Obama wins second term despite split public vote

Market reaction to the news of his victory over Mitt Romney was mixed – the dollar fell slightly but the FTSE and European stocks rose. What is certain is that Obama faces some imminent crises – not least the approaching fiscal cliff which could result in automatic budget cuts and tax increases amounting to $600bn in January if a deal cannot be struck.

President Obama is going to have to do some serious bridge-building in order to get anything very much done, but the Republicans retain their majority in the House of Representatives, and after what has been a bitter and acrimonious campaign there is even less love lost between the two parties than there was before the election. Despite his convincing victory in the electoral college, there is barely a precentage point difference in the popular vote (or at least the 80% which has been counted so far). Hardly a ringing endorsement. ‘Be careful what you wish for’ is a phrase that springs to mind.

Notwithstanding the many and various challenges facing America abroad, the most pressing issue to be tackled is at home: ‘The economy, stupid’ as Bill Clinton had it. American companies are sitting on an estimated $1.7tn of cash, unwilling to invest it because of uncertainty over the budget crisis (and to a lesser extent the travails of the eurozone too). The key to unlock the corporate coffers and stimulate vital US growth is that aforementioned fiscal cliff. A deal to balance the books in Congress is thus critical – if the automatic austerity measures due in January do occur, the shock could easily be enough to derail a fragile recovery and put American back into recession.

But a credible fix will require the kind of cross-party co-operation which has been singularly lacking for pretty much the whole of Obama’s first term. Will the defeated Republicans be more willing to talk turkey? Will Obama be prepared to be sufficiently magnanimous in victory? Now the election is over at least one source of uncertainty has been removed, and both sides have started making conciliatory noises. Obama has already made a modest kind of history by being the first US president to be re-elected in a time of low domestic growth and high unemployment, but there remains a considerable depth of animosity to him in much of the US Republican heartland.

All off this of course is of great importance on both sides of the Atlantic, and elsewhere too. The emerging markets may be where most of the action is these days, but America remains the largest economy and the most powerful nation in the world – for now anyway. If Obama can re-discover his ability to appeal across economic as well as ethnic and social boundaries, that will provide a huge boost to confidence not only in the US but also across the globe. If he can’t, we can look forward to years of ongoing economic timidity and caution.

The election may be over, but the real challenge is only just beginning. Good luck, Mr President, you are going to need it.