Washington (AFP) – A chorus of global finance chiefs called for the United States to quickly end the political deadlock over the budget and debt ceiling to avoid wrecking the world economy.
Top finance officials from China, Europe and Latin America joined International Monetary Fund Managing Director Christine Lagarde and World Bank President Jim Yong Kim in warning of a potential catastrophe if Washington is forced to slash spending or default on its debt.
“They should have the wisdom to solve this problem as soon as possible,” Gang Yi, deputy governor of the People’s Bank of China, said during the World Bank-IMF annual meetings in Washington, referring to demands that Congress increases the borrowing cap.
“We certainly need a very stable global economy,” he said.
In New York, European Central Bank chief Mario Draghi said a standoff between the Democrats and Republicans that lasts several weeks or months could “cause severe damage to the U.S. economy and to the world.”
“The world still doesn’t believe that the U.S. will not find a way out of this,” Draghi said.
As Republicans offered a short-term fix to the impasse that was not sure to be accepted by President Barack Obama, both Lagarde and Kim highlighted the dangers.
“It is not helping the U.S. economy to have this uncertainty and this protracted way of dealing with fiscal issues and debt issues,” Lagarde said.
“There will be very, very negative consequences for the U.S. economy, and there will be very negative consequences outside of the U.S. economy.”
If the United States is forced to default on its obligations, especially its debts, said Kim, “the impacts are going to be severe,” he said.
In a similar Washington budget fight that went to the wire in 2011, Kim recounted, developing countries paid in terms of higher borrowing costs for months afterward, despite it having been resolved without a U.S. default.
“It’s an issue that concerns all of us,”said Chilean Minister of Finance Felipe Larrain.