Debt Crisis Europeans Urge US to Reach a Deal
US lawmakers and President Obama have until Aug. 2 to find a compromise on raising the federal debt ceiling before the government goes into default. But talks have broken down between the White House and Congress, and Republican and Democratic proposals in Congress appear to be going nowhere. The IMF and some European leaders are calling on the US to get its act together.
The daily schedule of a member of the US Congress has been easy to predict recently. In the morning, the legislators in Washington stand in front of the TV cameras and talk about, one after another, how the country is standing on the edge of the precipice. Then, in the evening they can go back and report that the country did make one small step forward.
Tuesday was no exception. Chaos and internal power struggles ruled, this time within the Republican party. The conservative leaders around John Boehner, the powerful Republican speaker of the House, had wanted to promote their own plan for raising the debt ceiling, but he was forced to postpone a vote on the measure late in the day. If Congress does not raise the debt ceiling by August 2 from its current level of $14.3 trillion, the United States will default on its debt.
Boehner's plan would involve raising the debt ceiling initially by $1 trillion, which is enough to pay off federal debts until the end of the year. That would be offset by spending cuts of $1.2 trillion over the next decade. In addition, a commission would then determine how further spending cuts and adjustments to the tax code could be made.
No Republican Consensus
Boehner wanted a vote on his proposal to take place as early as Wednesday in the House of Representatives, but on Tuesday night he had to announce that he was pushing that back at least one day because he did not have a clear majority behind it.
The independent Congressional Budget Office in the meantime has calculated that Boehner's savings would only amount to about $850 billion -- which would be less than his promised rise in the national debt limit, and too little for conservative hardliners from his own party, who want to shrink the deficit by as much as possible.
It was already unclear before the proposal how many votes Boehner could count on from his own party. His spending cuts did not go far enough, especially for those aligned with the radical Tea Party movement. Some of them oppose any form of compromise on the debt ceiling limits. "I will not vote for the increase," said the Republican presidential candidate Michele Bachmann, a darling of the Tea Party movement.
'Dead on Arrival'
The blow to Boehner has heightened the level of insecurity in Washington, just as the deadline for a US default looms. Still, the Republicans around Boehner had hoped that the plan could make its way through the Senate, which is controlled by the Democrats, even though Harry Reid, the Democratic leader of the Senate, opposed it.
"Boehner's plan is no compromise," Reid said. "It was written for the Tea Party, not for the American people." On Tuesday, he declared it "dead on arrival" in the Senate.
Reid's Democratic colleagues in the Senate are working on their own proposal. Their plan would include about $2.7 trillion in spending cuts, but no significant cuts to social programs that the Democrats consider especially important. Tax increases -- a red flag for Republicans -- are also taboo in this plan, for the time being. At the same time, the US debt ceiling would be raised to the same level. The US government could remain solvent under this plan at least until the end of 2012, and US President Barack Obama would not have to enter into another debate on the debt ceiling in an election year.
But Democrats didn't have time to rejoice over Boehner's setback because their plan also does not have a clear majority behind it. Washington threatens to spiral into a world of misunderstandings, bruised egos and political games, which could lead directly to a national default.
40,000 Phone Calls in One Hour
On Monday, the fallout was there to be seen on primetime television. President Obama addressed the nation from the White House and accused the Republicans of waging a "political war." As if he were in the middle of an election campaign, Obama called on his supporters to pressure their members of Congress with phone calls and e-mails, and they did. On Tuesday, Speaker Boehner's website crashed several times, and at one point about 40,000 calls were made to the House in one hour.
Boehner appeared immediately after the president on television and said: "[Obama] wants a blank check today, and that is just not going to happen." Boehner, who until recently was Obama's negotiating partner, is now only working as the opposition leader.
But in this political dogfight there do not appear to be any winners. The conservative Boehner has been weakened because he can't rally the members of his own party behind him. In Republican circles, the topic of who will be his successor is being discussed.
Obama, on the other hand, can build on polls that show the majority of Americans, like him, want a compromise to be reached in the debt talks and reject the radical agenda of the Tea Party movement. Still, recent polls show that Obama's approval ratings among African-Americans and liberals have fallen dramatically. These groups grumble about Obama's willingness to compromise, and he needs their support for re-election next year.
A Plea from Lagarde
And the world economy? It could be the biggest loser of all.
"The clock is ticking, and clearly the issue needs to be resolved immediately," Christine Lagarde, the new head of the International Monetary Fund (IMF), said at a speech in New York on Tuesday.
If the ratings agencies were to downgrade the credit rating of the United States, or if the country were to default, it would be a "very, very serious event, not just for the United States, but for the global economy at large," Lagarde warned. She said a fiscal shock in the United States could have repercussions for the rest of the world.
German media commentators have also expressed their concerns. On Wednesday, the conservative newspaper Die Welt wrote: "If government bonds were affected, then there would be a collapse on the international financial markets with unforeseen consequences for the real economy."
The French budget minister, Valerie Pecresse, also weighed in on Wednesday, saying: "We think the global economy needs an American agreement ... We need a deal not just on the question of the American debt but also on rebalancing American public finances."
Into the Abyss
But a compromise is not in sight. Instead, experts in Washington have begun to debate whether or not a deal really needs to be reached by August 2, or if the US has more money left over than originally thought.
The consensus is that the government will not run out of money until August 10, writes the New York Times. By then, they must borrow more money in order to send out millions of social security checks. If not, they will become insolvent.
August 10 instead of August 2. One doesn't want to think about it: yet another week of collectively marching toward the abyss.