Just as European nations have begun to implement a series of crisis-fighting mechanisms to save their common currency, the United States now faces a so-called fiscal cliff at the end of the year, a series of austerity measures that could throw the world’s largest economy into a double-dip recession.
In October, the International Monetary Fund (IMF) warned during its meeting in Tokyo that the slow pace of reform in Europe and the United States was causing global economic uncertainty. And increasingly, emerging economies such as China are no longer able to pick up the slack, as they also witness slower growth.
“Whether you turn to Europe, to the United States of America, to other places as well, there is a level of uncertainty which is hampering decision makers from investing and from creating jobs,” IMF chief Christine Lagarde said in Tokyo. “We need action to lift the veil of uncertainty.”
In Europe, the European Central Bank (ECB) has agreed to an unlimited bond-purchase program aimed at pushing down interest rates in crisis-stricken states, while the 17-member eurozone has set up its permanent bailout fund. But across the Atlantic in Washington, a deeply divided Congress is still struggling to resolve America’s ballooning budget deficit.
Currently, the world’s largest economy faces a series of massive taxes increases and cuts in spending to the tune of $607 billion (470 billion euros), or four percent of the country’s gross domestic product (GDP). Both Lagarde and the Congressional Budget Office (CBO) have predicted that in lieu of some sort of political compromise that cushions the worst of the austerity, America will dip back into recession.