United States

Lagarde warns US on debt default

Reuters / Kevin Lamarque

New International Monetary Fund chief, Christine Lagarde, has warned a US debt default would jeopardise the stability of the global economy and has urged warring American politicians to forge a compromise budget deal. 

Advertising

Without an agreement she said there could be “interest hikes, stock markets taking a huge hit and really nasty consequences not just for the US, but for the entire global economy”.

Lagarde told ABC News that she did not expect the US to default despite tense negotiations between the White House and Republican leaders on measures to increase the US debt ceiling. But she stressed the issue must be resolved.

Both sides need to agree on a deal to raise the congressionally determined limit on US borrowing, currently set at 14.29 trillion dollars in the face of a budget deficit expected to hit 1.6 trillion dollars this year

US Treasury Secretary Timothy Geithner said on Sunday there was no alternative for Republicans to making a budget deal with the White House.

He said if the president and his Republican foes failed to reach an accord before 2 August, the resulting debt failure would be catastrophic.

“The president is standing tough and is prepared to make sacrifices…if Republicans agree to tax reforms to share the burden,” he told NBC television.

If there is no deal by August, the government will have to start withholding payments to bond holders, civil servants, retirees and government contractors.

Meanwhile, China politically sensitive trade surplus grew to 1.56 billion euros in June up sharply from the previous month as the value of exports hit a record high.

The trade surplus is a major point of tension for China’s key trade partners, the United States and Europe.

 

Daily newsletterReceive essential international news every morning