The Debt Ceiling War: A Risky Victory for Obama
President Barack Obama has announced a breakthrough in the debt ceiling battle in order to prevent a US default. But the deal could come at a great cost to the president, who has made major concessions and has angered the left wing of his own party.
President Obama, after announcing a breakthrough deal with Republicans on the debt ceiling, said: "Is this the deal I would have preferred? No."
Barack Obama will turn 50 this Thursday, and it would be natural for him to be looking forward to a few gifts. On Sunday night, it looked like he got an early one. The president was able to announce at the White House that the Republicans and Democrats in Congress have agreed on a solution to the debt quagmire.
Obama had been calling for a compromise for weeks. But on Sunday night, you certainly couldn't see any joy or signs of a celebrating a success in Obama's gestures.
Sure, the president found appropriate words with which to praise the deal, which had been secured only minutes before on nearby Capitol Hill. "The leaders of both parties,"Obama said, "have reached an agreement that will reduce the deficit and avoid default -- a default that would have had a devastating effect on our economy."
On August 2, the United States will be able to pay its bills again. Global financial markets will be able to breathe a little easier and the feared Armageddon will have been averted.
During the next decade, US federal government expenditures are to shrink by $1 trillion, and a special committee in Congress is expected to outline an additional $1.5 trillion in savings by the end of November. If they are unable to reach a deal on the additional savings, then cuts will automatically be made across the board, including to the defense budget and to social welfare payments -- two extremely expensive programs that are championed by conservatives and liberals.
In exchange, the US debt ceiling will be raised in two stages by up to $2.4 trillion over the current level of $14.3 trillion. This will enable the US government to remain solvent and pay its bills -- at least through 2012, and past the next presidential election.
Concessions Could Harm Obama in the Long Run
But can Obama truly breathe any easier? The compromise deal still has to be approved by the House of Representatives and the Senate. Left-leaning members of the Democratic Party and ultra-conservative Republicans aligned with the Tea Party movement in both houses are unhappy with many of the details in the agreement.
"We're not done yet," Obama said. It could take until Tuesday, the day the US would go bust, until the votes take place, and the results could be very close.
And even if both chambers approve the compromise as expected, the sums may add up to benefit America as a nation, but not necessarily the man leading the country. With an election year ahead, Obama will be spared another deficit battle in 2012, but the concessions he is being forced to make could be damaging to him in the long run. "Now, is this the deal I would have preferred? No," Obama conceded at the White House.
His supporters within the liberal wing of the Democratic Party are already criticizing him. "If I were a Republican, this is a night to party," Emanuel Cleaver, a Democrat from Missouri, told the TV news channel MSNBC on Sunday night.
A colleague, Representative Raul Grijalva of Arizona, lamented that the deal "trades peoples' livelihoods for the votes of a few unappeasable right-wing radicals, and I will not support it." Meanwhile, the New York Times offered the following analysis: "President Obama has moved rightward on budget policy, deepening a rift within his party heading into the next election."
A Shift in Course for Obama
The spending cuts will hit programs that are particularly coveted by the left-wing of the Democratic Party -- programs aimed at seniors, the poor, children and young people.
At the same time, the Republicans have also managed to keep the issue of raising taxes taboo, despite the fact that the majority of the US population would prefer a mix of austerity measures and a rise in tax revenues. Currently, America's tax ratio is the lowest it has been in decades.
In his remarks on Sunday night, the president emphasized the need for some tax increases. "I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions," he said. In the planned second round of consultations on spending cuts, tax adjustments could also be back on the table -- at least in theory.
But they wouldn't stand any chance of passage. Of the 240 Republican members of the House of Representatives, 234 have signed a pledge stating they would not approve tax increases, regardless of the circumstances.
"We have changed the debate in the United States, which is a pretty radical thing to do in such a short period of time," Mark Meckler of the Tea Party Patriots told SPIEGEL. "The question back then was: 'How much more will we spend next year?' and not, 'How much can we cut?'"
The compromise also marks a break from Obama's political course up until now. The Democrat long pushed for greater government spending in order to stimulate the stagnant economy. Now, however, the focus will be on austerity, even if many economists feel that is the wrong step given the stagnant US economic growth of 1.3 percent. A fixation on cuts could stall the fragile economic upswing, Obama's former chief economic advisor, Larry Summers, warned in a SPIEGEL interview last week.
Obama Fears Re-Election
But Obama's current political advisors like the austerity measures. They are hoping they can translate into new enthusiasm among voters for Obama, just as Bill Clinton secured his re-election in the mid-1990s with his tough budget discipline.
"Obama's target constituency in 2012 is not his base but rather independent and moderate voters," the Washington Post's Chris Cillizza wrote. "And those fence-sitters love compromise in almost any form."
But in the mid-1990s, Clinton only had to contend with an unemployment rate of 5.7 percent. The jobless rate is currently hovering at over 9 percent. Clinton also showed strong leadership with his savings, managing to decisively ward off conservatives seeking to block his efforts.
Obama, for his part, had long sought to negotiate savings of over $4 trillion behind closed doors with John Boehner, the Republican Speaker of the House. When those talks collapsed because Boehmer was halted by the Tea Party faction, the president became very prickly. "Can the Republicans say yes to anything?" Obama asked. The president then largely retreated from public negotiations on the debt ceiling.
Sunday's compromise can't really be chalked up as any major success for Obama, not least because it was largely the Republicans who succeeded in getting the concessions they had demanded.
Andrea Saul, spokeswoman for Mitt Romney, the leading Republican presidential candidate, is already throwing jibes at Obama. She claims that the debt crisis began in earnest because of Obama's inability to show strong leadership.
At the same time, it is the very Republicans who are now celebrating who might help steer Obama out of the crisis -- including the one within his own party. If they agree on a presidential candidate who scares left-leaning Democrats, then they will once again flock to Obama -- for better or for worse.
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