Congress strikes deal to avert debt and budget crisis

17 Oct 13
The US Congress has reached a deal to reopen the federal government and increase the national debt ceiling just hours before the borrowing limit was due to be hit

By | 17 October 2013

The US Congress has reached a deal to reopen the federal government and increase the national debt ceiling just hours before the borrowing limit was due to be hit.

The agreement, which was first passed in the Senate yesterday, has given the US Treasury authority to borrow beyond the current limit until February 7, while the government will be reopened with funding agreed until January 15.

Under the terms, a committee of both the Senate and the House of Representatives will now be formed to devise a ‘fiscally sustainable’ budget that can be put in place before the spending authorisation ends. The panel will be led by the budget committee chairs in the two legislatures, Patty Murray from the Senate and Paul Ryan in the House.

The lifting of the debt ceiling came on the day the US Treasury warned it would exhaust its borrowing capacity, risking a possible default on federal debt payments. 

Democratic Senate majority leader Harry Reid said the compromise would ‘provide our economy with the stability it desperately needs’.

He said the budget conference committee would need ‘open minds’ to consider every option for spending changes to both raise revenue and cut spending. It will put forward an agreed plan in December.

‘The eyes of the world were on Washington this week. And while they witnessed a great deal of political discord, today they will also see Congress reach a historic, bipartisan agreement to reopen the government and avert a default on the nation’s bills,’ said Reid.

‘This legislation funds the government through January 15 and averts default through February 7, during which time we can work towards a long-term budget agreement that prevents these frequent crises. And perhaps most importantly, this legislation ends a standoff that ground the work of Washington to a halt this fall.’

Republican Senate leader Mitch McConnell also welcomed the deal, but said there’s ‘a lot more we need to do to get our nation’s fiscal house in order’.

He added: ‘Hopefully, once we’ve gotten past the drama of the moment we can get to work on it.’

Republican House speaker John Boehner said he did not block the Senate bill because this would have risked defaulting on the nation’s debts. 

However, Republican attempts to reverse President Obama’s healthcare reforms, which formed part of the negotiations over the debt ceiling increase, would continue, he added.

Ahead of the budget committee being formed, Murray and Ryan called on ‘both sides to work together to grow the economy and tackle our debt responsibly’. 

In a joint statement, they said: ‘We recognise the many differences between the House and Senate budget resolutions and the challenges we face in reaching an agreement. 

‘But we want to find common ground and work toward a bipartisan deal. We intend to focus on what we can achieve. We hope we can reduce the deficit in a smarter way. We hope to restore stability to the budget process and end the lurching from crisis to crisis. And we look forward to the discussion.’

There was a message of support from International Monetary Fund managing director Christine Lagarde.

She said: ‘The US Congress has taken an important and necessary step by ending the partial shutdown of the federal government and lifting the debt ceiling, which enables the government to continue its operations without disruption for the next few months while budget negotiations continue to unfold,’ she said.

‘Looking forward, it will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner. We also continue to encourage the US to approve a budget for 2014 and replace the sequester with gradually phased-in measures that would not harm the recovery, and to adopt a balanced and comprehensive medium-term fiscal plan.’

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