To take the temperature of the Obama Administration at the present time is to find two conflicting readings. On the one hand, Obama is likely to be able sign new legislation on financial reform into law before his declared deadline of the July 4th holiday. Additionally, Treasury officials have welcomed the Chinese decision to begin some revaluation of the Yuan – a decision they ascribe in part to US pressure. Obama has also held a successful meeting with President Medvedev of Russia and passed a new round of US sanctions against Iran.
On the debit side, the deepening concerns about the viability of US policy in Afghanistan, to which we have over the past weeks drawn attention, surfaced into the open with the forced resignation of General McChrystal. The continuing BP oil spill is also fraying public confidence in the Administration’s competence. Taking advantage of the successful passage of financial reform, Obama was able to adopt a confident tone at the G-20 summit in Toronto. US officials are focused on persuading their international partners to pursue pro-growth policies. In the words of one Treasury adviser to us: “if the Eurozone countries and the UK over-react to the recent sovereign debt crisis by cutting expenditure too far and too fast, we will all be losers.” This debate may intensify over the summer if, as some indicators notably on house prices indicate, the pace of US recovery stalls. There may be pressure from the US on the European Central Bank, as on China, to allow the Euro to rise in value.
On Afghanistan, Obama has won praise, even from political opponents, for his swift appointment of General Petraeus to take command. However, the episode has both highlighted the poor working relationships between the top US military and civilian officials in Kabul and stimulated further doubts about whether the existing counter-insurgency strategy can deliver the desired result of allowing a US drawdown in 2011. Petraeus’ high standing among the American public will, we assess, allow the Administration to quiet these misgivings in the short term. Nonetheless, Afghanistan looms as a major unsolved policy challenge for Obama. It constitutes a matter of considerable discontent among Obama’s core Democratic base.