Modest solutions

While British papers have, naturally, focused on the eurozone’s slow-motion implosion— and, of course, a Westminster media story—America has been flirting with economic Armageddon. After months of phony negotiations over the government debt ceiling, the deadline is less than two weeks away.
 
Without an agreement by August 2nd the US government will have to impose immediate, catastrophic spending cuts of about 44% to stave off default. It would simply be unable to meet certain obligations, whether to pensioners, public employees or state governments.
 
Terrifyingly, that might be what voters want — only half of Democrats and less than a third of Republicans and independents support raising the debt ceiling.
 
Fortunately, politicians seem to be taking this risk rather more seriously. Yesterday President Obama quickly backed the bipartisan ‘Gang of Six’ Senators’ joint template for cutting the deficit by nearly $4 trillion over the coming decade. Depending on how you measure it, the plan includes new tax revenues but it would also cut income tax rates and slash entitlement spending. It’s the most plausible model for addressing America’s long-term fiscal problems yet proposed.
 
Unfortunately, this grand bargain is unlikely to be fleshed out before August 2nd. Instead, the US will probably adopt a variant of Republican Senate Leader Mitch McConnell’s complicated procedural fudge, which would enable Obama to raise the debt ceiling without having the Republicans actually vote for it. As it stands, this proposal is unlikely to pass in the House because it lacks the dollar-for-dollar spending cuts that House Republicans have been demanding, but provides the basis for a compromise.  
 
As credit ratings agencies have pointed out, such a short-term fix wouldn’t address America’s underlying deficit. The real risk of the McConnell plan is that, without the pressure created by the debt ceiling, America’s politicians will go back to posturing and the Gang of Six plan will fall by the wayside.