President Christine Lagarde of the European Central Bank (ECB) cannot imagine the United States failing to meet its financial obligations. That writes Bloomberg. The US has a possible debt problem hanging over its head.
Very negative consequences
In an interview with CBS’s Face the Nation, Lagarde said she has “a lot of faith” in the United States. The president of the ECB can’t “imagine that they would allow such a major disaster to happen by allowing the debt to run up further. She therefore does not see the US defaulting on its debts, according to Bloomberg.
“If it were to happen, it would have very, very negative consequences, not just for this country – where confidence would be eroded – but for the whole world,” Lagarde said. “I understand politics, I was in politics myself. But there is a point when the higher interest of the nation must prevail.’
With the US looming over a possible debt problem, Lagarde joins the fray. However, the administration of US President Joe Biden insists there will be no debt ceiling negotiations with House Speaker Kevin McCarthy, whose Republicans want to tie a ceiling increase to spending cuts.
The US Treasury Department is now taking extraordinary measures to prevent a breach of the debt limit, but the ceiling must be raised this summer to avoid a default. McCarthy is scheduled to deliver a speech to the New York Stock Exchange on Monday, in which he is expected to address the impasse. Prominent US bankers and government officials such as Treasury Secretary Janet Yellen have been warning for months to push the US to the brink of collapse.
Lagarde issued her warning after attending the spring meetings of the International Monetary Fund in Washington. There, financial officials from around the world discuss the economic outlook in light of the challenges of inflation and high debt caused by the pandemic and war in Ukraine.
Faced with pressure to further raise interest rates in the eurozone to fight inflation, Lagarde says limited credit tightening could make the ECB’s task easier, echoing comments from Yellen. “If they don’t over-credit and manage their risk, that could reduce the work we have to do to reduce inflation,” Lagarde said. ‘But if they then reduce too much credit, it will put too much pressure on growth. It’s a tricky balance.’