Obama: Unfeasible to Keep “Cutting” While Unemployment Keeps Growing

Regarded as a central issue in Europe, Barack Obama warned yesterday that austerity measures in Spain will not be enough to extricate the country from its current crisis and proposed new stimulus measures to halt the country’s downward spiral. The U.S. president very frankly stated that countries like Spain and Italy could not continue simply “cutting and cutting and cutting.”

“…Countries like Spain and Italy…,” said Obama in an unexpected press conference, “have embarked on some smart structural reforms that everybody thinks are necessary — everything from tax collection to labor markets to a whole host of different issues. But they’ve got to have the time and the space for those steps to succeed. And if they are just cutting and cutting and cutting, and their unemployment rate is going up and up and up, and people are pulling back further from spending money because they’re feeling a lot of pressure — ironically, that can actually make it harder for them to carry out some of these reforms over the long term. So I think there’s discussion now about, in addition to sensible ways to deal with debt and government finances, there’s a parallel discussion that’s taking place among European leaders to figure out how do we also encourage growth and show some flexibility to allow some of these reforms to really take root.”

If Spanish consumers buy more, explained the American president, this will have a positive effect on Spaniards and other Europeans themselves, encouraging optimism and economic growth. But above all, it will prove beneficial to the United States, which makes many of the products that the Spanish buy. To summarize his point, Obama repeated the phrase he had used for the first time last month in Chicago: “If there’s less demand for our products in places like Paris or Madrid it could mean less businesses — or less business for manufacturers in places like Pittsburgh or Milwaukee .… If Europe goes into a recession that means we’re selling fewer goods, fewer services, and that is going to have some impact on the pace of our recovery.”

Without directly referencing Spain, the North American president alluded to the difference between situations in it and Greece. “You’ve got some countries like Greece,” he said, “that genuinely have spent more than they’re bringing in…. There are other countries that actually were running a surplus and had fairly responsible fiscal policies but had weaknesses similar to what happened here with respect to… the real estate markets and that has weakened their financial system.”

It is in these countries that vigorous action is most needed. “Right now, their focus has to be on strengthening their overall banking system — much in the same way that we did back in 2009 and 2010 (with a bailout of 700 billion dollars) and I think,” Obama added, “that European leaders are in discussions about that and they’re moving in the right direction.”

Though he presented no evidence, Obama gave the impression that the European debate of austerity vs. stimulus, represented respectively by the German chancellor, Angela Merkel, and the French president, Francois Hollande, is beginning to shift towards the latter.

The U.S. president clearly favors that line of action. “That weakens demand and that further crimps the desire of companies to hire more people. And that’s the pattern that Europe is in danger of getting into. Some countries in Europe right now have an unemployment rate of 15, 20 percent. If you are engaging in too much austerity too quickly, and that unemployment rate goes up to 20 or 25 percent, then that actually makes it harder to then pay off your debts. And the markets … when they see this kind of downward spiral happening, they start making a calculation … [and] your interest rates will go up. And it makes it that much tougher.”

It was apparent in his speech yesterday that Obama believes that this is the policy his Republican opposition intends to apply in his own country. So, for the first time in history, Spain is serving as an example in the upcoming U.S. elections.