Call for compromise
July 26, 2011
The IMF's managing director, Christine Lagarde, said on Tuesday that failure to reach a breakthrough on raising the US debt limit would impact not just the US but have a spillover effect on the global economy.
"The clock is really ticking. And people have to find the appropriate solution," she told the Council on Foreign Relations in New York.
A default, she said, would be a "very, very serious event."
Her warnings came a day after US President Barack Obama put further pressure on Congress to avert national default that could throw the world economy into crisis.
In a televised address to the nation, Obama said there would be severe economic consequences if the US were forced to default on its debts.
The president said that party-political wrangling over the balance of tax-rises and spending cuts which are needed to avert a default might derail the necessary action.
"Defaulting on our obligations is a reckless and irresponsible outcome to this debate," said Obama. "We would risk sparking a deep economic crisis - one caused almost entirely by Washington," said Obama.
"I have told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress - a compromise I can sign," he said.
A longer-term reduction of the deficit is needed so that the country's $14.3-billion (9.75-billion-euro) debt limit can be raised, allowing debts to be paid in the short-term.
Battle of ideologies
While Democrats favor balancing the budget through a combination of cost cutting and increased taxes for the rich, Republicans want to do so solely through reduced public spending.
Obama criticized some Republicans for an uncompromising "cuts-only" approach, and said that the US's wealthiest companies and individuals should give up existing tax breaks.
The president warned that a default on the debt - to be repaid on August 2 - would leave the government unable to pay out on social security benefits and government contracts with private business.
Author: Rob Mudge, Richard Connor (dpa, AFP, Reuters)
Editor: Chuck Penfold