- By Robert ZeligerRobert Zeliger is News Editor of Foreign Policy.
Europeans know a thing or two about down-to-the-wire debt deals, but with time running out in Washington to reach an agreement before a catastrophic default that could have devastating spillover effects around the globe, European leaders are sweating. On Tuesday, Christine Lagarde, the managing director of the International Monetary Fund and former finance minister of France, warned the United States that the issue needed to be "resolved immediately." Today, she told the PBS NewsHour that there would be dire consequences for the world economy if there wasn’t resolution.
There’s quite a lot of concern out there. The global economy is clearly highly dependent on the U.S. economy, because the U.S. economy is the first in the world and it’s a major power in many respects. So to have the lead economy uncertain about its debt ceiling is quite worrisome.
In a separate interview with Fareed Zakaria on CNN, she said the solution would be to raise the debt ceiling now and address fiscal consolidation issues in the medium term.
Today, the German Finance Minister Wolfgang Schäuble also warned Washington to act.
Everyone in the US should be aware of their responsibility for the global financial markets.
He added, "The core of [the U.S.’s] difficulties is exorbitant debt and the economic prospects. Americans have to find long-term solutions to create solid fiscal and growth policies."
Schäuble and Lagarde were downright tame compared to Vince Cable, Britain’s secretary of state for business, who told the BBC earlier this week that "the biggest threat to the world financial system comes from a few rightwing nutters in the American Congress rather than the euro zone."
Perhaps, the most sobering analysis of all comes from Germany’s Der Spiegel:
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.
We’d be rejected by the euro zone? This euro zone?