US non-payment: towards a political settlement by 5 June

An agreement finally in sight? The White House and negotiators continued Friday to build a compromise steeped in political ulterior motives to avoid a US default, which could occur on June 5 instead of June 1, by offering a short additional delay. President Joe Biden was rather “optimistic” late in the afternoon, saying he hoped to know “by tonight if we will be able to reach an agreement”. “We are closer (to a deal) but it hasn’t been done yet,” said a source close to the earlier discussions, who was skeptical of the possibility of an announcement on Friday. Speaker of the House of Representatives Kevin McCarthy, the main Republican protagonist of this political-financial soap opera, had noticed progress. But “nothing is certain until everything is agreed,” he added, to keep the pressure on the president.

There is no shortage of pressure in this affair, which is difficult to understand outside the United States and more generally outside the Washington bubble. A major sticking point is the Republican demand that recipients of benefits, such as food aid, work in exchange for getting them. White House spokesman Andrew Bates said Republicans were prepared to jeopardize “more than eight million jobs if they can’t get the bread out of the mouths of starving Americans.”

However, the date on which the US Treasury will be unable to honor its financial commitments has been refined, now set for June 5, against the previous June 1, offering a few days of respite.

A $1.3 trillion payout in early June

“Based on the most recent data available, we now estimate that the Treasury will not have sufficient resources to meet government commitments if Congress does not raise or suspend the debt ceiling by June 5,” the US Treasury secretary detailed on Friday. Janet Yellen, in a letter to elected officials of Congress. In the first two days of June, more than $130 billion is expected in pension payments, health care and especially for veterans, which “will leave the Treasury with an extremely low level of resources,” she specified.

The challenge is to get Congress – the Republican House and the Democratic Senate – to vote quickly to raise the public debt ceiling, otherwise the United States could find itself in default, an unprecedented situation with economic, potentially catastrophic financial and social implications.

This parliamentary maneuver has long been a formality for both parties. But this time the Republicans are asking, in exchange for their green light, a reduction in public spending. Officially, Joe Biden refuses to negotiate, believing he is being held “hostage”. In reality, the advisers of the two sides have been talking non-stop for days and, according to various American media, they have already agreed on some main lines. The deal would freeze some spending but leave defense and veterans budgets intact, reports the New York Times and the Washington Post. It would postpone the risk of default by two years, to after the next presidential elections.

Reduce debt

Each faction wants to limit the damage at the political level. Kevin McCarthy, who must assert his stature as Speaker of the House, might say he instilled more fiscal rigor, while Democrats would say he protected social benefits or big investment projects. The US president, campaigning for re-election, explained on Thursday that “two opposing views” were at work in these discussions. He presented himself as a champion of social and fiscal justice.

But according to the press, the 80-year-old Democrat would have renounced in these negotiations to increase as much as he wanted the means destined for the fight against tax evasion. If a deal is found, it will still have to be adopted by the Senate, tightly controlled by the Democrats, and the House of Representatives, in which the Conservatives have a fragile majority. The parliamentary calendar has been reduced: many elected officials have returned to their strongholds for a multi-day break, on the occasion of the extended “Memorial Day” weekend. Furthermore, some progressives within the Democratic Party, such as some elected members of the Republican Party, have threatened not to ratify, or to delay as long as possible, a text that would make too many concessions to the opposing camp.

IMF Chief Executive Kristalina Georgieva said on Friday that finding a solution was “essential” to the global economy, stressing that the United States should do “more to reduce public debt.”