By Stephen L. Bernard
NEW YORK--The looming fiscal cliff in the U.S. is the most
pressing issue that could affect the global economy in the near
term, George Osborne, the U.K.'s chancellor of the exchequer, said
Tuesday.
While Mr. Osborne warned the cliff could have a negative effect
on the global economy, he expects a resolution to the problem in
the coming weeks or months, he said during a speech in New York
hosted by the Manhattan Institute for Policy Research.
U.S. political leaders remain at odds over how to avoid a
combination of automatic spending cuts and tax increases that would
go into effect in 2013 and likely push the U.S. into recession.
One issue that has been hanging over global markets for most of
the year--questions about whether Greece would exit the euro
zone--is no longer a concern, Mr. Osborne said.
It is "pretty clear" euro-zone leaders do want Greece to stay in
the common currency bloc after rumblings early in the year
questioned whether that was the right move, Mr. Osborne said.
"I don't think anyone doubts their intention" anymore to keep
Greece in the euro zone, Mr. Osborne said.
Greece just received another round of bailout funds from EU
officials after completing a debt buyback and restructuring earlier
in the month. Standard & Poor's upgraded Greece to B- Tuesday,
after placing the country in selective default amid the debt
restructuring.
To survive, the currency union needs to further integrate its
banking and fiscal policies, Mr. Osborne said. He also said the
euro zone is making progress on that front.
"They've made significant progress, but they still have further
to go," Mr. Osborne said. A closer fiscal union within the euro
zone would be preferable to a breakup of the currency union, he
added.
The ongoing economic weakness in the euro zone has hurt the
U.K.'s economy, he said. "There is no doubt that it is having a
significant drag effect" on the U.K.
The euro zone is the U.K.'s largest trading partner. The euro
zone's problems have also shaken confidence in the U.K.,
particularly in the banking sector, Mr. Osborne said. Economic and
debt problems in the currency bloc have driven up bank funding
costs in the U.K., though they have come down in recent months, he
said.
Write to Stephen L. Bernard at stephen.bernard@dowjones.com