President Obama Embraces Troubled German Ally

President Obama is giving the warmest possible welcome to an ally in some political trouble.

Obama is not only greeting German Chancellor Angela Merkel at the White House on Tuesday, but he'll also fete her with a state dinner and present her with the Presidential Medal of Freedom, America's highest civilian honor.

Coming shortly after Obama's week-long trip to Europe, the red-carpet treatment for Merkel is a signal, some observers say, that the administration is giving added weight to the importance of its friendships in Europe.

"At a time when some have asked whether the rise of new global powers means the decline of others, this visit reaffirms an enduring truth: Our alliances with nations like Germany are more important than ever," Obama said at a South Lawn welcoming ceremony for Merkel on Tuesday.

Obama would like Merkel, however, to take a more central role in international matters of importance to the U.S.

At a White House news conference Tuesday, the two leaders both stressed shared goals in areas such as Afghanistan, the Arab Spring and the Israeli-Palestinian peace process.

"On the international stage, there are no issues that we don't coordinate closely with Germany," Obama said.

Still, Germany has not been as strong a player in international affairs as the Obama administration would like, in part because Merkel has been deeply distracted by the financial crisis in Europe. Merkel's response to that crisis has weakened her support at home.

"It's safe to say that she's probably in as vulnerable a position domestically as she's ever been as chancellor," says Charles Kupchan, a former National Security Council official who is now a senior fellow at the Council on Foreign Relations.

Distractions At Home

Germany has been "missing in action as a leading country" in terms of addressing events on the world stage, Kupchan says, because of its focus on regional issues. Germany abstained, for instance, from the United Nations Security Council vote authorizing the use of force in Libya.

The biggest problem is money. Germany is the leading economic power within the European Union and, as such, has helped shape the strategy — and come up with the funds — to prop up ailing economies.

Large bailout packages have already been provided over the past couple of years to Greece, Ireland and Portugal, in hopes that the financial contagion wouldn't spread to larger economies such as Spain. But the medicine — which includes the enforcement of tough austerity measures within the poorer countries — hasn't worked as yet.

Greece looks likely to need another infusion of cash.

"The markets can see that Greece has a big financing gap in 2012, and the market is not prepared to finance that," says Desmond Lachman, an economist at the American Enterprise Institute, a conservative think tank in Washington. "What is required is a second bailout package, and that is meeting resistance in the northern part of Europe, where taxpayers are not excited about providing another 80 or 100 billion euro."

Unpopular At Both Ends

Germans have developed an even stronger aversion to bailouts than American taxpayers, says Thomas Kleine-Brockhoff, senior director of policy programs at the German Marshall Fund, which promotes cooperation between North America and Europe.

"You will have fiscal transfer from one nation to the other as long as the eye can see," he says, "and that is what people resent."

If Germans resent paying the bailouts for neighbors they consider profligate, the recipients haven't been too happy about the situation, either.

"Governments need to be able to point to the light at the end of the tunnel," says Simon Tilford, chief economist with the Centre for European Reform, a London-based think tank that supports European integration.

Tilford says Greece and the other ailing economies are denied, by their use of the euro, the normal tools countries might use to address deep deficits, such as devaluing currency by printing money.

There's a risk that the Greeks could say "enough with this austerity; it's not getting us anywhere," Lachman says, and default on their debt.

Bad For The Banks

That would be disastrous for the northern European economies such as Germany — and their banks. For that reason, most economists think Merkel will end up doing whatever is necessary to keep its southern neighbors solvent and preserve the validity of the euro, despite the political risks she runs in doing so.

At the White House news conference, Merkel reiterated her intention to pursue policies that will sustain the euro. "For Germany, Europe is not just indispensable, but part and parcel with our identity," she said.

Still, Lachman says, continuing to prescribe the same medicine will, at best, buy the southern economies and their northern bankers some more time. Deeper, structural changes are needed, he says.

That all means that Merkel will continue to devote a good deal of her time and Germany's resources to European problems, rather than being able to aid the U.S. elsewhere.

"I don't think the U.S. can or should place too many hopes in Germany performing the kind of international role that this administration and previous ones have hoped it would," says Tilford, the economist in Britain. "That's not going to happen. Germany's slashing its defense budget."

Old Friends

But Merkel's visit and the red-carpet treatment she's receiving does signal that the Obama administration, after concentrating on non-European matters such as Afghanistan and China, may be drawing closer to its European allies, says Kupchan, the former National Security Council official.

"There is no doubt that U.S. policy, not just in this administration but over the last decade, has shifted a lot of its focus from its traditional friends and preoccupations toward the east and Asia and emerging markets in general," says Edwin Truman, a former Treasury Department official now at the Peterson Institute for International Economics.

As it has in Libya, the U.S. will look to Britain and France on military matters, while turning to Germany on economic matters, suggests Kleine-Brockhoff.

That's in spite of the fact that U.S. and German policymakers view both the causes of the financial crisis and the best potential cures for it very differently.

"European partners may not live up to expectations on every front, but there isn't a better alternative," Kupchan says. "When it comes to the Arab Spring or aid to Africa, lo and behold, Europe emerges as the best partner."