Agreement in principle to avoid bankruptcy of the United States

Joe Biden at the White House, May 24, 2023 (AFP / Brendan Smialowski)

A few days before the deadline, US President Joe Biden and Republican leader Kevin McCarthy reached an “agreement in principle” on Saturday to avoid a default in payment by the United States, which will however still have to be validated by Congress.

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

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.

“This agreement is a compromise, which means that everyone does not get everything they want”, reacted for his part Joe Biden, assuring that the text “reduces expenses while protecting essential public programs”.

The Democratic president said the agreement with the Conservatives was “good news, because it avoids what would have been a catastrophic (payment) default”.

– Two years –

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.

US President Joe Biden (right) and House Republican Leader Kevin McCarthy at the White House in Washington on May 22, 2023

US President Joe Biden (right) and House Republican Leader Kevin McCarthy at the White House in Washington on May 22, 2023 (AFP/SAUL LOEB)

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 conditioned any increase in this ceiling, currently set at 31.4 trillion dollars, to budget cuts.

Joe Biden, candidate for his re-election, has long refused to come to the negotiating table, accusing the opposition of holding the American 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 the AAA rating of the United States “under surveillance” on Thursday, estimating that the failure to reach an agreement “would constitute a negative sign in terms of governance”.

The world economy, already in the grip of “high uncertainty”, could have “do 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.

The US debt ceiling

The US debt ceiling (AFP/)

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 in view of what he knew of the compromise, “no elected representative claiming to be from the conservative camp could justify a positive vote”.

© 2023 AFP

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