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World welcomes U.S. budget deal but fears remain

Published: Thursday, Oct. 17, 2013 5:00 p.m. CDT
Caption
(AP photo)
President Barack Obama speaks in the State Dining Room of the White House in Washington on Thursday. The world's disbelief at the political impasse in the U.S. turned to cautious relief Thursday as the country stepped back from the brink of default. But fears remain about another possible shutdown – and, even worse, a possible default – early next year. At the same time, experts and foreign officials warned that Washington's credibility had been damaged – a point President Barack Obama echoed.

LONDON – The world’s disbelief at the political impasse in the U.S. turned to cautious relief Thursday as the country stepped back from the brink of default. But fears remain about another possible shutdown – and, even worse, a possible default – early next year.

At the same time, experts and foreign officials warned that Washington’s credibility had been damaged – a point President Barack Obama echoed.

The deal may ensure only a few months of financial order, and the prospect of another possible crisis early in January when the agreement lapses leaves many wondering about U.S. government stability. The short-term nature of the deal makes many uneasy.

“It’s a huge threat to the leadership of an indispensable power,” Klaus Scharioth, Germany’s ambassador to Washington from 2006 until 2011, told The Associated Press. “That’s bad news for all of us. It’s bad news for Europeans because we’re the closest partners of the U.S., but it’s bad news for the rest of the world too if they don’t exercise the power that they have.”

He expressed the hope that American democracy can right itself in time to prevent another disaster once the current deal expires in January.

“The answer has to come from within,” he said. “I hope the current situation is bad enough that people realize it cannot continue.”

International Monetary Fund managing director Christine Lagarde said the shaky American economy needs more stable long-term solutions.

“It will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner,” she said in a statement.

The stopgap nature of the solution that avoided a default left some experts warning that repeated dramas could sap confidence in the U.S., causing market problems with global implications.

Standard Chartered economist Samiran Chakraborty in Mumbai said American financial markets may over time lose faith.

“In three months’ time, this could be back again,” Chakraborty said. “If this kind of pushing it back happens several times, then this comfort that the markets had over the last 20 days that a deal will be reached, that comfort may now be dead.”

Also, the congressional cliffhanger might dent longer-term confidence in American government debt, a cornerstone of global credit markets, prompting creditors to demand higher interest.

Xenia Dormandy, director of the Americas program at London’s Chatham House, said the U.S. image had suffered a double blow, with both its economic and political credentials called into question

“There is a sense that the U.S. as a reliable ally is not necessarily the case anymore,” she said, warning that both American allies and adversaries have reached this conclusion. But she, like others, said the damage is most likely short term.

Dormandy and other experts warned that the crisis isn’t over and that it is too early to feel relief. Instead, those outside the U.S. must accept that confusion is an integral part of the American democratic system, she said.

Even if the current debate is resolved something else would likely come up and divide the country again, Dormandy added.

“If it’s not the debt ceiling, it’d be something else,” she said.

There are signs that the world is becoming weary of the repeated threats and counter threats that have become a regular feature of U.S. politics. The budget crisis has made many outside the U.S. question the way the world’s leading power conducts its business at home even as it seeks to exert influence overseas.

Peter Trubowitz, professor of international relations at the London School of Economics, said the U.S. system is so dysfunctional that it is sending confusing signals abroad.

“It’s just gotten to the point now that it’s having lots of negative side effects,” he said. “The effect is especially felt in Asia, where countries were already concerned about America’s commitment to the region.”

Many in Europe enjoyed poking fun at the apparently broken U.S. political system, but the pleasure of laughing at America’s troubles seemed to fade as default neared.

The Tea Party movement got short shrift in many quarters, with the Sueddeutsche Zeitung newspaper in Munich, Germany suggesting that Obama was lucky to have such feeble adversaries. But the paper said Obama had also fallen short of expectations.

“It is easy to remain the reasonable, serene statesman if you are dealing with concrete-headed , self-righteous nihilists like the Tea Party lawmakers,” the influential newspaper said in a commentary. “It is easy to reject all negotiations if the other side acts like a crazy extortionist gang. Obama played the PR -game of guilt and innocence very cleverly. According to the polls, he wins hands down. But that is not the primary task of the president.”

The newspaper said Obama had not handled his responsibility as president well despite his apparent victory over the Tea Party.

In Israel, a key American ally in the Middle East, commentators said the fight hurt America’s overall image even though a deal had been reached before it was too late.

“There is no doubt that damage was done here to the image of American economic stability,” Israel’s economic envoy to Washington, Eli Groner, told Israel’s Army Radio. “It’s not good for the financial markets, not in the United States and not around the world.”

In Brazil, a large holder of U.S. debt, there was certainly relief, but also concerns that it’s just a temporary fix and more turbulence is ahead. Finance Minister Guido Mantega said the U.S. must come to a lasting answer to the “temporary solution” that was found. He added that as long as the threat of another shutdown exists, there will be “a sensation of insecurity, distrust and therefore damage to business in general.”

Brazil’s biggest newspapers carried headlines like O Globo’s “Temporary Relief” and leading economic columnist Miriam Leitao summed up the mood in the daily.

“Nobody won. Everybody lost. The Obama government was held prisoner by blackmail. The Republican party allowed itself to be controlled by a radical minority and no longer represents the average American’s way of thinking,” Leitao wrote. “The government as a whole lost credibility and today there is more uncertainty surrounding the world economy.”

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