Breathe a sigh of relief in the USA and on the financial markets: after weeks of negotiations, the bitter debt dispute has come to an end. Hardly anyone is really enthusiastic about the compromise, but many are relieved.
An impending insolvency of the US government has been averted. After the House of Representatives, the Senate in Washington also approved a bill late yesterday evening (local time) that will temporarily suspend the national debt ceiling in the USA.
Without the move, the US government would have run out of money in a matter of days. The final vote in Congress ends a long political nail-biter, which had caused great concern about an economic crisis in the USA and beyond. To the very end, President Joe Biden’s Democrats had fought bitterly with the Republicans to find a compromise.
A default by the world’s largest economy could have triggered a global financial crisis and economic downturn. The political impasse in Washington therefore also caused unrest on the stock exchanges.
A bipartisan majority in the Senate voted to pass the bill, which would suspend the debt ceiling until 2025 while curbing government spending over the next two years. 63 out of 100 senators helped the draft to the necessary majority, including 46 Democrats and 17 Republicans. The compromise ensures that the government will not become insolvent in a few days. US Treasury Secretary Janet Yellen recently warned that this dramatic event could occur on Monday. The solution therefore only came about shortly before the deadline.
Senate Majority Leader Chuck Schumer said he was relieved. “We avoided a catastrophic default,” he said. The Democrats in particular would have carried the agreement across the finish line – because in both chambers of Congress more Democrats than Republicans would have voted for the deal.
The US House of Representatives passed the bill on Wednesday evening, also with a cross-party majority. After the final vote in the Senate, President Biden now has to sign the law in order to put it into effect. However, this is considered a mere formality. Immediately after the vote, Biden announced that he would sign the law as soon as possible and would address the American people directly today. Biden emphasized that senators from both parties prevented a default with their votes. “Together they have proven once again that America is a nation that pays its bills and honors its obligations – and always will.”
The tugging before
The background to the debt drama: In the USA, parliament sets a debt ceiling at irregular intervals and thus determines how much money the state can borrow. This time the procedure degenerated into bitter party-political wrangling and ideological trench warfare between Democrats and Republicans.
The Republicans, who have had a majority in the House of Representatives since January, refused to raise the debt ceiling for many weeks and demanded significant cuts in government spending. They argued that government spending was out of control and at irresponsible levels. The Democrats, on the other hand, accused the Republicans of risking economic disaster just to make themselves known politically.
Biden and the Republican chairman of the House of Representatives, Kevin McCarthy, had struggled in tough negotiations over the past few weeks to reach a cross-party compromise and only presented a deal last weekend. This provides that the size of the federal budget, which the Democrats wanted to increase under Biden, is effectively frozen.
The budgets of many federal agencies and ministries are being adjusted for this. The Republicans were also able to enforce that recipients of certain social benefits must prove a job. The Democrats actually wanted to increase state revenues by taxing the rich more heavily. On the other hand, the Republicans braced themselves.
Many Democrats and Republicans alike are dissatisfied with the deal. Left-wing democrats complain about cuts in the social sector. For right-wing Republicans, the cuts don’t go far enough. And many moderate politicians from the middle of both parties are not at all enthusiastic. In view of the threatening dramatic consequences of a default, however, sufficient members of Congress from both camps ultimately voted in favor of the deal and thus secured the necessary majority in Parliament.
“No one gets everything they want in a negotiation,” Biden said. However, the bipartisan agreement is a great win for the US economy and the American people.
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.