United States: an agreement in principle to avoid a “catastrophic default”

United States: an agreement in principle to avoid a “catastrophic default”

2023-05-28 07:44:44

Joe Biden said he was “fairly optimistic”. The American president and the Republican leader in Congress Kevin McCarthy have finally reached an agreement in principle on the thorny issue of the debt, according to the Republican leader. A crucial step to avoid a payment default by the world’s leading economic power a few days before the deadline.

The House of Representatives, with a Republican majority, will vote on Wednesday, its boss said. Next will come the Senate, with a Democratic majority.

“This agreement is a compromise, which means that everyone does not get everything they want,” reacted Joe Biden, assuring that the text, the details of which are not known, “reduced expenses while protecting essential public programs”. This agreement makes it possible to avoid a “catastrophic (payment) default”.

Kevin McCarthy estimated in a short speech that the budgetary compromise found, of which he did not give the details, was “completely worthy of the American people”.

The conservative leader only welcomed the “historic reductions” in public spending that the agreement provides, according to him, which was the main demand of the Republicans.

Refusal of a “blank cheque”

Kevin McCarthy has indicated that he will meet again on Sunday with Joe Biden and will publish the text the same day, the result of difficult negotiations.

According to several American media, the agreement reached between the executive and the opposition raises for two years, so until after the presidential election of 2024, the public debt ceiling of the United States.

Without raising this limit, the first world power risked being in default of payment on June 5, unable to honor its financial commitments: salaries, pensions or reimbursements to its creditors.

Like almost all major economies, the United States lives on credit. But unlike other developed countries, America regularly comes up against a legal constraint: the debt ceiling, the maximum amount of indebtedness of the United States, which must be formally raised by Congress.

From this routine legislative procedure, the Republicans, in the majority in the House of Representatives since January, have made an instrument of political pressure.

Refusing to make a so-called “blank check” to the Democratic president, they have made any increase in this ceiling, currently set at 31.4 trillion dollars, conditional on budget cuts.

Re-election candidate Joe Biden has long refused to come to the negotiating table, accusing the opposition of holding the US economy “hostage” by demanding such cuts.

” Under surveillance ”

After several meetings at the White House between the two men, the teams of the president and the Republican “speaker” finally got down to endless negotiating sessions – all abundantly commented on by the whole of Washington.

The agreement in principle found on Saturday evening gives a little air to the financial markets, which have never really panicked but that this paralysis was starting to get impatient. It is in fact very common for last-minute compromises to be reached on this type of file.

The rating agency Fitch had placed Thursday “under surveillance” the AAA rating of the United States, estimating that the failure to reach an agreement “would constitute a negative sign in terms of governance”.

The global economy, already in the grip of “high uncertainty”, could have “did without” these tense negotiations, had also criticized the director of the International Monetary Fund Kristalina Georgieva.

Still, this compromise must now be validated by the Senate, narrowly controlled by the Democrats, and by the House of Representatives, on which the Conservatives have a fragile majority.

Some progressives within the Democratic Party, as well as elected members of the Republican Party, have threatened not to ratify, or to delay as much as possible a text that would make too many concessions to the opposing camp.

A Republican elected to the House of Representatives, Bob Good, estimated on Saturday that given what he knew of the compromise, “no elected representative claiming to be from the conservative camp could justify a positive vote”.

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