Draft still to be approved
Agreement in the US debt dispute: McCarthy speaks of “historic spending cuts”
Kevin McCarthy, Speaker of the House of Representatives, gives the all-clear on the US debt dispute.
© Patrick Semansky / DPA
All clear in the US debt dispute: Joe Biden and Kevin McCarthy have apparently reached an agreement. The corresponding draft law is now to be passed as quickly as possible – so that the USA remains solvent.
President Joe Biden and Republican Kevin McCarthy have achieved a breakthrough in the US debt dispute and are expected to avert a default in the world’s largest economy. Biden and the Republican chairman of the House of Representatives said in Washington on Saturday (local time) that they had reached a preliminary agreement. The project still has to be approved by Congress.
Biden, according to the White House, said it was an important step forward that would reduce spending while protecting vital programs for working people and strengthening the economy for all. In addition, the agreement protects the most important parts of his agenda. “The agreement represents a compromise, which means that not everyone gets what they want.”
Over the next few days, the negotiating teams would finalize the text of the law. The agreement will be forwarded to the House of Representatives and Senate. “I urge both chambers to pass the agreement immediately.”
Time pressure with the draft law
After speaking to Biden on the phone, McCarthy said, “After weeks of negotiations, we have reached an agreement in principle. We still have a lot of work to do. But I believe this is an agreement in principle that is worthy of the American people.”
The draft law will now be completed overnight and on Sunday – this should be finally approved on Sunday afternoon in cooperation with Biden. A vote in the House of Representatives is planned for Wednesday.
The draft must be passed in both chambers of Congress and signed by the President as quickly as possible so that an impending US government default is actually averted. US Treasury Secretary Janet Yellen recently warned that the money could run out on June 5th. This was preceded by an intense argument that even prompted US President Joe Biden to cancel trips abroad.
McCarthy speaks of “historic spending cuts”
In the United States, parliament sets a debt ceiling at irregular intervals and determines how much money the state can borrow. In the meantime, this debt ceiling of around 31.4 trillion US dollars has been reached and the Treasury must tap into the capital reserves. Biden and his Democrats need the Republicans in Congress to raise the debt ceiling.
Although the final details of the deal and the exact position of the White House remained unclear, McCarthy said the Democrats had agreed to “historic spending cuts” and that the text did not contain any new taxes or government programs.
The Republicans had wanted to urge Biden to cut back on social issues, for example, in exchange for an increase in the debt limit. McCarthy, for example, called for people who receive certain social benefits to have a job in return. Biden’s Democrats don’t want that. Instead, they wanted to close “tax loopholes” – specifically: tax the rich more heavily. Republicans are opposed to this.
US creditworthiness under threat
The months-long dispute had brought the United States to the brink of insolvency. If this had actually happened, a subsequent global financial crisis could have triggered a sharp economic downturn. The US would then no longer be able to pay most of its bills – millions of people could have lost their jobs as a result.
The dispute had meanwhile even threatened the creditworthiness of the USA. The rating agency Fitch retained the top rating “AAA” for the world’s largest economy on Wednesday evening (local time), but lowered the outlook for creditworthiness to “negative”, so that a downgrade could be threatened.
But the next hurdle will be the vote in the House of Representatives on Wednesday. The situation there is particularly muddled because the Republicans only have a very narrow majority. There are also radical MPs in the parliamentary group who show no interest in a realistic compromise. At the beginning of the year, McCarthy was only elected chairman of the parliamentary chamber by his group after a historic election chaos. This had greatly weakened his position.
Test for McCarthy
The dispute over the debt limit is now a major test for McCarthy, in which he must deliver results for his party. He must also succeed in rallying a few radicals behind a possible agreement in order to have the broadest possible majority in his party. If he had to rely on a particularly large number of votes from the Democrats because his party colleagues opposed him, that would further weaken him.
The dispute had also cast a shadow over Biden’s trip to the G7 summit in Japan – Biden continued to negotiate during the trip. He had repeatedly emphasized that 78 times in US history it had been possible to prevent a default.