Obama austerity drive gets mixed CEO reaction

By Reuters
Posted Jan. 26 at 6:08 a.m.

Business leaders in Davos gave a mixed reaction on Wednesday to the austerity steps proposed by U.S. President Barack Obama in his State of the Union speech, with some questioning whether they go far enough.

In a speech on Tuesday outlining a more bipartisan political agenda, Obama offered corporate tax cuts and a five-year partial federal spending freeze that he said would cut $400 billion from budget deficits over a decade.

His Republican opponents, who won control of the House of Representatives last November, say they want to cut spending by $100 billion this year.

“American corporates and Western corporates are really uncertain, and I don’t think last night’s speech really gets us further in terms of removing that uncertainty,” Martin Sorrell, CEO of WPP, the world’s largest advertising group, told a panel on the opening day of the World Economic Forum in Davos.

Chris Viehbacher, CEO of French multinational drugmaker Sanofi-Aventis, which has a substantial business in the United States, said he was pleased the president and Congress were finally focusing on fiscal discipline.

“One of the things that has been curious to see over the past year is the much greater attention to deficits in Europe than in the United States. It bothered me that there was not that attention in the U.S., so I’m very glad and reassured,” he said.

The dire state of government finances around the world is seen as a key threat to economic recovery for business leaders and policymakers meeting this week at the annual meeting in Davos, even as CEO confidence rebounds.

But Daniel Glaser, chairman and CEO of New York-based global insurance broker Marsh Inc., questioned how successful the United States would be in freezing or cutting public spending.

“Even under (president) Ronald Reagan, spending cuts only really cut the rate of growth of spending,” Glaser told Reuters, contrasting U.S. deficit-cutting efforts with the cuts in real public spending levels being implemented by Britain now.

Glaser added, however, that Obama’s move towards the political centre was a positive development.

“My personal view is that the American public lives in the centre. That is where the majority is. Congress is not reflective of reality right now.”

Speaking to Reuters Insider, Ernst and Young Chief Executive Jim Turley said: “There was a lot of positive movement around competitiveness, focusing on taxes, focusing on trade, focusing on the tone of the discussion, and I think there is a real focus on austerity.”

But John Studzinski, senior managing director of U.S. private equity company Blackstone, told Reuters Insider in Davos that “the devil is in the details” of Obama’s words.

“Innovation is very important. We have to look at American workers,” he said. “The debate on spending and spending freeze is predicated on the fact that it’s been difficult.”

Nouriel Roubini, economics professor at the Stern School of Business — known as “Dr Doom” for his pessimistic forecasts — was sceptical about Obama’s speech.

“Even what the president proposed last night in the State of the Union is not going to go in the direction of significantly reducing the budget deficit,” he told a panel.

– Reporting by Ben Hirschler and Paul Taylor


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