Enter multiple symbols separated by commas

Watch for ‘Procrastination Plan’ From Super Committee

With the U.S. congressional joint select committee on deficit reduction — or "super committee" as it has become known — needing to agree on cuts of $1.5 trillion within the next 48 hours, HSBC analysts are predicting Washington will agree to put off making tough decisions.

Tim Graham | The Image Bank | Getty Images

"Difficult decisions may be delayed. The super committee may come up with a procrastination plan that specifies targets for spending cuts and revenue increases, but leaves the details to congressional committees to write the necessary tax and spending legislation,” Kevin Logan, chief U.S. economist at HSBC, wrote in a research note as the deadline neared.

With time running out, Logan said he expects the difficult decisions to be kicked back to the very congressional committees who couldn’t agree on a deficit reduction plan in the first place.

With the deficit battle likely to dominate in a presidential election year, Logan is not optimistic. “Failure to come up with the required deficit reduction will, in theory, trigger across-the-board spending cuts called sequestration from January 2013,” he wrote.

This is likely to mean that the markets focus will turn from Europe’s debt woes to America’s huge debt pile, something the credit rating agencies will react to sooner or later, according to Logan.

“The rating agencies might be tolerant of this for a while, but failure to make clear progress could lead to downgrades of the U.S. sovereign credit rating at some point next year,” he added.

Barclays Capital analysts the talks over $1.5 trillion of cuts are just a drop in the ocean.

“The U.S. needs to reduce projected deficits dramatically to stabilize its fiscal profile. The actions of the committee simply represent a downpayment on a more comprehensive set of measures that will need to be enacted,” Rajiv Setia, the co-head of U.S. interest rate strategy at Barclays Capital, wrote in a note to clients.

“The risk of a downgrade in late 2012 remains high, especially if it is clear that politics will deter Congress from taking credible actions to stabilize fiscal finances after the presidential elections,” said Setia, who believes huge cuts are going to be needed to stabilize America’s debt-to-gross domestic product ratio given the experience of austerity cuts on growth in Europe.

Contact Europe News


    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Europe Video

  • We're not starting long-haul flights: Ryanair

    Neil Sorahan, CFO of Ryanair, says the Gulf carriers have "mopped up" all of the long-haul aircraft available and the Irish company would not be offering those flights soon.

  • 'Good banter': Ryanair CFO on Twitter battle

    Neil Sorahan, CFO of Ryanair, says the Twitter exchanges between the airline and rival Aer Lingus is "good banter between neighbors". Sorahan also says the company has not received an offer by IAG to take over Aer Lingus. Ryanair owns a 30 percent stake in Aer Lingus.

  • Profits will rise 10% next year: Ryanair

    After posting a 66 percent rise in net income for the full year ending in March, Neil Sorahan, CFO of Ryanair, discusses the outlook for the next year.