Obama pins recovery hopes on Europe's leaders

WASHINGTON Sat Jun 9, 2012 7:21pm IST

U.S. President Barack Obama pauses while talking about the economy in the White House Press Briefing Room in Washington, June 8, 2012. REUTERS/Larry Downing

U.S. President Barack Obama pauses while talking about the economy in the White House Press Briefing Room in Washington, June 8, 2012.

Credit: Reuters/Larry Downing

WASHINGTON (Reuters) - President Barack Obama, beset by a faltering economic recovery five months before he seeks re-election, said on Friday European leaders must act urgently to resolve the region's financial crisis and stem the threat of recession.

Obama said decisions about how to solve the euro zone crisis were fundamentally in the hands of Europe's leaders and their political commitment would be a "strong step." He was speaking a week after a dismal U.S. jobs report heightened concerns about the impact of Europe's crisis on U.S. growth.

"They understand the seriousness of the situation and the urgent need to act," Obama told a news conference.

"What we can do is to prod, advise, suggest, but ultimately they're going to have to make these decisions," he added, noting that U.S. solutions to the 2008-09 economic and financial crisis should inspire Europe.

Obama spoke as despair deepened in Spain, which is expected to ask for euro zone aid on Saturday to recapitalize its banks. It would be the fourth country to seek assistance since Europe's debt crisis began. Elections in Greece on June 17, meanwhile, could decide whether Athens will stay in the euro zone.

The president's hastily scheduled remarks also capped a bad week for him and Democrats. They lost badly in a Wisconsin gubernatorial recall vote and financial reports showed that Republican presidential candidate Mitt Romney raised more campaign money than Obama in May.

Obama might have added to his woes when he said at his news conference that the private sector was "doing fine" on jobs. His Republican rivals quickly pounced on his words, forcing the president to later clarify to reporters that "it is absolutely clear that the economy is not doing fine."

Falling back on his repeated warning of "headwinds" from Europe, Obama said it was time for Washington to take action to strengthen the U.S. economy and he again pushed Congress to take steps he had recommended last year to create more jobs and hasten growth.

The Democratic president's proposals have centered on government investment in infrastructure and aid to local governments to boost employment for teachers, police and firefighters.

But his efforts at economic stimulus to help the anemic recovery have met staunch opposition from a Republican majority in the House of Representatives that wants to cut government spending while also maintaining low taxes.

"With these looming tax hikes, and regulations coming out of Washington, we have frozen employers in place," House Speaker John Boehner said in rebuttal to Obama's statement.

'DOING FINE' DRAWS DERISION

By putting the onus on European leaders and Republicans, Obama underscored his lack of options to spur growth before the November 6 election.

Tepid May employment creation that nudged the U.S. jobless rate up to 8.2 percent and other recent downbeat data have fanned concerns that a gradual U.S. recovery might be running out of steam, potentially harming Obama's hopes for re-election in November.

Obama is locked in a tight race for the White House with Romney, who wants to make the election a referendum on the president's handling of the economy as he touts his own credentials as a successful businessman.

Romney seized on Obama's "doing fine" description of the private sector jobs situation, calling him "a president that is out of touch."

"For the president of the United States to stand up and say the private sector is doing fine is going to go down in history as an extraordinary miscalculation," Romney told a crowd while campaigning in Iowa.

Polls suggest voters are responding to Romney's plans for turning around the economy. By a margin of 39 percent to 33 percent, Americans say Romney would be better than Obama for the U.S. economy, according to an NBC/Wall Street Journal poll released on Friday.

U.S. CRISIS LESSONS

As he did in his meeting with G8 leaders last month, Obama said pro-growth policies and recapitalization of weak banks need to be part of the plan in Europe.

"That recipe of short-term investments in growth and jobs with a long-term path of fiscal responsibility is the right approach to take for, I think, not only the United States but also for Europe," he said.

Obama's pro-growth emphasis has found support among European leaders, including the new French president, Francois Hollande, and put him somewhat at odds with German Chancellor Angela Merkel, the flag-bearer for strict fiscal austerity.

Obama will meet leaders next at the Group of 20 summit in Mexico June 18-19, although he said he is in "consistent discussions with European leadership." The White House later said that Obama spoke on Friday with Hollande.

By the time of the G20, leaders will know if Greek voters have chosen a pro-euro party to lead a new government. Obama made a special appeal to Greece on Friday, saying "the Greek people also need to recognize that their hardships will likely be worse if they choose to exit from the euro zone."

Obama expressed confidence that the U.S. banking system was well prepared to weather the stresses of the euro zone crisis.

"The good news is that a lot of the work we did back in 2009 and 2010 have put our financial system on a much more solid footing," Obama said. "Our insistence of increasing capital requirements for banks means that they can absorb some of the shocks that might come from across the Atlantic."

(Additional reporting by Steve Holland and Laura MacInnis; Writing by Mary Milliken; Editing by David Storey and David Brunnstrom)

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