US President Barack Obama returned to Washington facing an expected battle with Republicans over the nation's "fiscal cliff", as shares on Wall Street tumbled yesterday.
Mr Obama faces an urgent challenge to prevent the gridlock that scarred his first term as fears grew that politicians will fail to cut a deal to stop the economy falling over a "fiscal cliff".
More than $600bn(€470bn) of tax rises and cuts in government spending are due in early January. Failure to avoid the cliff -- the negative effects of the two measures combined -- will plunge the world's largest economy back into a slump and disrupt the global economy's still fragile recovery, experts have forecast.
Republican leaders wasted little time in ratcheting up the pressure on Mr Obama to agree a deal that limits the scale of the austerity poised to hit in a matter of weeks.
Speaker John Boehner, who leads the Republicans in the House of Representatives, said both sides needed to work together to reach a compromise. He was echoed by Senate Democratic leader Harry Reid, who also called for bipartisan co-operation, stating: "We have to sit down and go to work on it now, not wait."
Although Mr Obama used his victory speech in Chicago to signal he will work with Republicans in Congress, the imminent threat from the fiscal cliff means that promise will be put to the test immediately.
"Do I expect peace to break out? No," said Bill Galston, a former adviser to Bill Clinton. "Prolonged uncertainty over the fiscal cliff would be disastrous for national and global confidence, but I'm not sure how we avoid it."
The looming tax increases are happening because cuts in the rate Americans pay on personal income, capital gains and dividends all expire on December 31. Mr Obama has said he will not agree to anything that fails to lift taxes on those Americans earning more than $250,000 (€196,000).
The $110bn (€86bn) in public spending cuts are the first batch of a $1.2?trn (€940bn) retrenchment planned over the next decade, with half the cuts due to come from the military budget.
One of campaign promises of Mitt Romney, the defeated Republican challenger, was to increase defence spending, and Republicans in Congress are unlikely to accept major cuts to the military.
Mr Galston said that Mr Obama would have to be far more involved in the nitty -gritty of the negotiations than he was during last summer's drama over the raising of America's debt ceiling. (© Daily Telegraph, London)
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