The immediate focus, naturally, is on Washington, where President Obama and House Speaker John Boehner are negotiating to avoid the “fiscal cliff,” a series of automatic tax hikes and spending cuts scheduled to take effect on Jan. 1. Given the political polarization, an early and wide-ranging deal seems improbable.
Yet even going over the cliff is unlikely to do serious damage to the American economy, provided an agreement can be reached within the next couple of months. The effects of the missed deadline will have begun to take effect by then, and that pressure will make a deal more likely.
Meanwhile, the European debt crisis has appeared less dramatic in recent weeks, after the European Central Bank stepped up its activities and temporarily calmed investors. Also, eurozone finance ministers finally agreed today that the European Central Bank should become the regulator for a new EU-wide union of large banks. That’s an important step in bringing uniform oversight to the banking sector, and addressing the kinds of structural problems that caused the debt crisis in the first place.
Beyond solving their own internal crises, the US and the EU finally have the chance to get more from their economies by bringing them even closer together through a free trade agreement. Both sides should join hands and plunge into talks.