US Crisis Under Watch

• July 30th, 2011
• Posted by EUEditor

The split in the American Republican Party, deadlocking efforts to lift the government debt payments ceiling, and prevent any default, fed into global financial tensions at the end of July.

In the climate of economic insecurity, the Spanish government yielded to pressure and called an early election.

CONCERNS OVER DEFAULT OR DOWNGRADE

“World markets were watching anxiously events in Washington, unnerved by the risk of a US default or credit downgrade”, said a Deutsche Welle report, reflecting much of the general commentary in Europe.

“A failure by Congress to meet its August 2 deadline could trigger a payment crunch that would rock the global financial system and could send the US into a new recession.”

RADICAL US REPUBLICANS

Le Monde estimated the radical right wing group in the Republican Party, “the Tea Party fringe”, had some 20% of the party’s members of Congress, mostly elected for the first time last year.

These have been demanding extreme spending reductions to create year-by-year budget surpluses, in effect no more than nominal borrowing.

They had refused to back a Party compromise plan intended to please them, that would have: relaxed the upper lending level; effected reductions in government spending not mitigated by any increase in tax rates; then recalled the process mid-way through next year, strategically to create a pig’s breakfast of the issue during the Presidential election campaign.

The parliament was left with no plan that would be considered by both houses, the Representatives and the Senate.

A commentary in the newspaper identified members of the faction  ready to suggest that the government’s defaulting on its debt would not create undue risk.

(The episode began to recall the infusion of activists from the Vietnam war campaigns into the Democratic Party in the early 1970s, relative minnows capturing the policy agenda, and in electoral politics pushing aside harder heads.)

OBAMA URGES COMPROMISE ON BOTH SIDES

President Barack Obama after conducting direct negotiations with the parties in Congress, at the end of the week publicly called on leaders of the Republicans and Democrats to forge a compromise.

“We need a compromise so we can pay our bills on time, as we always do”, he said.

He said on television the United States had the capacity to pay bills that were already “racked up” by the Congress, and while many crises like natural disasters could not be predicted or prevented, “the power to solve this is in our hands … by a simple vote.”

He said America could lose its “triple-A” credit rating, just because it “didn’t have a triple-A political system to match”, and he invited citizens to put pressure on their local members to make a deal.

FINANCIAL COMMUNITY GETTING ANXIOUS

The financial community and markets were unimpressed with the US Congress in much the same way.

Where there was action on European markets at the end of the week, share prices had fallen; the Stoxx Europe 600 Index in Britain lost 0.7 percent by the close on Friday – down 8.9% since the last high in mid-February.

The Director of the International Monetary Fund (IMF),
Christine Lagarde, said failure of the negotiations in Washington could affect the value of the US dollar and undermine it as a reserve currency.

That concern was being shared in China, a country with two thirds of its enormous reserves in American currency.

The world had been “kidnapped by United States domestic politics”, said its Xin Hua news agency.

“With leadership comes responsibility.”

TOUGH TIMES LEAD TO ELECTION IN SPAIN

Fresh threats by a commercial agency to further reduce the debt rating for the government of Spain, has helped to precipitate an early election there.

The Socialist Party Prime Minister, Jose Luis Rodriguez Zapatero (picture), announced on  Friday the poll would take place on  20.11.11, instead of in March next year.

His government has been subjected to uproarious protest over the impacts of the financial crisis, with huge groups of young people, suffering high levels of unemployment, marching on the capital, proclaiming themselves the “indignant ones”.

Battling adverse opinion polls, and in the aftermath of defeats for his party in local government elections, he said signs of recovery had emerged including an alleviation of the jobless figures.

See EUAustralia Online, “Maytime voting season”, 29.5.11.

Reference

Deutsche Welle, Bonn, “Spain’s PM calls early elections”, 29.7.11.
http://www.dw-world.de/dw/article/0,,15276000,00.html, (29.7.11); “Obama warns time running out for US debt deal”, 29.7.11. http://www.dw-world.de/dw/article/0,,15275448,00.html, (29.7.11).

Corinne Gretler, “European Stocks Retreat as U.S. Growth Trails Forecasts, Debt Talks Stall”, Bloomberg. NY, 30.7.11. http://www.bloomberg.com/news/2011-07-29/european-stocks-tumble-as-u-s-lawmakers-cancel-debt-limit-vote.html, (30.7.11).

Le Monde, Paris: Zapatero annonce des élections législatives anticipées en Espagne, (Zapatero announces early elections in Spain), 29.7.11; Dette américaine : les divisions s’affichent au sein même du Parti républicain, (American debt: divisions even in the republican Party), 29.7.11. www.lemonde.fr, (29.7.11).
29.07.2011

Rob Mudge, David Levitz, Kyle James (AFP, dpa, Reuters), “Edging toward default”, Deutsche Welle, Bonn, 29.7.11. http://www.dw-world.de/dw/article/0,,15275448,00.html, (29.7.11).

Xin Hua, English news, Beijing, “Any debt limit compromise solution should be bipartisan: Obama”, 29.7.11. http://news.xinhuanet.com/english2010/world/2011-07/29/c_131018702.htm, (29.7.11).

• View Similar Articles