U.S. Fiscal Cliff “Bigger Threat” Than Eurozone

 us-capitol-fiscal-cliff-story-top(CNN) -- Despite the long, drawn-out debt dilemma in the Eurozone, the looming fiscal cliff in the U.S. is now the top concern of Goldman Sachs' Jim O'Neill.

"I think the U.S. thing is now something I regard more as a risk because we're not sure which way the politics are going to go," O'Neill, chairman of Goldman Sachs Asset Management, told CNN's John Defterios Thursday. "The markets have obviously latched onto post-election is everything to do with fiscal policy and gridlock in Congress."

With the complexion of the post-election government -- the White House and U.S. Senate controlled by Democrats and the U.S. House controlled by the Republican Party -- there is investor fear of a stalemate as Washington faces a December 31 deadline before hundreds of billions in automatic spending cuts and tax increases kick in. Analysts have warned inaction could wipe 3-4% of GDP from the U.S. economy, sending it into recession.

What's in the fiscal cliff

"I think in order to have a deal we need to have a president that's focused on his legacy rather than his own personal politics and a Republican party that comes out of 'cloud cuckoo land' and into reality, because that is what is needed to force a deal," O'Neill said. After the loss of challenger Mitt Romney Tuesday, the Republican Party is embarking on a period of soul searching — a process that will seek to answer whether conservatives have gained too much influence within the party apparatus

While the Eurozone woes still look grim, investors appear to have been assuaged by the continued efforts there, keeping yields on borrowing costs from returning to crisis levels seen this summer.

"The European mess has been a mess for so long -- famous last words, but I sort of know these guys are going to continue to sort of muddle through at least until the German election," O'Neill said.

"I don't have a huge amount of hope for a massive recovery of the European economy next year. But I think we've seen enough that when the markets press them and test them, these guys are going to do things to keep the euro alive," he said.

"You look at the Greek vote last night -- very hard for European policy makers to eject Greece out of the Eurozone in the foreseeable future. All of that is a sort of it, I'd call it a relatively stable albeit a rather dull and negative story."


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