Step up Lew
January 11, 2013
Although the inconspicuous-looking 57-year-old, with his round glasses and hair parted on the left doesn't necessarily look the part, Jack Lew is the man for a new age. His predecessors, Timothy Geithner, the former New York Fed chairman, and Henry Paulson, the former head of Goldman Sachs, were seen as Wall Street's connection to the White House personified. Not so with Jack Lew. Apart from a short stint at Wall Street from 2006 to 2009 as part of the management of Citigroup, Obama's nominee for the Treasury has no appreciable experience in the most important financial center in the world.
Instead, Lew almost perfectly embodies the typical policy wonk and Washington insider. On two separate occasions, first under President Bill Clinton, then under Barack Obama, he directed the Office of Management and Budget (OMB), the president's most important budgetary authority. A year ago, Obama made the native New Yorker his chief of staff. Now he trusts Lew - who as a young man gained political experience in Washington as an adviser to the legendary Democratic Speaker of the House Tip O'Neill - at the nerve center of his government.
Budgetary policy as a priority
"His appointment makes it clear where the core of the problem is, namely the high level of debt that can be controlled by future fiscal policy," said Monika Merz, a professor of economics at the University of Vienna. That's because, from the perspective of the government, the most pressing issues of Obama's first term have been solved now.
With the signing by the president of the Dodd-Frank legislative package in the summer of 2010, the financial crisis was seen as politically settled for the Obama administration. And while the U.S. economy is not running at full speed, unlike the eurozone it is no longer in a recession.
Jack Lew will now tackle the country's most difficult task, which Washington has postponed for years: restructuring the US federal budget and bringing the country's addiction to spending under control.
"For the role he must play in domestic politics budgetary issues, he is an excellent choice," said Mark Hallerberg, professor of political economy at the Hertie School of Governance in Berlin. "He is very familiar with budget issues."
With the departure of Geithner and Lew's nomination, experts say Obama has given a strong signal that he is finally willing to get serious about budgetary consolidation. For good reason, Merz said: "If the US doesn't get control over its budget and its large debt problem, then the financial markets will react."
No grace period
Lew does not have much time for learning the ropes. The debt ceiling will probably be reached at the end of February. The so-called fiscal cliff compromise carved out a few weeks ago will still trigger drastic spending cuts if no solution is found. The answer to both problems requires not only detailed knowledge of numbers, but also a skill in political negotiation with Republicans in the House of Representatives.
"His job is to represent the government in the budget negotiations and he seems to be very successful at it," Hallerberg said. "He didn't just do this in 2011, but he was already involved in the budget negotiations under Clinton in the 1990s."
Experts say Lew is a savvy tactician who stubbornly represents the interests of the Democrats and is considered a fighter against cuts in social programs, as demanded by the Republicans. Hallerberg said if the forthcoming negotiations really do produce the long-hoped-for, but hard to implement "grand bargain" - a comprehensive compromise package of spending cuts and tax increases - Lew will certainly be one of its architects.
Focus on the US
The transition from Geithner to Lew will not leave European finance ministers unaffected. In contrast to Geithner, who was occasionally accused of lacking crisis management skills by Berlin and Brussels, quieter tones can be expected from Lew.
"His concern is the US," Hallerberg said. "I do not know if he has any international experience." Naturally Lew will be present at the major global financial summit meetings and will "say what he has to say," Hallerberg said, "but that will not be his priority."