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Finance

US Congress tables toughest decisions

The painstakingly brokered compromise approved by Congress has prevented the US from falling over the fiscal cliff. But the minimal solution once more highlights the country's deep-seated political problems.

In Washington, it was business as usual: After weeks of political maneuvering, Democrats and Republicans agreed to a makeshift solution aimed at preventing the worst case scenario. Everything else was tabled for the time being.

That is just what happened in the struggle over raising the debt limit - in 2011 and again in spring 2012. Resolution of the fiscal cliff conflict followed the same pattern. Democrats and Republicans managed to fend off an impending economic disaster, but they postponed any bold plan.

"It was an absolute emergency decision because time was running out," said Nils Jannsen of the Kiel-based Institute for the World Economy. The US policy expert added that observers had been hoping that both parties would show more willingness to compromise after the 2012 presidential election. "However, looking at the way the negotiations went, that was not in the cards," Jannsen told DW.

Congress averted the fiscal cliff by passing legislation to increase taxes on high incomes, as well as increasing social security contributions. The most controversial issues - budget cuts and a debt ceiling - were tabled for two months.

Tough showdown

Obama delivering remarks next to Biden after the House voted on fiscal cliff legislation

Obama appears to have won a round with this compromise

An even more dramatic showdown threatens at the end of February. "The pressure and the potential market effects in February will actually be considerably higher than they are today," said Jacob Funk Kirkegaard, an expert at the Peterson Institute for International Economics in Washington. "I think we should stand by for another, potentially worse, stand-off in a couple of months," Kirkegaard told DW.

Both Kirkegaard and Jannsen rate the compromise as a victory for President Obama, who reached his goal - a tax hike for very wealthy Americans - without simultaneous budget cuts.

At the same time, both experts expect that Republicans will not be very accommodating in the struggle over budget cuts and raising the debt ceiling, after grudgingly made a concession by agreeing to higher taxes for top earners.

In February, Republicans will likely be set on pushing through significant national budget cuts.

Setback for the country

According to experts, a radical solution to the structural problems in the US budget won't be in sight, even then. Congress is bound to raise the debt ceiling again, because otherwise, the country would otherwise face dramatic consequences, Nils Jannsen said.

Budget cuts will probably also be agreed upon, he says - but he does not expect a solution that tackles structural difficulties in the budget. The chronic budget deficit and lasting financial protection for social programs will continue to be shelved, Jannsen explained.

Senate Minority Whip Jon Kyl walking to a meeting on Capitol Hill on December 31, 2012

Republicans are demanding budget cuts

The most likely scenario: Congress will continue to move from one basic level of agreement to the next. In this scenario, it's not politicians are not the losers - rather, it's the US taxpayers.

"What has been going on these past years in the US is a setback for the entire country," Nils Jannsen concluded, adding that both parties don't appear to be in any position to establish long-term policies and come together in compromise that would advance the country.

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