June 19 (Bloomberg) -- It was 95 degrees Fahrenheit outside the Los Cabos conference center as President Barack Obama and fellow Group of 20 leaders pressed Chancellor Angela Merkel to take the heat out of the crisis-wracked euro area.
With surging government borrowing costs in Italy and Spain roiling the global economy less than five months before U.S. presidential elections, Obama and Merkel’s European peers at the G-20 summit in Mexico in June 2012 jointly urged her to show markets that the euro area stood behind its biggest economies, two officials from G-20 delegations taking part in the talks said on condition of anonymity because the meeting was private.
Merkel, the leader of Europe’s biggest economy, seated opposite Obama and between French President Francois Hollande and Italy’s Mario Monti, was on the defensive. The chancellor had drawn a line in the sand at pooling debt and she wasn’t about to give in, even when confronted by the leaders of the world’s other biggest economies.
One year to the day since that trans-Atlantic standoff, Merkel welcomed Obama today for his first official visit to Berlin since he became president in 2009. Public friction between the two leaders has dissipated after euro-area bond yields eased and the debt crisis cooled, a prelude to Obama’s speech at the Brandenburg Gate with temperatures in the 90s.
“This relationship is in transformation,” Gary Smith, executive director of the American Academy in Berlin, a research group that promotes trans-Atlantic ties, said by phone. “There may be some disagreements on how to handle the euro crisis but there are intensive contacts at all levels and between Merkel and Obama on this and all other key issues.”
Three months before Merkel seeks a third term in federal elections, her home city was locked down for the visit. Obama met German President Joachim Gauck in downtown Berlin, held talks with Merkel at the Chancellery and spoke at the Brandenburg Gate. A gala dinner was scheduled for Obama at Schloss Charlottenburg, the 17th palace built by Prussia’s King Frederick I.
Even as Obama pressed Merkel to ease the impact of fiscal austerity policies and help get Europe’s young unemployed back to work, the tone was cooperative.
“This has been a four-year conversation that we’ve been having, and I don’t think there’s a perfect recipe,” Obama said at a joint news conference. “I’m confident that Chancellor Merkel cares about maintaining the euro zone and the European project.”
The two leaders also discussed Afghanistan, where Germany is the third-largest troop contributor, as well as Iran, Syria and plans to negotiate a U.S.-European free-trade agreement.
While revelations of the U.S. National Security Agency’s spying operations rocked European capitals and prompted rebukes from members of her coalition, Merkel praised U.S. intelligence in a June 17 interview with RTL television for helping to foil a planned bomb attack in Germany in 2007.
“Although we do see the need for gathering information, there needs to be due diligence also as regards the proportionality,” she said today.
Obama thanked Merkel for her leadership and quipped about taking of his jacket on the sun-drenched stage at the Brandenburg Gate, speaking at the eastern side of the 18th-century arch, a symbol of Germany’s Cold War division and then of unity after the Berlin Wall fell in 1989.
Obama and Merkel “have developed a very close working relationship since the beginning of 2009,” Ben Rhodes, deputy national security adviser to Obama, told reporters June 14. “They’ve worked through a number of delicate crises together -- both economic and security.” Speaking at the Brandenburg Gate is “a true symbol of the partnership that we’ve forged together.”
On the economy, Merkel has taken a more conciliatory tone than at the height of the crisis. While saying she’ll hold to her push for debt reduction and policies to encourage growth after the Sept. 22 election, Merkel has pointed to the need for stronger consumption in Germany. U.S. Treasury Secretary Jack Lew used his first visit to Berlin in April to stress the “need to balance policies of growth and investment in the future with polices of fiscal consolidation.”
“We don’t only set our hopes on cuts” in budgets to tackle the root cause of the debt crisis, but also on “the right mix between boosting domestic consumption, creating growth and solid finances,” Merkel said in an interview in Berlin on June 14. “We’re going to pursue this kind of policy mix.”
Merkel’s euro-area policy focus has shifted from crisis fighting to longer-term efforts to tackle youth unemployment as yields have subsided following European Central Bank President Mario Draghi’s pledge five weeks after the G-20 summit in Los Cabos to do whatever it takes to save the euro. Merkel backed that pledge and Draghi’s subsequent threat of unlimited bond-buying, saying as recently as June 11 that the ECB “is doing what is necessary to ensure monetary stability.”
As the crisis came to light in Greece with the election in October 2009 of Prime Minister George Papandreou’s government, which made public the bloated budget deficit, the U.S. was quick to recognize the debt problem’s seriousness.
Treasury officials went to Athens in late 2009 for talks with the Finance Ministry and central bank. In early 2010, Treasury Secretary Timothy Geithner confronted the Europeans for a game plan on Greece at a G-7 meeting in the Canadian Arctic. He was rebuffed. By March 2009, the Treasury appointed an official dedicated to Greece and calls were being made to Greek counterparts twice a week for updates, then-Greek Finance Minister George Papaconstantinou said in an interview.
Merkel, after suggesting in 2010 that countries that didn’t stick to the euro’s rules might have to be expelled from the currency area, has since embraced Greece. She called Prime Minister Antonis Samaras on June 17 to offer him her “respect” and “support for the clear reform orientation” of his government. German Finance Minister Wolfgang Schaeuble plans to make his first official visit to Athens in the coming weeks.
Merkel has emerged from the crisis as the go-to leader in Europe, according to Smith at the American Academy.
“The president is not going to Brussels, he’s going to Berlin because he’s coming to Europe to talk to the Europeans,” said Smith. “Germany is becoming our principal partner in Europe without any formal declaration of this.”
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