The last step is missing, but, at this point, it’s almost a formality: the US will not defaultthe international economy will not suffer an unprecedented shock, with unpredictable consequences. The House approved the compromise reached in recent days by President Joe Biden and by the speaker of the House, and leader of the opposition, Kevin McCarthy, despite winds of frond among both Republicans and Democrats.
The provision suspends the statutory ceiling on the federal debtas requested by the White House to prevent the US from going bankrupt, and limits federal spendingas the opposition wanted. The law must now pass the Senatewhere Democrats are the majority, by Mondaywhen – according to calculations by Treasury Secretary Janet Yellen – the debt ceiling will be reached and the Administration will no longer be able to spend, without borrowing more money.
The reactions to the compromise
The House, where Republicans are the majority, voted with 314 yes and 117 no (quorum was 218). In favor 165 Democrats and 149 Republicans; against 71 Republicans, especially of ‘Trumpian’ observance, and 46 Democrats, especially of the left, including New York MP Alexandria Ocasio-Cortez.
Biden commented, “The House took a crucial step forward to prevent the first-ever default and protect our country’s hard-earned historic recovery… The only way forward was a bipartisan compromise that could earn support from both sides.” ”. The US president urges the Senate to approve the compromise “as quickly as possible, so that I can turn it into law and our country can continue to build the strongest economy in the world”
McCarthy, defined the agreement reached “Largest Savings in American History”a statement immediately disputed by the ‘fact checkers’: in 2011, in fact, Barack Obama granted cuts for 2,100 billion dollars to raise the debt ceiling, against the 1,300 billion cuts now agreed.
Records or not, the compromise averts the risk of a US bankruptcy, which would have been catastrophic, in perspective, not only for the Union, but for the entire international economy, and which risked triggering a crisis of global dimensions. So much so that stock exchanges around the world had already reacted well to the announcement of the agreementreached at the end of last week, and then breathed a sigh of relief after the affirmative vote, Tuesday evening, of a House committee crucial to moving forward the examination of the provision.
China and Japan are the largest foreign investors in US public debt: together, they hold 2,000 of the 7,600 billion US Treasury securities in the hands of foreign countries, i.e. more than a quarter.
What does the agreement contain?
The agreement suspends the debt limit of 31.4 trillion until 1 January 2025 and therefore puts the electoral campaign sheltered from a sword of Damocles for the outgoing president. The agreement provides that non-military spending will remain substantially unchanged in 2024 compared to 2023 and will increase by one percent in 2025: this reduces the leeway of the Administration to achieve, for example, anti-poverty and health programs.
The Congressional Budget Office estimates that the measures will reduce the deficit by $1.5 trillion over ten years and reduce public spending by $1.3 trillion over the same period.
The negotiations between the Administration and the opposition had lasted for weeks: Biden had also had to scale back his overseas mission Thatafter the G7 in Japan, it included stops in Oceania. Having reached a compromise – detailed in 99 pages -, the president and McCarthy, who presented himself to photographers and operators in the Oval Office with a pair of preposterous horizontal striped socks, had undertaken to pass it through Congress.
Biden had addressed “a strong appeal” to deputies and senators: the agreement “is a step forward and will avoid a catastrophe”, he told many of them, speaking on the phone from Camp David. McCarthy had also worked hard to convince reluctant Republicans: the speaker seems to have distanced himself somewhat from the ‘Trumpian’ observance, perhaps a sign that the party establishment is looking at alternatives to the former president for the US 2024 nomination.
The ‘Trumpians’ argue that the agreement does little to contain public spending. Some Democrats, especially on the left, criticize the limits placed on social spending. Electoral campaign front, candidates for the Republican nomination, especially Donald Trump, may prefer to keep the risk of default alive. But deputies and senators were aware that sinking the compromise meant taking responsibility for the default and of all the inconvenience that citizens can derive from it, with certainly not positive effects for each of them in their respective constituencies.
The agreement therefore takes the US away from the abyss of default, a prospect that had also hovered over the G7 summit in Okinava, where all the leaders present were aware that the greatest threat to the growth of their economies was not the war in Ukraine or the competition from China, but the risk of default by the world’s largest power.
A win for Biden?
After facing each other at the negotiating table, in negotiating marathons and night talks, Biden and McCarthy have been allies in asking Congress to approve the agreement. Biden, who acknowledges the interlocutor to have negotiated “in good faith”, admits that it is a compromise and therefore no one got everything they wanted, but stresses that the agreement saves millions of jobs and advances the agenda of his administration. “I haven’t made many concessions to the Republicans,” she says, responding to criticism from the Democratic left, disappointed by the social cuts and fearful of the impact on the fight against climate change.
McCarthy, for his part, underlines that he has ensured that “there are no new taxes or new government spending programs in the budget” and emphasizes “historic spending cuts and significant reforms that will help people in difficulty return to the world of work”.
In the judgment of analysts, the agreement is a success for the president and his team, who managed to contain republican demands. For the defencewhere the president was adamant, especially for assistance to Ukraine, a budget of $886 billion was agreed, with an increase of about 3.5%as Biden wanted.
something, however, the Administration had to give in on the requirements for access to welfare: the age up to which anyone who wants to benefit from forms of assistance such as meal vouchers must find a job has been raised from 49 to 54. However, the most vulnerable categories have been exempted and the requirements for accessing Medicaid health coverage have not been tightened.
Copertina EPA/Yuri Gripas / POOL’s photo