The World from Berlin 'The Biggest Loser is the Average American'
One day after US President Barack Obama signed a bill raising the country's debt ceiling and avoiding a possible national default, financial leaders and markets around the world are weighing the future of the world's largest economy. German commentators are expressing their concern about the financial situation in the US, and what it means for Europe and the world.
In the United States and abroad, concerns shifted Wednesday from whether or not Congress would come to agreement on raising the country's debt ceiling, to the overall health of the world's largest economy and the possibility it is sliding into another recession.
On Tuesday, the US Senate averted a threatening national default by passing a last-minute compromise measure for raising the country's debt ceiling of $14.3 trillion. The bill was then swiftly signed by President Barack Obama, giving the Treasury Department $400 billion in borrowing ability just hours before a midnight deadline.
The bill also sets up a commission made up of six Democrats and six Republicans, to further work on reducing the deficit. The commission is charged with coming up with a plan by the end of November before spending cuts are automatically made across the board, including to the defense spending and social welfare programs popular with Republicans and Democrats.
Nervous global investors contemplated the chance that, despite the deal brokered between Republicans and Democrats, the top credit rating agencies would still downgrade the country's creditworthiness.
Moody's announced Tuesday that the US would keep its top AAA bond credit rating, but with a "negative" outlook attached to it, meaning that it could be downgraded in the future. The US has maintained a top rating with the agency since its founding in 1917.
S&P Calls for $4 Trillion in Savings
Another top ratings agency, Standard & Poor's, said last month that there was a 50-50 chance it would cut the US rating over the next three months if lawmakers did not craft a meaningful deficit-cutting plan. The agency has said $4 trillion in deficit-cutting measures are necessary. However, the agency has not made any announcements since the passage of the compromise measure.
Before signing the legislation Tuesday, President Barack Obama repeated his call for tax increases on the wealthiest Americans to help offset the deficit. "We can't balance the budget on the backs of people who have borne the biggest brunt of this recession," Obama said. "Everyone is going to have to chip in. It's only fair."
But Senate Republican Leader Mitch McConnell of Kentucky said in an interview on Fox News Monday that he was "confident" that the bipartisan commission set up in the compromise would not promote tax increases. The majority of Republicans in the House of Representatives have signed a written pledge not to raise taxes under any circumstances.
In China, the biggest owner of US Treasury debt, the governor of the central bank, Zhou Xiaochuan, issued a statement Wednesday calling on the government in Washington to handle its debt responsibly.
"Large fluctuations and uncertainties in this market would undermine the stability of the international financial system and hinder global recovery," Zhou said.
Alarm Over US' Economic Future
Christine Lagarde, the new managing director of the International Monetary Fund (IMF), issued a statement Tuesday welcoming the bipartisan agreement, and called for more spending cuts and an increase in revenue.
"The challenge for policymakers is to now develop a consolidation framework that includes clear medium-term debt and deficit objectives," she said in the statement. "Putting public finances on a sustainable path will entail identifying further savings in entitlement spending, as well as new revenues."
In a column written for the Reuters news agency, former US Treasury Secretary Lawrence Summers added to the uncertainty over a future US recession. "The odds of the economy going back into recession are at least one in three if nothing new is done to raise demand and spur growth," he wrote. "If these judgements are close to correct, relief will soon give way to alarm about the United States's economic and fiscal future."
The German press has heavily covered the US debt ceiling debate, which is often juxtaposed with the current debt crisis in the euro zone. Editorial cartoonists, too, have tackled the issue. Some have even featured pictures of vultures, an image associated in Germany with someone or something that is bankrupt. One cartoon showed Mount Rushmore with four vulture heads replacing those of the four presidents. And a cartoon in the Financial Times Deutschland Wednesday shows a vulture running from Capitol Hill, uttering a promise that he will return.
Concerns about the debt crisis play themselves out Wednesday in the editorial pages of German newspapers, where some commentators continue to analyze what the debate in Washington over the debt ceiling means for the world.
The conservative daily Die Welt writes:
"New IMF chief Christine Lagarde hasn't had a 100 day grace period in which she could take stock and develop an agenda. She warns that the historically strong trust in the dollar has been weakened. And, indeed, it is without a doubt that the last-minute compromise between Democrats in the Senate and congressional Republicans has only pushed off dealing with the conflict to another day."
"The issue at hand is not just one of the trillions of dollars in federal debt. It is about the fate of what has long been the world's largest economy, and the role the US plays in the world. On the one hand, there are the social democratic policies à la Obama, which in the spectrum of the US belong to the left wing. On the other hand are are the father-knows-best austerity policies of the Tea Party. The Republicans block out the fact that in 2001 George W. Bush took over a solid budget from Bill Clinton, then waged a war without end in Afghanistan, and an unnecessary one in Iraq, all the while lowering taxes for those on the top. At issue is the role of the last superpower in maintaining peace and balance in the world."
The left-leaning Die Tageszeitung writes:
"And what does this mean for Germany!? This question might be egocentric, but not unjustified, when the news comes from the US, that the country with the largest economy in the world now is economizing. The answer is: The global repercussions should at first be limited, but will be grave over the long haul."
"Regarding the short-term effect, the debt crisis in the US was a political, not a financial, debacle. Not all state insolvencies are the same. Greece, for example, is truly bankrupt, while the US is still an enormously solvent country. There, one would only have to raise taxes on the rich, and the budget deficit would shrink."
"And it is exactly because no real bankruptcy threatens the US that the spending cuts were a joke. Cuts of $2.1 trillion sound huge, but spread out over 10 years they make up only 1.5 percent of US economic output in today's dollars. With inflation and growth this percentage would grow smaller."
"Nevertheless, the American savings package is very problematic in the long-term. The US should not have made puny cuts, but rather have made extravagant spending increases. They need a new economic stimulus package in order to fight the high levels of unemployment."
The conservative daily Frankfurter Allegemeine Zeitung writes:
"In Washington, as an election year approaches, the parties and experts are arguing over who were the winners and losers in the debt compromise. The debate shows how far the political landscape has moved from the actual concerns of the American people. The biggest loser of the compromise is clearly the average American on Main Street. Raising the debt ceiling did, to be sure, allow the government to pay its debts. The catastrophic scenario, in which America and the world would have sunk into a new recession, has been staved off. But at what price?"
"The deficit that, for the coming budget year, has been predicted to be more that $1.1 trillion, should merely sink by $21 billion, or a little less. ... The unwillingness to save increases the risk that the United States will not get its debt problem under control. The negative reactions on Wall Street and the worries over a possible lowering of the credit rating are well-founded."
"Even though a default has been prevented, the insecurity over the economic and financial policies in the US has risen, not declined. Despite good profits and overflowing company coffers, businesses are holding back on investment. A badly needed tax reform, that would sink the corporate tax rate, which is at a record level in international comparisons, has no chance with the ideologically dogged Democrats."
-- Mary Beth Warner
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