By David Gordon Smith
Spiegel Online
With no solution to the US debt crisis in sight, the rest of the world is starting to get nervous. German commentators urge congressional leaders to get their act together. A US default would have catastrophic consequences, they warn.
Both Moody's and Standard & Poor's are threatening to downgrade the country's debt amid fears of a national insolvency. But for once it is not a debt-stricken euro-zone member that has come into the crosshairs of the powerful rating agencies. This time it is the United States, the world's largest economy, that is at risk of going bust .
The US needs to raise its debt ceiling, currently set at $14.3 trillion (€10.1 trillion), by Aug. 2, otherwise the country will run out of money. But negotiations between President Barack Obama and top Republicans and Democrats have so far failed to make progress.
Obama has now given congressional leaders until Saturday morning to reconsider their positions. "It's decision time. We need concrete plans to move this forward," Obama said on Thursday, the fifth day of talks, following an inconclusive negotiating session.
Financial markets, which have previously viewed the negotiations with calm, are beginning to get nervous amid fears that Republicans and Democrats may be unable to reach an agreement by Aug. 2. Any default on the part of the US could have incalculable effects on global financial markets and could hurt the fragile recovery in the US. Moody's and Standard & Poor's have warned they may cut the country's top AAA credit rating if a solution isn't reached.
Republicans want any increase in the debt ceiling to be met by spending cuts equal to the same amount, as well as more serious efforts by the government to address the debt problem. Democrats are open to certain cuts but want tax increases in return. With presidential elections coming up in 2012, neither side wants to be seen as ceding ground.
On Friday, German commentators react with concern to the ongoing stalemate.
The center-right Frankfurter Allgemeine Zeitung writes:
"The bitter debate in Washington about raising the debt ceiling has largely left the financial markets cold. … The market players apparently expect that an agreement will be reached in time. That's the only possible explanation for their surprisingly calm response."
"We can only hope that the top politicians in Washington take Moody's warning seriously, despite the relaxed response from the financial markets so far. A US default and a lower credit rating would … send stock prices through the floor and could choke off America's economic recovery -- with global repercussions. The politicians in Washington are playing with fire. A swift compromise is needed. Nobody needs a US default."
The center-left Süddeutsche Zeitung writes:
"It's actually unimaginable. On August 2, the US could, for the first time in its history, become insolvent because the Republican majority in the House of Representatives refuses to raise the ceiling on the national debt. But until now, everyone is acting as if it will all be OK and the politicians in Washington will come to their senses in time."
"The Republicans are playing with fire. Nobody can imagine what the repercussions might be if the unthinkable happens and the US is suddenly no longer a safe haven for investors. Anything is possible, from a small, barely perceptible amount of turbulence in the financial markets to a global panic. Congress should think carefully about what it is doing."
The conservative Die Welt writes:
"In this period of competing debt crises, America and Europe are looking at each other in amazement, with each side understanding less and less about what is happening on the other side of the Atlantic. While Europe's chaos is obvious to the Europeans and the rest of the world, there are few signs of self-doubt or self-awareness in the US. In the middle of the poker game between the two political parties to prevent a national default on Aug. 2, polls show that 77 percent of Americans believe that they live in the world's greatest system of government. Just as many are convinced that life is only worth living as an American."
"Democrats and Republicans are so hopelessly embroiled in a religious war that compromise and pragmatism are just dreams from a far-off era of reason. … The influence of the Tea Party movement … can not be overestimated. … The movement sees traditional politics as corrupt and regards Washington as a den of iniquity. … They see the other side as their enemy. Negotiations with the Democrats, whether it's about appointing a judge or the insolvency of the United States, are only successful if the enemy is defeated. Compromise, they feel, is a sign of weakness and cowardice."
The business daily Handelsblatt writes:
"Washington still considers a default to be unimaginable. Obama does not want to go down in history as the president who bankrupted America, so the only alternative is another unsavory deal -- the 'kick the can down the road' solution, as American politicians like to call it. The debt limit will be raised again just before the impending volcanic eruption, exacerbating the problem and postponing an attempt to solve the problem (of the US's enormous debt) to the next, not too distant deadline. Investors are also counting on this scenario. That is the only explanation for the relative calm on the market for US government bonds."
"That will change if the European Union crisis countries manage to sort out their finances, while the US continues with its debt delusions. Then the markets will soon achieve what the politicians have failed to do -- and force the US into an era of belt-tightening."
The mass-circulation Bild writes:
"Playing poker is part of politics, as is theatrical posturing. That's fair enough. But what America is currently exhibiting is the worst kind of absurd theatrics. And the whole world is being held hostage."
"Irrespective of what the correct fiscal and economic policy should be for the most powerful country on earth, it's simply not possible to stop taking on new debt overnight. Most importantly, the Republicans have turned a dispute over a technicality into a religious war, which no longer has any relation to a reasonable dispute between the elected government and the opposition."
"If it continues like this, the US will be bankrupt within a few days. It would cause a global shockwave like the one which followed the Lehman bankruptcy in 2008, which triggered the worst economic crisis since the war. Except it would be much worse than the Lehman bankruptcy. The political climate in the US has been poisoned to a degree that is hard for us (Germans) to imagine. But we should all fear the consequences."
Good post. Can't disagree, seems like the US really is trying to hold the world hostage.
ReplyDeleteAnd all this cos the US economy is in dire straits, and all to prop up a worthless currency, not for the benefit of the US public either but for Wall Street bankers and their cronies.
The way things are going, the US is in danger of a total economic collapse (and the UK is too). Third world nation status beckons for both the US and the UK if things don't change.