A failed attempt find a compromise in U.S. budget negotiations sent global stock markets plummeting Friday, as investors feared the world’s largest economy could teeter into recession if no deal is found.
Without an agreement, the U.S. economy will fall off the so-called fiscal cliff on Jan. 1 when Bush-era tax cuts expire and spending cuts kick in automatically. The measures were designed to have a negative effect on the U.S. economy, in the hopes that the feared outcome would push lawmakers and President Barack Obama to find a deal.
“We’ve seen Europe’s politicians repeatedly flirt lemming-like with cliff-diving in 2012, and now it’s the turn of U.S. leaders,’” said Kit Juckes, an analyst with Societe Generale. “The nagging fear is always there that someone, on one side of the Atlantic or the other, will forget to let rational thought take over at the last second.”
Amid the uncertainty, European shares fell. France’s CAC dropped 0.15 percent to 3,661, while the DAX in Germany dropped 0.6 percent at 7,626. The FTSE index of leading British shares retreated 0.6 percent to 5,929.
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The euro also fell sharply, dropping 0.3 percent to $1.3182.
In Asia, Japan’s Nikkei 225 index closed 1 percent lower at 9,940.06. Hong Kong’s Hang Seng lost 0.7 percent to 22,506.29. South Korea’s Kospi shed 1 percent at 1,980.42. Australia’s S&P/ASX 200 fell 0.2 percent to 4,623.60. Mainland Chinese stocks were mixed.
U.S. stock futures tumbled after rank-and-file Republican lawmakers failed to support an alternative tax plan by House Speaker John Boehner late Thursday in Washington. That plan would have allowed tax rates to rise on households earning $1 million and up. Obama wants the level to be $400,000.