U.S. President Joe Biden and Republican House Speaker Kevin McCarthy have announced an agreement to raise the country’s debt ceiling and avoid a default by the world’s biggest economy.
Both Democrats and Republicans must now work to secure enough votes to pass the agreement into law through Congress ahead of a June 5 deadline.
However, securing the required votes might prove difficult as several politicians for both parties have already said they will not support the agreement and its compromises.
Those compromises include major spending cuts to the U.S. federal budget.
The U.S. debt limit currently stands at $31 trillion U.S., and the proposed agreement would run until the end of 2024, avoiding the need for any further debt ceiling negotiations until after the next presidential election.
Lawmakers have come perilously close to defaulting on U.S. debt several times in the past, most notably in 2011, but have always managed to avoid what economists say would be a devastating event for the global economy and stock markets.
A U.S. debt default would cause financial markets to freeze and lead to an international financial crisis as it would destroy the $24 trillion U.S. market for American Treasury debt, say analysts.
House Speaker McCarthy portrayed the deal as delivering for Republicans though it falls short of the massive budget cuts Republicans wanted.
A statement issued by the White House over the weekend said the agreement “prevents what could have been a catastrophic default.”
At the same time, U.S. Treasury Secretary Janet Yellen told Congress that the U.S. will default on its debt obligations by June 5, which is four days later than she previously estimated.
