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Reuters: As Worst Euro Fears Fade, U.S. Fiscal Cliff Looms

Author: Alan Wheatley
September 25, 2012

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If a solution to the looming fiscal cliff in the U.S. continues to be stymied by partisanship, another dip back into recession is inevitable.

The long-term fate of the single currency remains unclear, but nerves have calmed since the European Central Bank promised on September 6 to act as the buyer of last resort for Spanish and Italian bonds.

Now, exactly six weeks before the U.S. general election, fiscal gridlock in Washington is coming back on the global economy's risk radar.

If opinion polls hold steady and prove accurate, President Barack Obama, a Democrat, will defeat Republican Mitt Romney on November 6. The House of Representatives is likely to stay in the hands of the Republicans, who have a chance of seizing control of the Senate.

On the surface, with power split, that could make it harder to avert $600 billion in spending reductions and expiring tax cuts, equal to 4 percent of gross domestic product, that will kick in at the start of 2013 unless a deal is struck to shrink the U.S. budget deficit by at least $1.2 trillion over the next decade.

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