European stock markets, led by indexes in Italy in Spain, celebrated as the United States House of Representatives came to a much-anticipated agreement that will sidestep a simultaneous national tax increase and drastic spending cuts that has been called the ?fiscal cliff.?
The fiscal cliff could be one of the worst scenarios possible for the global economy, which depends on the US economy to sustain its long and slow recovery. Although it?s true that the pact between US democrats and republicans has allowed Obama to partially fulfill his promise to raise taxes on the wealthy that he made in his electoral campaign, the wording of the agreement is not convincing. The reason is that the agreement only achieves the bare minimum to avoid the fiscal cliff, and the danger will return in late February when the US reaches its debt ceiling.
So the next two months will forecast the future of the nation?s two ruling parties, which are faced with the task of devising a plan that raises 600 billion dollar in taxes in the next ten years and trims a national debt that is around 74% of its GDP.
The US has made an admirable effort, but it was certainly less than what the troika demanded for southern European economies to recover. The optimistic view at the beginning of 2013 (the risk premium closed at 359 points today, which matches April 2012), which Minister De Guindos also shares, could be a one-day rose if a full agreement is not reached. We should remember summer of 2011 when the United States was about to default on its debt payments, causing massive worries across the global economy.
