Almost everybody agrees that President Barack Obama’s re-election chances depend almost exclusively on one thing: the state of the American economy. If, for instance, unemployment is below 7% by November 2012, Mr. Obama could very well win a Reagan-style blow-out. If, on the other hand, unemployment is still in double-digits by November 2012, Mr. Obama may as well kiss his re-election chances goodbye.
The second scenario would probably occur in the event of another recession. The greatest danger, therefore, to the president’s re-election chances would be something that would hurt the economy badly enough to knock it back into recession.
What could cause such an event?
There are a number of possibilities, ranging from the very unlikely to the frighteningly possible. The latter – “the frighteningly possible” – actually has occupied the front pages of newspapers for almost a year. This is the continuing European debt crisis, which started with Greece, moved to Ireland, and is currently searching for its next victim.
The worst case scenario would involve a country such as Italy – the world’s seventh largest economy – going bankrupt, or a collapse of the euro (and with it, the European Union). Such scenarios are far-fetched, but quite within the realm of possible. They are what many analysts spend hours worrying about every day.
A bankruptcy of a major European country, such as Spain or Italy, would do major damage to the United States. As Paul Krugman writes:
Nor can the rest of the world look on smugly at Europe’s woes. Taken as a whole, the European Union, not the United States, is the world’s largest economy; the European Union is fully coequal with America in the running of the global trading system; Europe is the world’s most important source of foreign aid; and Europe is, whatever some Americans may think, a crucial partner in the fight against terrorism. A troubled Europe is bad for everyone else.
Indeed, the United States has already experienced the consequences of Europe’s debt troubles, minor as they may seem compared to the worst-case scenario. It is no coincidence that job growth, after increasing steadily in the spring of 2010, stalled right as Greece’s budget woes hit the front pages that summer.
The most troubling thing about all this, for Mr. Obama, is how little control he has over this event. It is Germany, not America, which holds the fate of the European Union in its hands; German decisions – or, more specifically, the decisions of German Chancellor Angela Merkel – will either save or destroy the European Union. Mr. Obama can successfully influence Germany; indeed, his behind-the-scenes lobbying was one factor behind the trillion-dollar European bail-out fund. But ultimately the fate of Europe, and with it the American economy, may lie in Germany’s hands.
And whither goes the American economy, so goes Mr. Obama’s re-election chances. In the end the president may lose re-election because of events thousands of miles away, over which he has precious little control, which seemingly have nothing to do with American politics.