Europe Losing Patience with US Debt Delays

Europe Losing Patience with US Debt Delays

European leaders have long expressed confidence that the US would find a resolution to its ongoing debt impasse. But now there is growing concern that it won't. German Finance Minister Schäuble has urged US lawmakers to act responsibly and others have warned of unpredictable consequences if they don't.

For weeks, investors had seemed uncharacteristically calm in the face of the US inability to agree on a solution to the looming default. Traders who have become accustomed to running in panic from the euro at the slightest sign of debt concern in the European Union have shrugged off the Washington stalemate. "They'll make a deal," seems to have been the attitude.

That now seems to have changed. Stocks plunged on Wall Street on Wednesday, with the Dow Jones index dropping 200 points and interest rates on US bonds shooting up. Investors have also begun rushing to buy credit default swaps as an insurance policy against default.

Europe too is concerned. Just as the US urged the euro zone recently to accelerate its efforts to solve the Greek debt crisis, European leaders have now begun demanding action in Washington.

German Finance Minister Wolfgang Schäuble, widely respected in the US capital for his forthrightness, is the latest. "Everyone in the US should be aware of their responsibility for the global financial markets," Schäuble told the daily Passauer Neue Presse on Thursday. He added that he remained confident a solution would be found, but "even then, America's problems won't be solved. The core of those difficulties is exorbitant debt and the economic prospects. Americans have to find long-term solutions to create solid fiscal and growth policies."

Potentially Severe Consequences

He also couldn't resist a barb for his partners across the Atlantic. "In the euro-zone we haven't managed to solve all of our problems," he said. "But we have at least taken an important step."

The US doesn't have much time left to take such an important step of its own. The deadline for raising the debt ceiling -- which would allow US President Barack Obama to continue paying the nation's bills such as veterans' benefits and welfare payments -- is August 2. Should Republicans continue to block ongoing efforts at finding a compromise, the consequences could be severe.

"The danger that the US becomes insolvent in less than a week has massively fueled unease," Klaus Regling, head of the euro backstop fund known as the European Financial Stability Facility, told German tabloid Bild on Thursday. "Nobody knows what would happen if the largest economic power in the world would suddenly stop paying interest on its debt. That has never happened before. It would stir up the global economy."

Christine Lagarde, the new head of the International Monetary Fund, said on Tuesday that a US default would be a "very, very serious event, not just for the US, but for the global economy at large."

Indeed it would. US bonds have long been seen as the safest in the world. Even if Washington stopped interest payments for just a few days, it could have global consequences far greater than a Greek bankruptcy. Investors would be left not knowing who to trust -- particularly given debt problems in the euro zone and ongoing economic difficulties in Japan. Lack of confidence in global economic leaders would almost certainly lead to serious global economic difficulties.

'Get Your Ass in Line'

Even if the worst is avoided, US finances are still a mess. Total debt is approaching 100 percent of gross domestic product, putting it in the same league as Italy, Portugal and Ireland, three of the euro-zone's famous PIIGS states. America's budget deficit is well over a trillion dollars -- more than 10 percent of GDP. Were Washington to apply to become a member of the European common currency zone, it would be rejected out of hand.

Conservative Republicans in Washington have pointed to such economic indicators in explanation for their refusal to give an inch in the ongoing battle with Obama. Yet while Republicans have insisted on massive budget cuts, they have refused to consider raising taxes on America's richest. While Obama has been seeking to give a little in an effort to find a compromise, the Republicans, who many believe have been following the lead of the arch-conservative Tea Party movement, have done nothing but take.

Even some in Europe have begun to question the sanity of the debate in Washington. Vince Cable, Britain's secretary of state for business and a member of Prime Minister David Cameron's cabinet, said this week that a deal was being held up by "a few right-wing nutters in the American Congress."

There were some indications on Wednesday that the Republicans might finally be moving towards a deal. Republican Speaker of the House John Boehner, who has repeatedly been hobbled by the rank-and-file in his efforts to reach agreement with Obama, told lawmakers from his party to "get your ass in line."

Whether they will do so remains to be seen. Investors and European leaders are watching.

cgh -- with wire reports

I blame Obama.

dblboggie wrote:I blame Obama.

I blame the whole lot, starting with the Democrats, with the way they acted when they held congress and the WH from 2008 to last January.

On the flip side, until the GOP controls both Houses of congress, they're going to have to compromise to get this done.

TexasBlue wrote:

dblboggie wrote:I blame Obama.

I blame the whole lot, starting with the Democrats, with the way they acted when they held congress and the WH from 2008 to last January.

On the flip side, until the GOP controls both Houses of congress, they're going to have to compromise to get this done.

I agree. The GOP is going to have to hold their nose and make a deal that is not ideal. That's just reality. And I am fine with that. I completely understand that we are not going to get what we want, or even anything even close to that for now. That's just the way things work on the Hill. Been there, done that, got the t-shirt.

Yep.

I understand completely where the Tea Party people are coming from up there. But they're going to have to give an inch to get a mile. They already have quite a bit in concessions from the Dems. Time to call it even. If they keep it up, it may cost them next year.

On the flip side, the media is being totally dishonest about the whole thing. I have yet to hear the network media even remotely hold the DNC to blame for any of this shit.

TexasBlue wrote:Yep.

I understand completely where the Tea Party people are coming from up there. But they're going to have to give an inch to get a mile. They already have quite a bit in concessions from the Dems. Time to call it even. If they keep it up, it may cost them next year.

On the flip side, the media is being totally dishonest about the whole thing. I have yet to hear the network media even remotely hold the DNC to blame for any of this shit.

Therein lies the rub. The mainstream media are the Democrats ace-in-the-hole. They are lying about the Tea Party's role, they are completely ignoring the Democrats duplicity and ignoring Obama's clear incompetence in bringing a deal to the table.

It's disgusting how the mainstream media are covering this whole thing.

Here's a quote from a guy on a news board:

When you look at this bill just remember the word “ONE.

Not one Federal civilian job will be cut.16,000 new IRS agents budgets; not ONE cut.

189 new boards and commissions; not ONE member cut.

Since the recession began the civilian Federal work force has grown by 98,000 permanent workers; not ONE cut.

Federal workers make 39% more than their private sector counterparts. Not ONE Federal worker will take a pay cut.

Millions are suffering; peoples homes are lost or worthless; inflation is growing and small businesses are being suffocated and the Federal government outside of the military does not suffer so much as a hangnail.

Every GOP member who votes for this thing should have a Tea Party challenger in the primaries.

TexasBlue wrote:Yep.

I understand completely where the Tea Party people are coming from up there. But they're going to have to give an inch to get a mile. They already have quite a bit in concessions from the Dems. Time to call it even. If they keep it up, it may cost them next year.

On the flip side, the media is being totally dishonest about the whole thing. I have yet to hear the network media even remotely hold the DNC to blame for any of this shit.

Why would they blame the DNC? The Democrats and Republicans have been working on a compromise semi-seriously whereas the TP's only words were no.

BubbleBliss wrote:Why would they blame the DNC?

Because under their watch, they've ran up quite a bit of debt... while at the same time bitching about Bush. If the Democrats had actually been fiscally conservative in the last few years (2006-2010 control of congress) and they still blamed Bush, I would concede that point 100%. But they've been responsible for the condition of the economy in the last 2 years because they held control of congress for 4 years and the WH for 2 and a half. Yet, they don't take ownership for nothing. NOTHING. To this day, it's still Bush's fault and the Republicans fault. They DO NOT take ownership for anything. Nada. That's the part that pisses me off. At least I walk the walk. I abandoned the GOP in 2005 because of their bullshit reckless spending and gov't growth.

BubbleBliss wrote:The Democrats and Republicans have been working on a compromise semi-seriously whereas the TP's only words were no.

Not really. Look at the votes on the budget bills in recent days. In both Houses, it's nearly split along party lines.

That has nothing to do with the current debate over the debt ceiling. No News Network would point what you said out because it is not relevant to the topic at hand, which is the debt ceiling.

Yet they've reached an agreement, haven't they? At least there was conversation and debate going on with a small willingness to compromise. The TP seems to want to compromise whatsoever.

BubbleBliss wrote:That has nothing to do with the current debate over the debt ceiling. No News Network would point what you said out because it is not relevant to the topic at hand, which is the debt ceiling.

There's a reason for the debt ceiling. Debt and spending. Our gov't is in the shitter because of both and it's going to get worse unless heavy action is taken to reign in spending. The network news is concentrating on the Tea Partiers and not even holding the most liberal members of congress to account.

BubbleBliss wrote:Yet they've reached an agreement, haven't they? At least there was conversation and debate going on with a small willingness to compromise. The TP seems to want to compromise whatsoever.

Yeah, they have. But (again) you ignore the votes along party lines on this bill in recent days. It's all about those "extremist" TP'rs and not about those "centrist" Democrats.

But the news stories aren't about the debt and where it comes from, it's about the debate over raising the debt ceiling. The Media isn't blaming the TP for the debt, it's only (rightfully) blaming them for slowing down the debate.

That's because the TPers even went against people within their own Party. Voting along the Party line is normal (sadly), and you don't hear the Media complaining about other Republicans voting along Party lines. It's the fact that the TP even went as far as attacking other members of their party. That's not normal.

BubbleBliss wrote:But the news stories aren't about the debt and where it comes from, it's about the debate over raising the debt ceiling. The Media isn't blaming the TP for the debt, it's only (rightfully) blaming them for slowing down the debate.

The ceiling, the debt and the budget are all interwoven. We can't add more debt without raising the ceiling. Why do we have debt? Spending. Think credit cards. It's the same thing. If I have a $2,000 line of credit and keep charging shit, eventually I'm going to have to raise that limit to charge more. Charging more means you have to pay more.

The TP is slowing things down, granted. But what did they run on? Fiscal sanity. The GOP set a record as far as how big of a turnover in ideology for the US House. There's never been a shift like that before since the 1920's. So, it appears to me that a majority of people wanted to stop the spending insanity of the usual politicians in DC.

BubbleBliss wrote:That's because the TPers even went against people within their own Party. Voting along the Party line is normal (sadly), and you don't hear the Media complaining about other Republicans voting along Party lines. It's the fact that the TP even went as far as attacking other members of their party. That's not normal.

You might call it abnormal. I call it politics. Voting party line isn't always the best thing. You have to remember, the representatives vote according to how their constituents want. The problem with both parties (for decades) is that they don't give a shit what the constituents think or say. The ObamaCare bill was a good example.

This debt debate went the way it should go. Nothing is easy in DC.