Biden and McCarthy reach tentative agreement on US debt dispute

Biden and McCarthy reach tentative agreement on US debt dispute

A US default was probably averted. President Biden and Speaker of the House McCarthy spoke of an agreement. The deal still needs to be approved by Congress.

President Joe Biden and Republican Kevin McCarthy have achieved a breakthrough in the US debt dispute and must avoid a default in the world’s largest economy. Biden and the Republican speaker of the House of Representatives said in Washington on Saturday (local time) that they reached a preliminary agreement. The bill still needs to be approved by Congress.

Biden, according to the White House, said it was an important step that would reduce spending, protect vital programs for workers and strengthen the economy for all. Plus, the deal protects the most important parts of your schedule. “The deal represents a compromise, which means not everyone gets what they want.” In the coming days, the negotiating teams would finalize the text of the law. The agreement will be forwarded to the Chamber of Deputies and the Senate. “I call on both chambers to approve the deal immediately.”

“We still have a lot of work to do”

After speaking with 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 worthwhile for the American people. ” The bill will now be completed overnight and into Sunday — it should finally pass by Sunday afternoon in cooperation with Biden. The vote in the Chamber of Deputies is scheduled for Wednesday.

The draft must pass both chambers of Congress and be signed by the President as soon as possible, so that an imminent default by the US government is truly averted. US Treasury Secretary Janet Yellen recently warned that the money could run out by June 5. This was preceded by an intense discussion that even led to the President of the United States, Joe Biden, canceling trips abroad.

no new taxes

In the US, 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 US$31.4 trillion has been reached and the Treasury must draw on capital reserves. Biden and his Democrats need Republicans in Congress to raise the debt ceiling.

While the final details of the deal and the exact position of the White House remain unclear, McCarthy said Democrats agreed to “historic spending cuts” and that the text does not contain new taxes or government programs.

Democrats: Close “Tax Loopholes.”

Republicans wanted to urge Biden to make savings in the social sector, for example, in exchange for an increase in the debt limit. McCarthy, for example, has asked that people receiving certain social benefits be given a job in return. Biden Democrats don’t want that. Instead, they wanted to close “tax loopholes” – specifically: tax the rich more heavily. Republicans are opposed to that.

The months-long dispute brought the United States to the brink of insolvency. Had that actually happened, a subsequent global financial crisis could have triggered a sharp economic downturn. The US would no longer be able to pay most of its bills – millions of people could have lost their jobs as a result.

Next hurdle: Chamber of Deputies

The dispute, however, came to threaten the US solvency. Ratings agency Fitch maintained the maximum “AAA” rating for the world’s largest economy on Wednesday night (local time), but lowered the creditworthiness outlook to “negative”, so a downgrade could threaten.

But the next hurdle will be the vote in the Chamber of Deputies on Wednesday. The situation there is particularly confusing 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 speaker of the parliamentary chamber by his group after a historic electoral chaos. This greatly weakened his position.

Test for McCarthy

The debt limit race is now a big test for McCarthy, in which he must deliver results for his party. He should also be able to rally some hardliners around a possible deal to get the broadest possible majority in his party. If he had to rely on a particularly large number of votes from the Democrats because his fellow party members opposed him, that would weaken him further.

The dispute had also overshadowed Biden’s trip to the G7 summit in Japan – Biden continued to negotiate during the trip. He has repeatedly emphasized that 78 times in US history it has been possible to avoid a default.