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A six-week jolt to stock markets triggered by the debt-crisis in Europe appears to be leveling out but reactions to the sharp correction appear divided. Closing in on a Group of 20 Nations summit in Toronto at the end of the month, President Barack Obama is out of step with the new sentiment in Europe where one after another governments have put the brakes on stimulus spending and turned to massive budget cuts to convince investors they have the guts to deal with debt overload.
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Obama, however, has spending in mind. In a letter to world leaders this week, Obama called for the Group of 20 to "reaffirm our unity of purpose." But that unity now appears frayed.
With billions of dollars being jettisoned from budgets in Europe, Obama said: "I am committed to the restoration of fiscal sustainability, but it is critical that the timing and pace of consolidation in each economy suit the needs of the global economy, the momentum of private sector demand and national circumstances."
Speaking to reporters in Washington, Vice President Joseph Biden re-emphasized the point.
"This is not a time to take our foot off the accelerator here," he said. "We still need to continue to create jobs and spur job growth."
For the United States, the shift from the mindset that created an $787 billion stimulus package in 2009 to the pursuit of belt-tightening is like asking the Oasis of the Seas to do a U-turn in a bathtub.
Mindful of mid-term elections, Obama has proposed spending cuts for the future, but the U.S. Senate is thinking that future is now. Senators Thursday rejected a $120 billion spending package that would have added $55 billion to the federal deficit in the next 10 years, the Congressional Budget Office estimated.
Majority Leader Harry Reid, D-Nev., did his best to whittle the $200 billion package passed in the House, but also sought to attach $24 billion in spending the Obama administration wanted to stave off cuts in state spending directly related to jobs.
In an argument similar to the viewpoint in France concerning European debt, Obama's letter said the point of attack should be a correction of trade imbalances that has, for example, China experiencing 8.7 percent growth in 2009 while U.S. unemployment soared to 10 percent.
The French take on the debt crisis is that Germany's powerful economy is thriving at the expense of its neighbors. Obama's letter says, "continued heavy reliance on exports by some countries with already large external surpluses" should be the focus, as it was a year ago in a G20 meeting in Pittsburgh.
In addition, "I also want to underscore that market-oriented exchange rates are essential to global economic vitality," he said.
On paper, of course, Obama is right. The imbalance between China and the United States is clear -- to the tune of $15 billion to $20 billion per month. The unemployment lines in the United States and growth in China are directly related. The valuation of the yuan is critical to U.S. manufacturing.
Nevertheless, "Americans are frustrated with the amount of spending and borrowing around here," Senate Minority Leader Mitch McConnell, R-Ky., said. "Let's not wave on through legislation that is going to worsen the deficit and dig an even deeper hole than we are in."
In Europe, the sentiment is clearer still. Even if it brings protesters out on the street, budget cuts are on the way.
Concerning a plan to tax bank transactions to pay for the fiscal crisis, Obama's preference is to tax only the largest banks while Europe intends to tax all financial firms.
That said, Europe is not looking for U.S. support on the matter.
"If there is no consensus in the G20, we go forward," EU President Herman van Rompuy said.
In international markets Friday, the Nikkei 225 index in Japan lost 0.04 percent while the Shanghai composite index in China dropped 1.84 percent. The Hang Seng index in Hong Kong rose 0.74 percent while the Sensex in India fell 0.26 percent.
In Australia, the S&P/ASX 200 rose 0.54 percent.
In midday trading in Europe, the FTSE 100 index rose 0.15 percent while the DAX 30 in Germany fell 0.01 percent. The CAC 40 in France fell 0.18 percent while the DJ Stoxx 50 shed 0.02 percent.
