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US President Joe Biden: Preliminary agreement with Republicans to raise the debt ceiling again

Photo: BONNIE CASH / POOL / EPA

Biden and the Republican chairman in the House of Representatives said on Saturday (local time) in Washington that they had reached a preliminary agreement. The project still has to be approved by Congress.

Biden said, according to the White House, that this is an important step forward that reduces spending while protecting important programs for working people and strengthening the economy for all. In addition, the agreement protects the most important parts of his agenda. "The agreement represents a compromise, which means that not everyone gets what they want."

In the course of the next few days, the negotiating teams would finalize the text of the law. The agreement will be forwarded to the House of Representatives and the Senate. "I urge both chambers to adopt the agreement immediately."

Congress still needs to approve the agreement

McCarthy said after speaking on the phone with Biden, according to his own statements: "After weeks of negotiations, we have reached an agreement in principle. We still have a lot of work ahead of us. But I believe that this is fundamentally an agreement worthy of the American people." The bill will now be written overnight and on Sunday - it should be finally approved on Sunday afternoon in cooperation with Biden. A vote in the House of Representatives is therefore scheduled for Wednesday.

The bill must be passed in both chambers of Congress and signed by the president as soon as possible so that an imminent default by the US government is actually averted.

U.S. Treasury Secretary Janet Yellen recently warned that the money could run out on June 5. This was preceded by an intense dispute that even prompted US President Joe Biden to cancel trips abroad.

Debt ceiling of 31 trillion US dollars already reached

In the U.S., the parliament sets a debt ceiling at irregular intervals and determines how much money the government can borrow. In the meantime, this debt ceiling of around 31.4 trillion US dollars has been reached and the Treasury has to tap into the capital reserves. For an increase in the debt ceiling, Biden and his Democrats need the Republicans in Congress.

Even though final details of the deal and the exact position of the White House remained unclear, McCarthy said that the Democrats had agreed to "historic spending cuts" and that the text did not include any new taxes or government programs.

McCarthy speaks of "historic spending cuts"

The Republicans had wanted to push Biden in the negotiations in return for an increase in the debt ceiling to make cuts, for example in the social sector. For example, McCarthy demanded that people who receive certain social benefits have to work in return. Biden's Democrats don't want that. Instead, they wanted to close "tax loopholes" - specifically: tax the rich more heavily. The Republicans are resisting this.

The months-long dispute had brought the United States to the brink of insolvency. If this had actually happened, a subsequent global financial crisis could have triggered a sharp economic downturn. The U.S. would then no longer be able to pay a large part of its bills - millions of people could have lost their jobs as a result.

In the meantime, the dispute had even threatened the creditworthiness of the United States. The rating agency Fitch retained the top rating of "AAA" for the world's largest economy on Wednesday evening (local time), but lowered the outlook for creditworthiness to "negative", so that a downgrade could threaten.

Vote in the House of Representatives on Wednesday

But the next hurdle will be the vote in the House of Representatives on Wednesday. There, the situation is particularly muddled because the Republicans have only a very narrow majority. There are also radical MEPs in the group who show no interest in a realistic compromise. At the beginning of the year, McCarthy was elected chairman of the House of Representatives by his parliamentary group only after a historic election chaos. This had weakened his position enormously.

The dispute over the debt ceiling is now a major test for McCarthy, in which he must deliver results for his party. In doing so, he must also succeed in rallying some radicals behind a possible agreement in order to have the broadest possible majority in his party. If he were to rely on a particularly large number of votes from the Democrats in a vote because his party colleagues oppose each other, this would further weaken him.

The dispute had also cast a shadow on Biden's trip to the G7 summit in Japan - Biden continued to negotiate during the trip. Again and again, he had emphasized that it had already been possible to prevent a default 78 times in US history.

LA/dpa-AFX