by Obama Barack
Sarkozy didn’t serve as much of a counterweight. Privately, he voiced sympathy for the idea of economic stimulus, given France’s high unemployment rate (“Don’t worry, Barack…I’m working on Angela, you’ll see”). But he had trouble pivoting away from the fiscally conservative positions that he himself had taken in the past, and as far as I could tell, he wasn’t organized enough to come up with a clear plan for his own country, much less for all of Europe.
And while the United Kingdom’s prime minister, Gordon Brown, agreed with us on the need for European governments to boost short-term spending, his Labour Party would lose its majority in Parliament in May 2010, and Brown would find himself replaced by Conservative leader David Cameron. In his early forties, with a youthful appearance and a studied informality (at every international summit, the first thing he’d do was take off his jacket and loosen his tie), the Eton-educated Cameron possessed an impressive command of the issues, a facility with language, and the easy confidence of someone who’d never been pressed too hard by life. I liked him personally, even when we butted heads, and for the next six years he’d prove to be a willing partner on a host of international issues, from climate change (he believed in the science) to human rights (he supported marriage equality) to aid for developing countries (throughout his tenure, he’d managed to allocate 1.5 percent of the U.K.’s budget to foreign aid, a significantly higher percentage than I’d ever convince the U.S. Congress to approve). On economic policy, though, Cameron hewed closely to free-market orthodoxy, having promised voters that his platform of deficit reduction and cuts to government services—along with regulatory reform and expanded trade—would usher in a new era of British competitiveness.
Instead, predictably, the British economy would fall deeper into a recession.
The stubborn embrace of austerity by key European leaders, despite all of the contrary evidence, was more than a little frustrating. But given everything else on my plate, the situation in Europe hadn’t been keeping me up at night. That all began to change in February 2010, though, when a Greek sovereign debt crisis threatened to unravel the European Union—and sent me and my economic team scrambling to avert yet another round of global financial panic.
Greece’s economic problems weren’t new. For decades, the country had been plagued by low productivity, a bloated and inefficient public sector, massive tax avoidance, and unsustainable pension obligations. Despite that, throughout the 2000s, international capital markets had been happy to finance Greece’s steadily escalating deficits, much the same way that they’d been happy to finance a heap of subprime mortgages across the United States. In the wake of the Wall Street crisis, the mood grew less generous. When a new Greek government announced that its latest budget deficit far exceeded previous estimates, European bank stocks plunged and international lenders balked at lending Greece more money. The country suddenly teetered on the brink of default.
Normally the prospect of a small country not paying its bills on time would have a limited effect outside its borders. Greece’s GDP was roughly the size of Maryland’s, and other countries faced with similar problems were typically able to hammer out an agreement with creditors and the IMF, allowing them to restructure their debt, maintain their international creditworthiness, and eventually get back on their feet.
But in 2010, economic conditions weren’t normal. Greece’s attachment to an already shaky Europe made its sovereign debt problems the equivalent of a lit stick of dynamite being tossed into a munitions factory. Because it was a member of the European Union’s common market, where companies and people worked, traveled, and traded under a unified set of regulations and without regard to national borders, Greece’s economic troubles easily migrated. Banks in other E.U. countries were some of Greece’s biggest lenders. Greece was also one of sixteen countries that had adopted the euro, meaning it had no currency of its own to devalue or independent monetary remedies that it could pursue. Without an immediate, large-scale rescue package from its fellow eurozone members, Greece might have no alternative but to pull out of the currency compact, an unprecedented move with uncertain economic ramifications. Already, market fears about Greece had caused big spikes in the rates banks were charging Ireland, Portugal, Italy, and Spain to cover their sovereign debt. Tim worried that an actual Greek default and/or exit from the eurozone might lead skittish capital markets to effectively cut off credit to those bigger countries altogether, administering a shock to the financial system as bad or even worse than the one we’d just been through.
“Is it just me,” I asked after Tim had finished laying out various hair-raising scenarios, “or are we having trouble catching a break?”
And so, out of nowhere, stabilizing Greece suddenly became one of our top economic and foreign policy priorities. In face-to-face meetings and over the phone that spring, Tim and I put on a full-court press to get the European Central Bank and the IMF to produce a rescue package robust enough to calm the markets and allow Greece to cover its debt payments, while helping the new government set up a realistic plan to reduce the country’s structural deficits and restore growth. To guard against possible contagion effects on the rest of Europe, we also recommended that the Europeans construct a credible “firewall”—basically, a joint loan fund with enough heft to give capital markets confidence that in an emergency the eurozone stood behind its members’ debts.
Once again, our European counterparts had other ideas. As far as the Germans, the Dutch, and many of the other eurozone members were concerned, the Greeks had brought their troubles on themselves with their shoddy governance and spendthrift ways. Although Merkel assured me that “we won’t do a Lehman” by letting Greece default, both she and her austerity-minded finance minister, Wolfgang Schäuble, appeared determined to condition any assistance on an adequate penance, despite our warnings that squeezing an already battered Greek economy too hard would be counterproductive. The desire to apply some of that Old Testament justice and discourage moral hazard was reflected in Europe’s initial offer: a loan of up to €25 billion, barely enough to cover a couple of months of Greek debt, contingent on the new government enacting deep cuts in worker pensions, steep tax increases, and freezes on public sector wages. Not wanting to commit political suicide, the Greek government said thanks but no thanks, especially after the country’s voters responded to news reports of the European proposal with widespread riots and strikes.
Europe’s early design for an emergency firewall wasn’t much better. The initial figure proposed by eurozone authorities to capitalize the loan fund—€50 billion—was woefully inadequate. On a call with his fellow finance ministers, Tim had to explain that to be effective, the fund would have to be at least ten times that size. Eurozone officials also insisted that to access the fund, a member country’s bondholders would have to undergo a mandatory “haircut”—in other words, accept a certain percentage of losses on what they were owed. This sentiment was perfectly understandable; after all, the interest lenders charged on a loan was supposed to factor in the risk that the borrower might default. But as a practical matter, any haircut requirement would make private capital far less willing to lend debt-ridden countries like Ireland and Italy any more money, thus defeating the firewall’s entire purpose.
For me, the whole thing felt like a dubbed TV rerun of the debates we’d had back home in the aftermath of the Wall Street crisis. And while I was crystal clear about what European leaders like Merkel and Sarkozy needed to do, I had sympathy for the political bind they were in. After all, I’d had a hell of a time trying to convince American voters that it made sense to spend billions of taxpayer dollars bailing out banks and helping strangers avoid foreclosure or job loss inside our own country. Merkel and Sarkozy, on the other hand, were being asked to persuade their voters that it made sense to bail out a bunch of foreigners.
I realized then that the Greek debt crisis was as much a geopolitical problem as it was a problem of global finan
ce, one that exposed the unresolved contradictions at the heart of Europe’s decades-long march toward greater integration. In those heady days after the fall of the Berlin Wall, in the years of methodical restructuring that followed, that project’s grand architecture—the common market, the euro, the European Parliament, and a Brussels-based bureaucracy empowered to set policy on a wide range of regulatory issues—expressed an optimism in the possibilities of a truly unified continent, purged of the toxic nationalism that had spurred centuries of bloody conflict. To a remarkable degree, the experiment had worked: In exchange for giving up some elements of their sovereignty, the European Union’s member states had enjoyed a measure of peace and widespread prosperity perhaps unmatched by any collection of people in human history.
But national identities—the distinctions of language, culture, history, and levels of economic development—were stubborn things. And as the economic crisis worsened, all those differences the good times had papered over started coming to the fore. How prepared were citizens in Europe’s wealthier, more efficient nations to take on a neighboring country’s obligations or to see their tax dollars redistributed to those outside their borders? Would citizens of countries in economic distress accept sacrifices imposed on them by distant officials with whom they felt no affinity and over whom they had little or no power? As the debate about Greece heated up, public discussions inside some of the original E.U. countries, like Germany, France, and the Netherlands, would sometimes veer beyond disapproval of the Greek government’s policies and venture into a broader indictment of the Greek people—how they were more casual about work or how they tolerated corruption and considered basic responsibilities like paying one’s taxes to be merely optional. Or, as I’d overhear one E.U. official of undetermined origin tell another while I was washing my hands in a G8 summit lavatory:
“They don’t think like us.”
Leaders like Merkel and Sarkozy were too invested in European unity to traffic in such stereotypes, but their politics dictated that they proceed cautiously in agreeing to any rescue plan. I noticed that they rarely mentioned that German and French banks were some of Greece’s biggest lenders, or that much of the Greeks’ accumulated debt had been racked up buying German and French exports—facts that might have made clear to voters why saving the Greeks from default amounted to saving their own banks and industries. Maybe they worried that such an admission would turn voter attention away from the failures of successive Greek governments and toward the failures of those German and French officials charged with supervising bank lending practices. Or maybe they feared that if their voters fully understood the underlying implications of European integration—the extent to which their economic fates, for good and for ill, had become bound up with those of people who were “not like us”—they might not find it entirely to their liking.
In any event, by early May, the financial markets got scary enough that European leaders faced reality. They agreed to a joint E.U.-IMF loan package that would allow Greece to make its payments for the next three years. The package still included austerity measures that everyone involved knew would be too onerous for the Greek government to implement, but at least it gave other E.U. governments the political cover they needed to approve the deal. Later in the year, the eurozone countries also tentatively agreed to a firewall on the scale that Tim had suggested, and without a mandatory “haircut” requirement. European financial markets would remain a roller-coaster ride throughout 2010, and the situation in not just Greece but also Ireland, Portugal, Spain, and Italy remained perilous. Without the leverage to force a permanent fix for Europe’s underlying problems, Tim and I had to content ourselves with having temporarily helped to defuse another bomb.
As for the crisis’s effect on the U.S. economy, whatever momentum the recovery had gathered at the beginning of the year came to a screeching halt. The news out of Greece sent the U.S. stock market sharply downward. Business confidence, as measured by monthly surveys, dropped as well, with the new uncertainties causing managers to put off planned investments. The jobs report for June returned to negative territory—and would stay that way into the fall.
“Recovery Summer” turned out to be a bust.
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THE MOOD IN the White House changed that second year. It wasn’t that anyone started taking the place for granted; each day, after all, brought new reminders of how privileged we were to be playing a part in writing history. And there sure wasn’t any drop in effort. To an outsider, staff meetings might have looked more relaxed as people got to know one another and grew familiar with their roles and responsibilities. But beneath the easy banter, everyone understood the stakes involved, the need for us to execute even routine tasks to the most exacting of standards. I never had to tell anyone in the White House to work hard or go the extra mile. Their own fear of dropping the ball—of disappointing me, colleagues, constituencies that were counting on us—drove people far more than any exhortation I might deliver.
Everybody was sleep-deprived, perpetually. Rarely did senior staffers put in less than a twelve-hour day, and almost all of them came in for at least part of each weekend. They didn’t have a one-minute commute like I did or a bevy of chefs, valets, butlers, and assistants to shop, cook, pick up dry cleaning, or take the kids to school. Single staffers stayed single longer than they might have liked. Those staffers lucky enough to have partners often relied on an overburdened and lonely spouse, creating the kinds of chronic domestic tensions that Michelle and I were more than familiar with. People missed their children’s soccer games and dance recitals. People got home too late to tuck toddlers into bed. Those like Rahm, Axe, and others, who’d decided against putting their families through the disruption of moving to Washington, barely saw their spouses and kids at all.
If anyone complained about this, they did so privately. Folks knew what they signed up for when joining an administration. “Work-life balance” wasn’t part of the deal—and given the perilous state of the economy and the world, the volume of incoming work wouldn’t slow down anytime soon. Just as athletes in a locker room don’t talk about nagging injuries, the members of our White House team learned to suck it up.
Still, the cumulative effects of exhaustion—along with an increasingly angry public, an unsympathetic press, disenchanted allies, and an opposition party with both the means and the intent to turn everything we did into an interminable slog—had a way of fraying nerves and shortening tempers. I began hearing more consternation over Rahm’s occasional outbursts during early-morning staff meetings, accusations that Larry cut people out of certain economic policy discussions, whispers that people felt shortchanged when Valerie took advantage of her personal relationship with me and Michelle to do end runs around White House processes. Tensions flared between younger foreign policy staffers like Denis and Ben, who were accustomed to running ideas by me informally before putting them through a formal process, and my national security advisor, Jim Jones, who’d come out of a military culture in which chains of command were inviolate and subordinates were expected to stay in their lanes.
Members of my cabinet had their own frustrations. While Hillary, Tim, Robert Gates, and Eric Holder got most of my attention by virtue of their posts, other cabinet members were performing yeomen’s work without a lot of hand-holding. Secretary of Agriculture Tom Vilsack, the hard-charging former governor of Iowa, would leverage Recovery Act dollars to spark a host of new economic development strategies for struggling rural communities. Labor secretary Hilda Solis and her team were working to make it easier for low-wage workers to get overtime pay. My old friend Arne Duncan, the former Chicago school superintendent, now secretary of education, was leading the effort to raise standards in low-performing schools across the country, even when it drew the wrath of the teachers’ unions (who were understandably wary of anything that might involve more standardized tests) and conservative activists (who thought that the effort t
o institute a common core curriculum was a plot by liberals to indoctrinate their children).
Despite such achievements, the daily grind of running a federal agency didn’t always match the more glamorous role (advisor and confidant to the president, frequent visitor to the White House) that some in the cabinet had imagined for themselves. There was a time when presidents like Lincoln relied almost exclusively on their cabinets to formulate policy; a bare-bones White House staff handled little more than the president’s personal needs and correspondence. But as the federal government had expanded in the modern era, successive presidents looked to centralize more and more decision-making under one roof, swelling the number and influence of White House personnel. Meanwhile, cabinet members became more specialized, consumed with the task of managing massive, far-flung principalities rather than bending the president’s ear.
The shift in power showed up in my calendar. Whereas folks like Rahm or Jim Jones saw me almost every day, only Hillary, Tim, and Gates had standing meetings in the Oval. Other secretaries had to fight to get on my schedule, unless an issue involving their agency became a top White House priority. Full cabinet meetings, which we tried to hold once a quarter, gave people a chance to share information, but they were too big and unwieldy to allow for much actual business; just getting everybody seated in the Cabinet Room was something of an ordeal, with folks having to take turns sidling awkwardly between the heavy leather chairs. In a town where proximity and access to the president were taken as a measure of clout (the reason why senior staffers coveted the West Wing’s cramped, ill-lit, and notoriously rodent-infested offices rather than the spacious suites in the EEOB across the street), it didn’t take long for some cabinet members to start feeling underutilized and underappreciated, relegated to the periphery of the action and subject to the whims of often younger, less experienced White House staffers.
