On November 16, the Atlantic Council’s Global Business and Economics program convened two expert panels to discuss the challenges for business and political leaders from the shifting world economy.

As policymakers in the US grapple with the fiscal cliff, the eurozone continues to struggle with its sovereign debt crisis, and China goes a leadership transition as its economy shows signs of slowdown, there are troubling signs coming from all corners of the globe. While both the business leaders and government officials were forthright about the severity of these challenges, all were broadly optimistic that policymakers would avert the worst-case scenarios and begin building a roadmap towards renewed economic growth.

Concerns over the ‘fiscal cliff’ and its uncertain outcome are already negatively affecting the US economy. Bob Bostrom of SNR Denton pointed out that the sheer magnitude of the fiscal tightening that will occur on January 1 if a deal is not reached is forcing businesses to delay major investment decisions. Marco Annunziata, Chief Economist of General Electric, agreed, saying that while all businesses expect a decline in government spending over the medium term, the uncertainty over when and how quickly these cuts will occur is harming confidence. Despite this, Clay Lowery of Rock Creek Global Advisors expressed optimism that the two parties will be able to eventually reach some kind of agreement that reforms the tax code and entitlements to get a handle on growing US debt levels.

There was widespread agreement that Europe has finally turned the corner. Lowery pointed out the considerable progress that European leaders have already made in two years: despite considerable disagreements, Europeans have created the European Stability Mechanism, expanded the lending ability of the European Central Bank (ECB), and initiated talks about a single banking supervisor; all of these were unthinkable a few short years ago. However, significant concerns remain about Europe’s recent return to recession. Additionally, the deteriorating relationship between the United Kingdom and the rest of the European Union may prove to be a new source of market uncertainty. Annunziata echoed the optimism about the situation in Europe, especially since Mario Draghi announced the ECB’s willingness to do “whatever it takes” to support the Euro earlier this summer. However, he stressed that it is crucial for the reform progress to continue throughout Europe’s periphery through what could be a turbulent 2013, with major elections coming up in Germany and Italy and the growing possibility that Spain may require a bailout.

Leading officials from both the United States and Europe expressed confidence that Europe would continue to make progress. Antonio de Lecea, the principal advisor for economic and financial affairs for the European Union Delegation to the United States, stated bluntly that the Euro would not breakup in any realistic scenario. He found the ECB’s actions particularly reassuring, and added that European leaders consistently demonstrated political resolve and commitment to the single currency. He also argued that the economic costs of a break-up would be far worse than the current situation. Likewise, Heidi Crebo-Rediker, the US State Department’s chief economist, underscored that the US government is encouraged by the consistency of the response of European leaders to events as they have unfolded. Jeffrey Wrase, the Senate Finance Committee’s chief economist, added that the United States has a strong economic incentive to ensure that Europe solves its economic problems—given the large amount of trade and investment across the Atlantic.

Leaders also emphasized that American leaders will reach some kind of resolution to prevent the ‘fiscal cliff’ from precipitating a new recession in 2013. Wrase pointed out that President Obama and Speaker Boehner have already started talks, and that the differences between their respective positions right now will be reduced as their negotiations continue. If full agreement cannot be reached by the end of December, it is also possible that Congress could pass another stop-gap measure to give Democratic and Republican leaders more time to reach a ‘grand bargain.’ De Lecea, however, warned that the rest of the world views a new recession in the US from a failure to resolve the ‘fiscal cliff’ as a major threat, especially since the US came so close to economic catastrophe with the debt ceiling debate in the summer of 2011.