US Fiscal Cliff Looms Over Global Economy

The euro zone has stepped backed from the brink of disaster for now, but the global economy could soon be staring into another abyss if U.S. politicans fail to head off $600 billion in automatic austerity that all but guarantees a new recession. The long-term fate of the single currency remains unclear, but nerves have calmed since the European Central Bank promised on September 6th to act as the buyer of last resourt 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 radar screen. If opinion polls hold steady and prove accurate, President Obama will defeat Mitt Romney on Nov. 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 billionin spending reductions and expiring tax cuts, equal to 4% 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.