Can Obama fulfil a fiscal grand bargain?

FT.com

There were endless prognostications over the likeliest pathway for Barack Obama to the White House. In the event, the president took them all, winning Virginia, Ohio, Colorado, Iowa, New Hampshire and it looks like Florida even – a state that most pundits had expected Republican challenger Mitt Romney to take comfortably.

In spite of having only just squeaked a victory on the popular vote (a tally that will not be confirmed for a few days), Obama managed to hold on to the diverse coalition that brought him to office in 2008. Of the big sweep four years ago, only Indiana and North Carolina were missing in 2012. And in spite of fears over the enthusiasm gap, Hispanics, African-Americans, young voters and college-educated women all turned out in big numbers for an Obama second term.

Obama's second victory was certainly less glamorous than his first. And his campaign was a pale shadow of 2008. Yet given the still parlous state of the US economy, and the fact that unemployment remains at about the level it was when he took office, his 2012 success was even more unlikely. It was certainly harder to pull off. Ultimately it was a contest between a weak economy and an even weaker Republican nominee. Both the US economy and Romney improved their performance during the general election campaign. Romney even managed to pull into the lead for a few days after his strong showing in the Denver debate. But the economy timed its recovery even better, adding 171,000 jobs last month and almost as many in September. In the end, that may have been the most important contributor to Romney's defeat.

There were two immediate pointers from Tuesday night's victory. First, Obama has not forgotten the "hopey changey” thing. It did not surface much in his general election campaign. But the president made "hope” the centrepiece of his victory speech in Chicago – even reprising some of the language he had used in his original 2004 address that first brought him to national attention about "red state/blue state” America.

The message he intended was clear. With the fiscal cliff negotiations about to begin, Obama will make a renewed bipartisan effort to woo a Republican party that caused him so much damage in his first term. Top of his list is deficit reduction and tax reform – both issues designed to appeal to a more pragmatically inclined GOP.

Second, Republicans also claimed victory on Tuesday night having retained the House of Representatives – and possibly with a larger majority. They will interpret just as clear a mandate from their congressional victory as Obama will his. After the results were declared, John Boehner, the Republican speaker, issued an emollient statement about working across the aisle with Obama. In his speech, the president returned the compliment. In reality, both will feel confirmed in their negotiating stance: Obama plans to stand firm on tax increases for the wealthy, and Boehner will stand equally resolutely against them. One side will have to blink or the US will plunge over the cliff.

In the past, the blinker has usually been Obama. But nothing quite emboldens a president like a re-election. Tuesday night brought him a remarkable victory. But it also confirmed how deeply – and evenly – divided the US remains. The big question now is whether Obama can use his replenished political capital to leverage some kind of fiscal grand bargain on Capitol Hill.

The odds must be against a breaking of the "Republican fever” any time soon. But they are narrower than they were on Monday. For the first time in a long while, Obama has the initiative. And for the first time in his life, he knows he will never have to run for office again. For some presidents, such knowledge can be a great liberation.

Copyright the Financial Times 2012.