A global financial and economic crisis seems averted because of the deal in the US debt dispute – right? The compromise still has to clear an important hurdle.
After the compromise in the US debt dispute, President Joe Biden and Republican Kevin McCarthy are campaigning for broad approval from members of Congress. The breakthrough achieved over the weekend to suspend the US debt ceiling until 2025 in return for significant spending cuts is intended to avert the imminent default of the world’s largest economy – and with it a global financial and economic crisis.
But left and right lawmakers in the House of Representatives are not happy with the results and are threatening to withhold their approval. A vote in the Chamber is scheduled for Wednesday.
President Biden and McCarthy, the Republican leader in the House of Representatives, praised the compromise: Biden called the deal “good news” for the American people. Spending would be reduced while vital programs for working people would be protected and the economy strengthened. In addition, the agreement secures the most important parts of his agenda. However, the 80-year-old also admitted “that not everyone gets what they want.” Biden called on Congress – i.e. the House of Representatives and Senate – to pass the agreement immediately.
McCarthy spoke of an “agreement worthy of the American people.” It is quite simple: the Republicans fought and won against a larger state budget and higher taxes. “The systemic reforms we are embarking on mark the beginning of an historic shift in Washington,” he wrote on Twitter.
On Fox News, he said confidently: “I think the majority of Republicans will vote for this bill.” Biden is also behind the text, “so I think that many Democrats will also vote for it.”
Draft must go through both chambers
The bill needs to be passed in both chambers of Congress and signed by the President as soon as possible, lest the government run out of money. Treasury Secretary Janet Yellen recently warned that the money could run out on June 5th. This was preceded by an intense dispute that even prompted Biden to cancel trips abroad.
For Biden – who wants to be elected for a second term in 2024 – a quick wave of the law would also be important for another reason: In times of extreme polarization in the USA, he had repeatedly emphasized the importance of cross-party cooperation and staged himself as a politician who, despite above all, can still get deals with the Republicans.
Approval in House of Representatives not guaranteed
Approval in the House of Representatives on Wednesday is considered likely, but not guaranteed. The situation is particularly muddled because Republicans have a very slim majority. There are also radical MPs in the parliamentary group who show no interest in a realistic compromise. McCarthy was only elected chairman by his group at the beginning of the year after a historic election chaos. This had greatly weakened his position.
The dispute over the debt limit is a major test for McCarthy. He must succeed in rallying a few radicals behind the agreement in order to have the broadest possible majority of his own. If he were dependent on many votes from the Democrats because his party colleagues opposed him, that would weaken him further.
The compromise that has now been reached is intended to effectively freeze the size of the federal budget, which the Democrats under Biden actually wanted to increase, with the exception of military spending. The budgets of many federal agencies and ministries would be adjusted for this. The “New York Times” estimated that the US government could spend around $650 billion less over the next ten years with the new regulation – but this corresponds to significantly less deep cuts than previously demanded by the Republicans. McCarthy nevertheless spoke of “historic spending cuts”.
The Democrats actually wanted to increase state revenues by taxing the rich more heavily. The Republicans opposed it. In return for an increase in the debt limit, they had urged Biden to make savings, for example in the social sector.
McCarthy, for example, called for people who receive certain social benefits to have a job in return. On this point, both sides found a middle ground – as with the money for more tax investigators, where Biden waived funds. The President, on the other hand, defended low-carbon energy incentives and his plan to waive about $400 billion in college tuition for 40 million Americans.
In the United States, parliament sets a debt ceiling at irregular intervals. In the meantime, this debt ceiling of around 31.4 trillion US dollars has been reached and the Treasury must tap into the capital reserves. For an increase – or, as is now being negotiated, a suspension until 2025 – Biden and his Democrats need the Republicans in Congress.
Dispute had brought the United States to the brink of insolvency
The months-long dispute had brought the United States to the brink of insolvency. If this now increasingly unlikely event were to occur, a subsequent global financial crisis could trigger a severe economic downturn. The US would then no longer be able to pay most of its bills – millions of people would probably lose their jobs as a result.
The dispute had meanwhile even threatened the creditworthiness of the USA. The rating agency Fitch retained the top rating “AAA” for the world’s largest economy on Wednesday evening (local time), but lowered the outlook to “negative”, so that a downgrade could be threatened. Biden had repeatedly emphasized that it had been possible to prevent a default 78 times in US history.
Source: Stern
I have been working in the news industry for over 6 years, first as a reporter and now as an editor. I have covered politics extensively, and my work has appeared in major newspapers and online news outlets around the world. In addition to my writing, I also contribute regularly to 24 Hours World.
