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US President Barack Obama

During the last months of his first mandate, President Barack Obama has been focusing his attention on the Eurozone countries and on the developments of the financial and economic crisis whose backlashes have inevitably also struck the United States. Yet, Obama is unable to act as he probably would want to. Too busy with the electoral campaign for the November 6th elections and facing a Congress and White House in their final days in office, the US President is labelled as a "lame duck".

The contagion

Barack Obama fears the contagion between the two financial systems - European and US - in a deteriorating political context. Since November 2010 Republicans have gained the majority at the House of Reps; rating agencies have downgraded two major banks (Bank of America and Citygroup) and could do the same with other financial institutions (JP Morgan Chase, Morgan Stanley and Goldman Sachs). This would mean higher borrowing rates and lack of liquidity on the market.

In this context, the Eurozone has become the epicenter of all evil for the United States. And even if we're talking about a global financial crisis, financial deregulations has:

- enthused capital mobility,

- increased the power of banks with respect to politics

- caused a series of "speculative bubbles" in developed countries (US, Europe, Japan)

- the rise of China's role in global economy has had serious social (increase in inequality, impoverishment of the middle class, weakening of democracy) and economic consequences.

The threat of a contagion has lead US President Barack Obama to ask Europe for a series of actions before the European meeting focusing on the financial crisis in Brussels on June 28 and 29. Ahead of the summit, Barack Obama had asked for decisive actions in interrupting the negative spiral linking banking and sovereign debts and a greater flexibility in dealing with Greece's rescue plans, thus sending a strong signal to the markets regardless of Germany's opposition to the Eurobonds.

Despite Greeks' pro-Europe vote, the June 29 meeting in Brussels did not produce any considerable result, but rather minimal objectives to-be-completed with adequate rules to avoid further recession and risks for the Euro.

A vicious circle

It is worth mentioning that the first step to separate the banking crisis from the one linked to the sovereign debts will follow the guidelines adopted by the two Rescue Funds:

- the ESM (“European Stability Mechanism” that will take over the ESFS (“European Financial Stability Facility”) will be capable of intervening directly in the emission of government bonds that the BCE - European Central Bank - and the ESFS will be able to purchase on the secondary market. By doing so a country facing difficulties will be able to finance itself using a formal procedure (a memorandum of understanding) and not at market conditions anymore, especially when interest rates are too high;

- there is no more talk of the Troika (IMF, European Commission, BCE), but of the Doika (European Commission, BCE);

- the Fund will be initially worth 80 billion euros and could be raised up to 500 billion, part of this sum has already been committed (100 billion to recapitalize Spanish banks, 100 billion for Ireland and Portugal, plus further requests from Cyprus and Slovenia, respectively 10 and 5 billion);

- the purchase of government bonds on the primary market will have to follow the conditions imposed by the European Commission;

It is worth noticing that the entire procedure will be influenced by the setting up of a "unique vigilance mechanism" whose role, together with the two Funds and other measures for the banking sector, will be fundamental for the European Banking Union, the ultimate objective to complete the already existing European Monetary Union and European Economic Union.

Italy, according to Prime Minister Mario Monti, will not activate the afore mentioned stability mechanism because it does not deem itself in the same situation of Greece or Portugal. We will have to wait and see for the definition of how the rules will have to be applied, as the US observers watch over the process. This will have to be followed, as in school, by the homework each country will have to do: a spending review, a reform of the labour market (unacceptable in countries like Italy where youth unemployment is 36%) and fiscal discipline.

In short, US observers have the benefit of the doubt on the decisions taken during the Brussels summit and are worried about the following:

Germany's opposition to the Eurobonds ( for Chancellor Merkel, Eurobonds mean a sharing of sovereign debts to the detriment of Germany);

doubts over the Eurozone countries capability of filling the competitive gap with Germany without devaluating their currency!

Domestic policy

On the home front, last June President Barack Obama issued two measures regarding immigration and the health care reform. The “Dream Act” is an amnesty for 800 thousand illegal immigrants who were granted - through Presidential decree - legal papers for a period of 2 years based on their age and stay in the US ( younger than 30 years old and living in the United States no later than their 16th birthday), civilian and military conduct ( studied or served for the US military) and good conduct (no criminal offenses). The main beneficiaries were mainly “Latino” migrants whose support to President Obama in November will be crucial; their votes will make a difference in States such as Florida, Colorado, Virginia and Nevada. Even though the rhetoric is all over “migrants stealing jobs”, Obama is sending a strong signal to voters: “It is not wise to expel people we need”. And this is so even if during his first mandate the expulsions of illegal migrants have doubled if compared to the same period under George W. Bush.

The second measure is the Health Care Reform. Through a surprising verdict – five to four in favor – the Republican dominated Supreme Court (five conservative judges as opposed to four democratic) has approved the law. The biggest surprise came from the President of the Supreme Court, John Roberts, nominated by George W. Bush and who voted together with the “democratic minority”, thus allowing the approval of the law. On health insurance President Obama stated: “It not possible that in the richest country in the world the pre-existence of a sickness or an incident can cause severe damage to a family”. As opposed to the universality of the new law, until yesterday the young and healthy would not subscribe a health insurance, thus shifting the rising costs on the oldest and more at risk part of the population.

Yet, the Supreme Court has also rejected the fines imposed on those States that refuse to extend medical assistance to the poor, the so called Medicaid. The Court has respected the autonomy of those States that are reducing funding to hospitals under pressure from budget cuts. Overall, the measure is pretty unpopular: most people accuse the Health Care Reform of having lead to an increase in insurance costs (up 20% as opposed to a 2% rise in inflation); polls show that a third of Americans are in favor, while another third is against. Nonetheless, Obama can claim this victory even though his success in November's elections will depend on factors such as the Tea Party, who shared Republican's vote against the reform in the Supreme Court.

Foreign policy

In foreign policy, President Obama claims that the United States “cannot solve all the problems in the world”, but without the US “no problem can be solved”. Barack Obama has showed great determination against Iran to avoid the closure of the Hormuz Strait oil route, doubling his fleet and increasing the fast fleet in the Gulf. With regard to Pakistan, after seven months of dispute (following the November 2011 NATO air raid that killed 24 Pakistani soldiers) the two countries have come closer once again (even though Hillary Clinton had to formally excuse herself) and the supplies to NATO troops in Afghanistan can now transit again through Pakistan.

After an uncertain debut, State Secretary Hillary Clinton has taken the necessary steps to face the challenges to America: a focus on the Pacific (to contrast China) as opposed to the Atlantic ocean in a 60 to 40 ratio. Even though an admirer of Beijing's economic and financial development, Clinton is not shy in criticizing China's treatment of religious and ethnic minorities, women and, more generally, their stance on civil rights. The same can be said for the Russian Federation. The US Secretary of State has openly criticized the rigged presidential elections in March, the repression of dissent by President Putin against opposition demonstrations and his support for Bashar al Assad in Syria. 

While in Kabul (July 8), Hillary Clinton has announced to President Hamid Karzai that Afghanistan has obtained the status of 15th non-NATO major ally of the United States. A significant trip was also made to Vietnam, the first one by a US Secretary of State since the reunification of the country under Hanoi on July 2nd 1976. The 1995 reopening of relations with Vietnam has lead to a first military cooperation agreement in August 2011. The aim is the opening of US military air bases in Vietnam and in neighboring countries, just as for the Airfiled U-Tapao 150 km south of Bangkok, currently a emergency airstrip in case of a tsunami.

Last July the US were also on the first official visit in Laos. The last one went back to 1957 by Forter Dulles. This confirms the US interest for former Indochina countries. During the Vietnam war Laos was heavily bombarded by the Americans to cut the supplies during the Vietcong's advance on Saigon along the Ho Chi Minh route. We're talking about 2 million tons of bombs, including 270 thousand tons of cluster bombs, many of which remained unexploded and are still cause of mutilations among the civilian population. Clinton's visit to Laos lasted four hours during which the US Secretary visited a charity that produces bamboo prothesis in case the real ones never arrive. Hillary Clinton's tour in Indochina will end in Cambodia for the ASEAN summit – South East Asian countries – during which political, economic and social partnerships will be finalized. The aim is also the creation of a free trade area among the AFTA countries.

UN Special Envoyee Kofi Annan

As far as Syria is concerned, following the tour by UN Special Envoyee, Kofi Annan, in Damascus, Teheran and Baghdad and the Geneva peace conference organized together with the Arab League on June 30th , Annan's proposals were dropped:

- no intention to accept a role for Iran in the search for a peaceful solution to the standstill

- no intention to accept the name of a current member of the Syrian regime as a potential interlocutor for future transition governments

Kofi Annan has also asked the UN Security Council to send a strong message menacing “serious consequences in case a cease fire is not negotiated” to both sides in conflict (the government in Damascus and the opposition). There are dim hopes that the end of the civil war in Syria is anywhere near. Before the UN Security Council meeting and the landing of Kofi Annan in Moscow, Russian Foreign Minister, Sergei Lavrov, has said:

- an external military intervention in Syria is not realistic since most Syrians are still in favor of the regime;

- the radical stances of the opposition (Syrian National Council) are unacceptable: Lavrov insists for a simultaneous withdrawal of both forces.

In the mean time, the National Council is closing onto the capital (the operation has been named “Volcano”) and has occupied neighborhoods in the outskirts of Damascus and is holding onto key spots at the top of residential area buildings after its inhabitants were evacuated. During an attack by infiltrated troops in the Rawda neighborhood in Damascus on July 18th the rebels killed the minister of defense, Rajha, and his deputy, General Shawkat, brother-in-law of President Bashar al Assad.

A fresh “New Deal”?

Back to the United States, in conclusion we are during the so called “lame duck” period for President Barack Obama. The President in charge is having a hard time taking/modifying decisions taken over the last few months because of the head to head competition for the November 6 election day:

the economy has slowed down once again: any further worsening could mark a point of no return for Obama;

the US President is facing difficulties in obtaining the consensus of “white electors”, especially the less educated. The working class (traditional democratic electorate) has began voting Republican, whose main interest are not battles for civil rights. The loss of 3 to 5% of votes during the last elections could influence the outcome of November's clash.

Several “white” laborers are keen to believe that the policies favoring “blacks” are taking jobs away from them and worsening social services.

US Republican party presidential nominee Mitt Romney

On the other hand, there are those who claim that Mitt Romney:

Represents the 1%, the rich. As opposed to the 99% facing economic hardship as the “Occupy Wall Street” movement claims.

Would have built his fortune through private equity companies that usually acquire financial companies in bad waters, restructure them through heavy lay offs and sell them on the market making huge profits;

Would have benefited from the privileges granted by former president George W. Bush (tax cuts for profits not considered as revenue; capital gains taxed at a mere 15%); 2011 Mitt Romney's revenue of 22 million dollars was taxed at 14%.

Looking at past presidential mandates and at well known economic doctrines, it is possible to state that the US electorate - while choosing between Obama and Romney - will also pick either a “New Deal” type economic solution (as during Franklin Delano Roosevelt) or austerity. As John Maynard Keynes said: “During such periods, it is for the State to favor growth through public investment programs and through the welfare state (public pensions; more workers' rights and measures against poverty)”. Yet, there is a difference between the two historial periods:

- during the FD Roosevelt time, the Soviet Union was the menace;

- in Obama's time the menace, taking the form of a contagion, comes from the Eurozone that Romney defines as a “society lacking dynamism, oppressed by taxes and dependence culture”.

We should also add that starting in 1937 Roosevelt adjusted the “New Deal” and brought the country back into recession that was overcome only after World War II. Unlike Roosevelt, Obama does not have many alternatives. In the light of the new downturn (decrease in Democratic members in Congress and of popular consensus) Barack Obama could try to foster private investments on “Green Economy” and go ahead with his reform of the welfare state.