July 15, 2011

Aspreading financial crisis has accomplished what tradition, habits of alliance management and shared security concerns could not: It has given Europe a central place in President Obama’s view of global affairs.

European governments have felt marginalized as Obama reset relations with Russia, sought global partnership with China, extended his hand to the Islamic world and pursued the chimera of quick Middle East peace. But now the Old Continent has inadvertently seized this Pacific-born American leader’s attention by becoming a potential threat to U.S. financial stability — and potentially to Obama’s reelection prospects.

When Obama met with Chancellor Angela Merkel in Washington in June, they barely discussed Russia, according to German and American officials. Instead, Obama gave Merkel a detailed reading of the risks posed to U.S. financial institutions by Greece’s unstable debt situation and Europe’s faltering response. Credit default swaps, not missiles and tanks, were the immediate threats topping the U.S.-German summit agenda.

Obama mixed lavish public praise for Merkel with private pleas for German leadership to prevent Greece’s problems from sparking financial contagion in world markets. He banished all traces of his administration’s dismay with Germany’s decision in the spring to break ranks with its allies and join Russia and China in withholding approval of NATO strikes in Libya.

His motives were quickly understood here: “The welcome to Merkel was the price Obama paid for the Germany he wishes to have,” not the Germany he actually has to deal with, says Cem Ozdemir, leader of the pro-environmental Green Party, which is surging in polls. Ozdemir is an outspoken supporter of the allied campaign in Libya.

Merkel’s break with Washington on Libya was one of several sudden policy reversals and fumbles by her government that have raised questions in Western capitals about German intentions and about the capabilities of her coalition. Merkel added to an impression of unsteadiness by rushing to abandon nuclear energy after the reactor disasters in Fukushima, Japan, and she failed to provide a credible candidate to run the European Central Bank when Germany could have had the job.

Obama’s response has been, characteristically, to accentuate the positive: to encourage Germany not to turn inward and not to settle for muddling through the financial worries that last week spread to Italy.

As described by U.S. officials, the turn to a German-led Europe as America’s most effective foreign partner has come not from presidential conviction but from bitter experience. Openings to China and India have produced little. Relations with Russia, if improved, remain quixotic. And Obama now plays defense on the Middle East in this season of Arab revolt. Early enthusiasm for what was once called a new world order has ebbed into a new appreciation of the tried-and-true.

Instead of envisioning a Group of Two directorate of the United States and China, Obama today hopes to develop a joint American-European approach to Beijing.

But as with most of his foreign policy initiatives, Obama’s new hopes for Europe have produced modest results. Since their June meeting, Merkel has continued to put off decisive European action on Greece. She appears to fear damaging both her sagging standing with German voters (who oppose bailing out their profligate Mediterranean neighbors) and German banks, which would suffer from a Greek default on government bonds.

American banks and insurance companies hold little direct exposure to Greek debt. But their extensive reinsurance of the European loans and investments at stake could run to $40 billion or higher, according to one U.S. official.

Obama is right to concentrate on this moment of truth for the European Union, which should stop kicking the Greek can down a road of delay and obfuscation. Europe needs a more centralized economic system that includes transfer payments for its troubled members and common tax and budget policies for all its members. Only bold steps toward deeper integration — which the Obama administration should advocate and support — can stop the drip-drip-drip draining of confidence in Greece, Portugal, Spain, Ireland and now Italy.

The president should also recognize where his administration has fallen short in setting out to shed burdens of American global leadership as he concentrates on the U.S. economy (and his reelection). The uneven Libyan campaign shows — not least in Germany’s opting out of any responsibility in that allied effort — that Washington has failed to prepare the ground for others to accept the responsibilities, and authority, that Washington wishes to transfer to them. The coming withdrawals of U.S. forces from Iraq and Afghanistan suffer from the same flaws.

Obama has decided that America’s role abroad in his presidency (and perhaps beyond) will be one of guiding and shaping more than doing. Europe is a valuable partner in such an endeavor. But Washington must continue to contribute its share as it exhorts its partners to do more.

Jim Hoagland is a contributing editor to The Post. His e-mail address is jimhoagland@washpost.com.