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 [email protected]