creditworthiness ... Of Issuers Across Europe.” A May 24 post on The Wall Street Journal blog MarketBeat reprinted parts of a note from Moody's Investor Service about what would happen if Greece defaulted, along with a commentary it referred to as “Translation Time.” From the post:
Moody's: Moody's believes that a default is likely to have adverse credit rating implications for Greece, possibly some other stressed European sovereigns, and the Greek banks, regardless of the efforts made to achieve an “orderly” outcome. The full impact on Europe's capital markets would be hard to predict and harder still to control. The fallout would have implications for the creditworthiness (and hence the ratings) of issuers across Europe.
TT: Whoa-kay. Even if a default is Tuetonically [sic] crisp and neat, it will probably create a mess in the markets. Obviously, Greece gets pummeled if it defaults. But it's not just Greece -- “other stressed European sovereigns” means Ireland and Portugal. Greek banks, which hold a lot of Greek debt, are an obvious target. But Moody's also says all of Europe would face creditworthiness issues. The interconnectedness of the European banking system (not exactly brimming with health) with the sovereign debt challenges is lurking behind these opaque words. No wonder the ECB and EU are so fretful.
Moody's: As for other stressed European sovereigns, Moody's believes that their ratings will invariably be affected, regardless of the myriad forms that a default by Greece could take. This would in turn lead to increasingly polarized sovereign ratings in Europe, with stronger countries retaining high or very high ratings, and weaker countries struggling to remain in investment grade.
TT: Reiterating that Portugal and Ireland will face immediate debt-rating risks. Left unsaid: What happens to Spain, Italy or Belgium, countries considered at risk, but not in the same league as Ireland, Portugal and Greece. That's a rather large omission. [MarketBeat, The Wall Street Journal, 5/24/11]
Financial Times Economics Chief: "[I]f It Were To Become A Banking Crisis Again ... Then Almost Inevitably It Would Affect The U.S. Too." From the May 17 transcript of an interview conducted by NPR's Robert Siegel with Martin Wolf, chief economics commentator for the Financial Times:
SIEGEL: Well, let's deal then with Greece. If, indeed, there is some recognition that the Greeks cannot pull out of their problems under the current arrangements, does such an agreement have consequences beyond the borders of Greece? That is, does it affect the rest of Europe? Does it affect the dollar? Who has a stake in this beyond the Greeks and, say, the French and the Germans?
Dr. WOLF: There's no doubt that that would have repercussions on other countries because the private sector would realize that there are real risks in lending to countries which don't have absolutely rock solid credit. This will also affect the banking systems around Europe, which are very vulnerable. And once, if it were to become a banking crisis again, which is the worst nightmare, then almost inevitably it would affect the U.S. too.
SIEGEL: But just to explain. The reason for fearing a banking crisis here is that just as at one time banks were sitting on a lot of securities backed by and bad mortgages, in this case if they're sitting on a lot of securities backed by improvident countries, they would have to acknowledge losses and...
Dr. WOLF: Exactly. It will be in another round of bad debt that would, in a very interconnected financial system, have some global repercussions. [NPR, 5/17/11]