USA: Biden reaches agreement in principle with Republicans to avoid “catastrophic default”

President Joe Biden and Republican lawmakers managed an agreement in principle to raise the US debt ceilingwhich is a crucial first step to avoid a default of that country’s economy.

The draft bill to raise the US debt ceiling is a “compromise,” Biden said in a statement. “It means that not everyone gets what they want,” he said. It also “prevents what could have been a catastrophic default and could have led to an economic downturn.”

Now party leaders face a race against time to get the deal through Congress, with far-right Republicans and progressive Democrats criticizing concessions made to seal the deal.

The understanding came after Biden spoke Saturday night with House Republican Leader Kevin McCarthy, as well as Democratic leaders in both houses of Congress, according to a source close to the negotiations.

“Just got off the phone with the president a while ago,” McCarthy tweeted. “After he wasted his time and refused to negotiate for months, we have reached an agreement in principle worthy of the American people.”

The Republican leader hopes that on Wednesday the House of Representatives will vote on the bill to raise the debt ceiling, essential to avoid default. In addition, he reported that he will talk again with Biden on Sunday, while supervising the final draft of the bill, the result of tough negotiations.

It should be noted that if this is not achieved, the United States could default, since the US Treasury would stop meeting its financial commitments on June 5.

Commitment

Biden had sounded quite “optimistic” about the possibility of a deal on Friday, as had McCarthy, who earlier on Saturday said he felt “closer to a deal now than he had been in a long time.”

One of the main points of disagreement between both rows is the request of the Republicans to condition certain social benefits, such as food aid at work.

Andrew Bates, deputy White House spokesman, questioned Republicans for putting “more than eight million jobs” at risk while trying to “take bread out of the mouths of hungry Americans.”

Biden, already campaigning for re-election in 2024, promotes himself as a fighter for social and fiscal justice and has repeated that he opposes massive budget cuts that would affect the most precarious workers and households.

The agreement includes releasing the debt ceiling for two years, which means there will be no need to negotiate in 2024, in the midst of presidential elections, according to a source familiar with the negotiations.

The cuts that the Republicans wanted are not in the deal, although non-defense spending will stay about the same next year, increasing only nominally in 2025, the source added.

In that sense, there will also be new rules to access certain federal aid programs, although the agreement protects the Inflation Reduction Act (IRA) and the student loan relief plan.

Role of Congress

Legislation will have to pass through Congress much faster than the normal timetable, even for the least controversial bills. He will first have to turn the deal into legislation, and then it would normally take another six days at least to get through in both chambers.

Also there is a threat that an agreement will not be reached, as legislators from both parties have threatened, or to delay approval as long as possible of a text that would make too many concessions to the opposing camp.

The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, said last Friday that reaching an agreement was “critical” for the global economy, while stressing that the United States needed to do “more to reduce its public debt”.