US: Next six months crucial if Obama to have effective second term

The coming year will be a moment of truth for Barack Obama’s administration. Having won an emphatic re-election victory in November 2012, he proceeded to make a mess of the first year of his second term.

If 2014 is anything like 2013, then Mr Obama will be facing the longest lame-duck presidency in modern history, exceeding even that of George W Bush. But if he can stem the blood loss and make the most of a recovering US economy, there is still a chance he could convert his second term into something productive. Unfortunately the chances are tilted to the former.

The most important factor is largely out of Mr Obama’s control. Most economists expect the US in 2014 will finally hit escape velocity after four years of mediocre growth. But they have mis-forecast before and may well have done so again.

The jobs data for December have given some pause for thought. Only 74,000 new jobs were created but almost four times that number dropped out of the labour force. Declining US participation levels suggest the US economy may hit capacity far quicker than most models predict. That would force the US Federal Reserve, under the new chairmanship of Janet Yellen, to put on the brakes far sooner than hoped. Nobody will bank on the US resurgence story until they see it in the hard data.

But even if the US does exceed 3 per cent growth in gross domestic product this year, as most economists expect, it may not be enough to restore Mr Obama’s fortunes. The balance of his second term will hinge largely on the outcome of midterm elections in November. On current projections, it seems highly unlikely the Democrats will regain control of the House of Representatives. And there is a 50:50 chance they will lose control of the US Senate.

Were that to happen, Mr Obama would be left with scant opportunity to push through his remaining priorities before he leaves office. That, and the early onset of the 2016 presidential contest, would make him an increasingly peripheral figure on the domestic stage.

Mr Obama will need to try to get things done in the next six months. He faces two big challenges. First, he will have to ensure that the Affordable Care Act (ACA) – also known as “Obamacare” – does not suffer any more big glitches. The breakdown of the federal healthcare exchange last October gave Republicans fresh impetus in their goal of repealing the president’s signature achievement. If the exchange fails to enrol young and healthy Americans in sufficient numbers, it could destroy the economics underlying the law.

“Adverse selection” – the sick driving out the healthy – would push up insurance premiums for everyone else and make the law even more unpopular. It would also ensure that Republicans campaign in November on the promise of repealing it.

Mr Obama will need to strain every sinew to ensure the ACA does not go into the much-dreaded “death spiral”. The chances are that he will succeed. But he is unlikely to undo the big reputational damage he has suffered from the debacle.

Second, Mr Obama will need to make the same kind of diplomatic overture to John Boehner, the Republican Speaker in the House, as he has to Hassan Rouhani, Iran’s leader. The relationship between Mr Obama and Mr Boehner – which soured badly in the past year – will largely determine whether the big reforms, such as the comprehensive immigration overhaul and fast track trade negotiating authority, can finally be pushed through.

Moderate Republicans acknowledge that their party dramatically over-reached during the fiscal wars of 2013 that culminated in the 16-day government shutdown last October and a reckless flirtation with voluntary sovereign default.

That recognition offers an opening for a more constructive session before the August recess. But Republicans will not give Mr Obama the legislative victories he craves unless the White House can offer something in return.

On the international stage, Mr Obama also faces a consequential few months. Prospects for a nuclear agreement with Iran look better than ever before. Should that progress, there would also be a chance the president could persuade Iran to help engineer the departure of Bashar al-Assad’s regime from Syria.

John Kerry, Mr Obama’s irrepressible secretary of state, will also press on with his Sisyphean efforts to bring the Israelis and Palestinians towards a two-state solution. All three initiatives face long odds. But they are shorter than they were 12 months ago.

Prospects for Mr Obama’s much-vaunted “pivot to Asia” may well rest on his fortunes in the Middle East. They will also be shaped by the outcome to his big Pacific and Atlantic trade talks.

Here again – and as with sanctions on Iran – Mr Obama will need to ensure the US Congress is not actively trying to undermine him. If there is one new year’s resolution he should adopt, it would be to play lots of golf with Mr Boehner.