THE feel-good glow around Barack Obama’s convincing victory gave way to cold economic realities yesterday, as the re-elected president returned to Washington pledging to reach across the party divide to avoid plunging both the US and the rest of the world into a fresh financial crisis.
As the lengthiest and most expensive campaign in political history finally came to an end, America woke up to the same political landscape it had left the day before, with a second-term president arguing that Democrats and Republicans of all political persuasions needed to focus on the “common bond” that held them together to prevent legislative gridlock.
However, in a sign of the mighty challenges facing the re-elected president, fears of stalemate in Washington – and further gloomy news from the eurozone – prompted Wall Street’s Dow Jones to fall by 350 points, or more than 2.5 per cent, within two hours of opening.
Mr Obama is facing an immediate budgetary and political crisis, and needs to find a deal between the Democrat-controlled White House and the Republican House of Representatives to avoid the US tumbling off a so-called “fiscal cliff” on 1 January. Mr Obama gave notice of the challenges ahead, acknowledging in his victory speech that “the recognition that we have common hopes and dreams won’t end all the gridlock or solve all our problems or substitute for the painstaking work of building consensus and making the difficult compromises needed to move this country forward”. However, he added: “That common bond is where we must begin.”
He said he returned to the White House “more determined and more inspired than ever about the work there is to do and the future that lies ahead”.
Mr Obama’s victory amid economic gloom was unexpectedly convincing, as the president secured all the key swing states necessary for victory.
The Republicans were left to rue their failure to counter Mr Obama’s aggressive, negative attacks in the early part of the campaign and to confront the evidence that Mr Romney’s social conservativsm failed to reach a more liberal nation which, for the first time, elected its first openly gay senator.
As he left the political stage, Mr Romney tried to set a more conciliatory tone, signalling his support for politicians to work “across the aisle”, that divides the parties in Congress. “At a time like this, we can’t risk partisan bickering,” he said. “Our leaders have to reach across the aisle to do the people’s work.”
However, there was only scant optimism yesterday that Mr Obama can reach a deal in time, as he returns to Washington to face the same Republican-controlled House of Representatives which, in his first term, opposed his measures on spending cuts.
Mr Obama now faces a 1 January deadline, when a whole series of automatic tax rises and spending cuts are due to take effect which, economists have estimated, could take some $600 billion (£375bn) out of the US economy, leading to a 5 per cent drop in the country’s deficit. The effect would be to tip the US straight back into recession, as cash is sucked out of households and government spending.
Markets yesterday expressed fears the White House and Congress would fail to reach a deal in time. And Senate Republican minority leader Mitch McConnell and House speaker John Boehner both made it clear that the Republicans would not easily abandon their goals of lower taxes and deep spending cuts.
“The voters have not endorsed the failures or excesses of the president’s first term,” said Mr McConnell. Mr Boehner added: “The American people have also made it clear that there is no mandate for raising tax rates.”
The comments are likely aimed at Mr Obama’s preferred plan to find cuts in defence spending and to block any attempt to prolong Bush-era tax cuts. The effect on the wider world would be enormous, UK economists said last night.
Brian Ashcroft, professor of economics at Strathclyde University, said: “The latest research that has been done shows that when America contracts by 1 per cent, the rest of the advanced world contracts by 0.5 per cent.
“If we are taking 5 per cent out of the US economy, then that is going to take off 2 to 2.5 per cent out of ours.”
One of the UK’s leading businessmen, Sir Martin Sorrell, the chief executive of WPP Group, said the fiscal cliff was “the real gorilla in the room”.He added: “It’s a sort of game of Congressional chicken taking place”.
Mr Obama’s office was flooded with congratulations, with figures ranging from the Pope to the Dalai Lama expressing their hope he would use his second term in the cause of “hope” and “liberty”.
Other political leaders made quick reference to the whole series of pressing foreign policy issues facing the re-elected president, including the crisis in Syria.
Mr Obama will also face immediate pressure on the looming crisis in Iran, amid calls in Israel for pre-emptive action over its nuclear programme.
Domestically, and with the final numbers from Tuesday night’s results came in, Mr Obama was facing a country which, despite giving him clear backing for a second term, did not award him with a conclusive nor universal mandate. Mr Obama beat Mr Romney by 44 points among Latinos, 47 points among Asians and 87 points among African-Americans. Mr Romney beat Mr Obama by 20 points among white voters.
Former Republican vice-president candidate Sarah Palin wrote on her Facebook page: “America, don’t lose heart. This election is not an ‘Obama mandate’, nor is it a rejection of conservatism.”