By Katya Wachtel and Jonathan Spicer
NEW YORK Oct 25 The so-called fiscal cliff of
automatic spending cuts and tax rises set to occur on Jan. 1 if
Congress fails to act before then will be the most important
issue facing the next U.S. president after the election,
BlackRock Chief Executive Laurence Fink said on Thursday, citing
a "very strong risk" of another U.S. ratings downgrade.
Fink, addressing a conference hosted by The Economist
magazine, lamented that President Barack Obama and Republican
challenger Mitt Romney did not address the cliff in their
pre-election debates. Nonetheless, Fink sounded more positive on
U.S. economic prospects relative to Europe, particularly France,
which he said is the most likely reason the euro zone would
Addressing the fiscal cliff, Fink, the chairman and CEO of
the world's largest asset manager, predicted U.S. lawmakers
would strike a modest $300 million to $400 million cut in the
deficit before the end of the year.
"The most important issue affecting the next president will
be how they deal with the fiscal cliff, and not one question
from one of the (debate) interviewers ... was how are you going
to deal with that," Fink said.
While politicians wait for the last moment to act, corporate
CEOs are hoarding cash, which harms the economic recovery, Fink
The spending cuts and tax rises could take an estimated $600
billion out of the U.S. economy and push it into recession next
year, according to the non-partisan Congressional Budget Office.
If Romney wins the presidency, Fink said it would require a
lot more work to strike a deal with Congress to avoid the worst
of the fiscal cliff, than if Obama were to win. This is because
the Republican has made "some very large statements" about
reducing taxes to fix the economy.
"If our behavior shows we cannot address the fiscal cliff,"
and Congress shows little bipartisanship, Fink said there is a
"very strong risk of downgrade" to the U.S. credit rating.
However, he added that any downgrade would not be meaningful
if foreign investors still consider U.S. government debt the
He was particularly upbeat on the U.S. housing and energy
sector, while noting U.S. banks are in "great shape." BlackRock
is one of the largest Citigroup Inc shareholders.
Turning to the euro zone debt crisis, where Spain and Italy
are under pressure in the bond markets, Fink suggested investors
should instead focus on France. He argued that even if France
lowers its deficits, the second-biggest euro-zone country is
still "structurally uncompetitive" relative to Germany and
countries outside of Europe.
Fink, among the names floated as a possible successor to
Treasury Secretary Timothy Geithner if Obama were to be
re-elected, said "I'm really happy with my perch," when asked
about the job. "I think there are a lot more opportunities where
I'm sitting already."