Why Europe Worries Barack Obama

U.S. Treasury Secretary Tim Geithner will travel to Poland on Thursday for a meeting with euro zone finance ministers set for Friday and attempt to push them to show leadership and get ahead of the euro zone crisis.

Sen. Barack Obama, D-Ill., answers a question during the first Democratic presidential primary debate of the 2008 election hosted by South Carolina State University in Orangeburg, S.C., Thursday, April 26, 2007. (AP Photo/J. Scott Applewhite)
J. Scott Applewhite

"They recognize that they have been behind the curve," Geithner told CNBC on Wednesday. "They recognize that it will take more force behind their commitments."

Following days of heavy losses for some European banks and credit downgrades of Societe Generale and Credit Agricoleinvestors were buoyed by the message from Geithner. It's a shift in market sentiment that likely came as a small relief, at least, to Geithner's boss, President Barack Obama.

"There is no chance that the major countries of Europe will let their institutions be at risk in the eyes of the market. There is not a chance,” Geithner told CNBC.

Uncertainty is high and lots of uncertainty is bad for job creation, according to Barclays Capital. And job creation is what Europe—and the U.S.—need.

“As the U.S. confronts another bout of increased uncertainty, concerns about the near-term outlook have risen. We find that heightened uncertainty can cause firms to postpone hiring and investment decisions, which often plays a role in slowing economic activity,” Troy Davig, senior US economist at Barclays Capital, said in a research note.

With the CBOE VolatilityIndex (VIX) at elevated levels, Davig said the so-called fear index can be used as a proxy for macroeconomic uncertainty.

“Our estimates indicate that a 10 percent increase (in the VIX) reduces private nonfarm payroll growth by 75,000 and lowers growth in investment on equipment and software,” said Davig.

While uncertainty is not a major worry in the good times, when things are bad, confidence can be depressed.

“A current risk is that the recent rise in uncertainty can have a more deleterious effect on private job creation , particularly since business confidence has yet to recover to pre-recession levels," Davig said.

Uncertainty alone is not enough to dip the U.S. economy into recession , according to Davig, but he said Barclays' recession prediction models are pointing to trouble.

“A few of our recession prediction models are currently flashing some warning signs, but are not signaling an imminent risk that the economy will tip back into recession. However, one clear risk is that excessive fiscal tightening could slow the economy sufficiently and risk pushing it back into recession,” said Davig.

Given that Obama has just bet $447 billion on boosting jobs growthahead of 2012 elections, he could really do without Europe driving up economic uncertainty.