Forces beyond his control hound Obama

Europe's debt crisis, unemployment could derail re-election bid

Jun 8, 2012 @ 2:47 pm

By Mark Schoeff Jr.

The decisive victory of Gov. Scott Walker, R-Wis., in this week's recall election, Europe's debt crisis and sluggish U.S. economic growth are combining to threaten President Barack Obama's re-election bid.

Each development is largely outside Mr. Obama's control, and his fate in general is unclear. His approval rating is stuck below 50% and polls show him in a dead heat against the presumptive Republican presidential nominee, former Massachusetts Gov. Mitt Romney.

At the top of voters' minds is the economy, which grew by 1.9% in the first quarter, slowing from 3% in the fourth quarter of last year. The unemployment rate hovers above 8%.

Feels like a recession

“Whether we're in a recession or not, what matters is that people feel like we're in a recession,” said Kenneth Klabunde, vice president of City Securities Corp.

“That's going to hurt a sitting president,” he said. “As much as we would like the president to fix the economy, the executive branch is not where this occurs.”

Political gridlock on Capitol Hill is stalling most legislation, including measures ostensibly designed to spur the economy. Mr. Obama also is powerless to stop a potential European economic implosion, which would further slow U.S. exports and global growth.

“If you're the incumbent president, it's not of your making; it's beyond your control, but it's going to have a real impact” on your re-election prospects, said David Kuenzi, founding partner of Thun Financial Advisors LLC.

Mr. Obama needs the economy to maintain a 3% growth rate, according to Kyle Kondik, a political analyst at the University of Virginia's Center for Politics.

Instead, it is meandering along.

'Danger zone'

“That puts Obama in a danger zone,” Mr. Kondik said. “They need the economy to get better, and there's very little Obama and the federal government can do between now and November.”

Mr. Obama used one of his remaining weapons Friday: the bully pulpit.

In a White House media briefing, he urged Congress to approve proposals that he said would boost the economy, such as legislation that would ease home refinancing, increase infrastructure spending and provide tax breaks for small businesses that hire new workers.

“There's no excuse for not passing these ideas,” Mr. Obama said. “If Congress decides … that they aren't going to do anything about this because it's an election year, then they should explain why.”

The House GOP majority is planning votes soon on a bill that would provide a tax break to all small businesses, regardless of whether they are hiring, and on a measure that would extend for a year all the Bush tax cuts set to expire on Dec. 31. Each bill is likely to die in the Democratic-majority Senate.

Republicans jumped on Mr. Obama for asserting that “the private sector is doing fine,” as he called for more help for state and local governments and the construction industry.

“Mr. President, I used to run a small business,” House Speaker John Boehner, R-Ohio, said in a press conference on Friday. “And Mr. President, take it from me, the private sector is not doing well. Listen, the American people are still asking the question, 'Where are the jobs?'”

The good news for Mr. Obama is that economic growth is occurring faster in some Midwestern swing states, such as Michigan, Ohio and Wisconsin, thanks to growth in the manufacturing sector, according to Mr. Kuenzi.

“It's the map of the economic recovery that's positive for Obama right now,” Mr. Kuenzi said.

Outside U.S. borders, the president faces delicate political problems, as well.

Greece will conduct elections next month that could lead the debt-ridden country to pull out of the eurozone, while Italy and Spain struggle with their own crushing debt loads.

Mr. Obama wants European countries to inject more capital into their financial systems, deepen their collaboration on budget and banking policies, and pursue an economic growth agenda.

The president said that the Continent's leaders are “moving in the right direction,” but acknowledged the United States is on the sidelines.

“What we can do is prod, advise, suggest, but ultimately they're going to have to make these decisions,” Mr. Obama said.

Europe must act quickly to pull back from the economic brink.

“If we were to have a Lehman moment in Europe before the election, that's going to send a shock wave around the world,” said Mr. Kuenzi, referring to the 2008 collapse of Lehman Brothers Holdings Inc., which accelerated the U.S. financial crisis. “I think Europe can get their show together, but it could fall apart at any time.”

Muddling through

Central banks in both Europe and the United States have a history of stepping in at a moment of crisis to mitigate a disaster, according to Mr. Klabunde.

He expects Europe to muddle through, certainly past the U.S. election.

“I would expect that cycle to repeat itself a number of times before we see a significant change in the eurozone,” Mr. Klabunde said.

The Wisconsin election results may be the least of Mr. Obama's worries, according to political analysts. Exit polls show that he has an eight-point lead in the state and that 18% of Mr. Walker's supporters plan to vote for Mr. Obama, too.

“It's June, and I don't suppose people will be paying too much attention [to the Wisconsin election] by this fall,” said Karlyn Bowman, a senior fellow at the American Enterprise Institute.

Most voters in Wisconsin seemed to be sending a message that staging a recall was out of bounds rather than making a larger political statement by keeping Mr. Walker in office, 53% to 46%.

“A lot of people got irritated with the recall itself,” said Mr. Kuenzi, whose practice is based in Madison, Wis. “That's a very common refrain around here.”

Mr. Romney's mantra is that the election is a referendum on Mr. Obama's failed economic policies.

“Romney tries to steer the conversation back to the economy any chance he gets,” Mr. Kondik said.

Increasingly, that subject is beyond Mr. Obama's control.

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