The entire world is observing how the US is trying to solve its debt crisis, which the country has been facing since the beginning of October. Although President Barack Obama said that the talks between the Administration and the Republicans have shown progress, the country is still risking default. “It’s a positive development that House Republicans have agreed on the need to avoid the economic consequences of not meeting our country’s commitments. Because once the debt ceiling is raised, and the shutdown is over, there’s a lot we can accomplish together,” Obama said in his address posted on the White House website. The president also remarked that the government “is closed for the first time in 17 years,” and underlined that the US “is risking default for the first time since the 1700s,” called upon the politicians to take resolute actions, and upon the rest of Americans – to be patient.
Leaders of the US Senate also confirmed “considerable progress” concerning the debt deal. “I’m very optimistic that we will reach an agreement that’s reasonable in nature to reopen the government, pay the nation’s bills and begin long term negotiations to put our country on sound fiscal footing,” said Harry Reid, Democratic Senate Majority Leader, quoted by the Euronews. In his turn, Republican Senate Majority Leader Mitch McConnell admitted that over the past few days they have had “some very constructive exchanges of views about how to move forward.” “Those discussions continue and I share his optimism,” the Republican remarked, underlining the achievement of “historical progress.” At the same time, observers note, Obama’s Administration and Republicans do not have much time left to reach the deal and develop a joint plan of action concerning resolution of the budgetary crisis. The Day has already reported (see articles “What is behind the budget stalemate in the US?” in the issue No. 59 from October 3, 2013 and “When the strength of American system becomes a weakness” in the issue No. 61 from October 10, 2013) that a number of American federal agencies shut down or limited their work as a result of fight between President Obama and the Republicans, who blocked the adoption of the budget for the current fiscal year. Over 800,000 employees of federal agencies had to take an unpaid leave. US Embassy in Ukraine has also limited its work because of the situation in the country.
Meanwhile, the US Department of the Treasury is taking extraordinary measures on serving the national debt, BBC reported. Treasury Secretary Jack Lew’s words that after October 17 these measures won’t be enough evoked a new wave of rumors about possible default which will lead to unpredictable economic consequences. The plan, discussed by Democrats and Republicans, is supposed to raise the state debt ceiling up to 16.7 trillion dollars, which will be enough to pay the state’s loans till mid-February 2014 at the least, Reuters reports.
The Day asked Ukraine’s former ambassador to the US Oleh SHAMSHUR to comment on solving of the fiscal crisis in the United States and, of course, on how high the probability of default for the White House is.
“Of course, a default may happen only in case the decision on raising the so-called state debt ceiling is not adopted. So, it is possible in case the Congress does not provide the government with a possibility of new loans. Thus, the US government will not meet its obligations. Therefore technically it is possible. This question has been discussed for a while in the US, and some economists have already expressed an opinion that, taking into account the total amount of national debt, default may be the least of evils.
“There is no doubt that the consequences of this situation will be very bad both for the US economy and for the world economy as well. I am sure, the Congress and government do understand this. Therefore they are looking for a compromise. Such compromise was achieved in previous years. In my opinion, this compromise is even more real on the issues of default and raising the state debt ceiling, than in other questions, because this threat is quite real and will have very bad consequences for the US.”
At what cost, in your opinion, will Republicans and Democrats be able to reach a compromise?
“It can be achieved only by making some agreements. Both sides should make concessions. But, above all, it is the Congress that expects the government to concede, which is understandable, on the one hand. On the other hand, if one follows the dynamics of public perception of Republicans’ positions in the Congress, concessions are unacceptable. Republicans understand this as well and they want least of all to be blamed for the default or economic problems connected with it. So, both sides are quite delicate in this situation and at the moment they are thinking seriously on a compromise decision.”
In your opinion, who will suffer the biggest losses while looking for this compromise?
“It is hard to say. So far, in particular according to public opinion survey, it is considered to be the fault of the Republican majority in the House of Representatives. It seems to me, they may suffer big losses, like it happened in the time of Clinton’s presidency, when he managed to win over the Republicans. After that the dynamics of relations with the Congress was in his favor. But Obama’s Administration will doubtlessly face big losses as well, unless compromise is achieved. When negative consequences of this situation become a reality, the voters will put the blame on both sides. The degree of this responsibility will probably be greater for one party, and lesser for the other one. But it will become clear only when it happens.”
Obama said that there have been positive developments in the negotiation process.
“If the president stated there is progress, he apparently has reasons to say that. Judging by rumors it is quite hard to find out what is really going on. Both formal meetings and informal talks are taking place there. But I think Obama’s statement confirms that both sides at the moment are looking for a kind of compromise, because there is too little time left.”
In your opinion, will Obama manage to reach a deal with the Republicans before October 17?
“They must come to agreement. Will they manage to do this? This is the question of political tactics of one or another side. Of course, this is a ‘staring game’ situation – who will be the first to panic. The situation with cutting off financing of the federal government is quite unpleasant, it is yet not critical, whereas the question of raising the state debt ceiling is critical. They have two days to reach a compromise. The price may turn out to be too high for both sides. Obama does not need the federal government to be blamed for this, because the closer the end of his term, the more he should think about his ‘heritage’: what imprint will he leave on the history of the United States. Apparently, he does not want to be remembered as a president whose term was marked by a default.”
What should Ukraine expect from US fiscal crisis?
“The consequences of this situation will be quite unfavorable and serious for the world economy. Ukraine is part of this economy, too, and its dependence on the export is common knowledge. It is also known that Ukrainian financial system has a dollar peg. And the fluctuations, which, no doubt, will take place, will not add any stability.”