All eyes will turn to the U.S. as it struggles to get its fiscal house in order.
This is especially the case since Washington hasn’t been addressing its financial issues effectively up until now, says Luc de la Durantaye, vice-president of global asset allocation for CIBC Global Asset Management. He manages the Renaissance Optimal Inflation Opportunities Portfolio.
In contrast, he finds Europe has made considerable strides in the last two-to-three years. While the U.S. deficit has hovered around 10% of GDP, the European figure is sitting at half that amount.
In addition, de la Durantaye says the re-election of President Obama “has changed the dynamic [since] he has a slightly improved mandate, which [made] a resolution more plausible,” de la Durantaye suggests.
He adds, “Politicians in the U.S. understand the population wanted them to come up with some kind of compromise.”
The sheer magnitude of the potential fallout pushed officials to reach a deal, as no one on Capitol Hill wanted to be responsible for throwing the country back into recession.
De la Durantaye says the lack of resolve in Washington has been partly due to the fact that debt costs less when interest rates are so low; if yields started to rise, there would have been increased pressure on politicians to take decisive action.