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If the United States loses the debt battle

· Still far from an agreement between Republicans and Democrats ·

An agreement between Republicans and Democrats to raise the legal debt ceiling in the United States still seems far away. There are only 14 days left until August 2nd, when default will be mathematical, yet the political clash remains acute. The most credible hypothesis at the moment is that Congressional leaders will reach a compromise on a technical agreement which will avoid financial catastrophe. Unfortunately, however, things aren’t that easy.

The Republican proposal can be summarized in three words: cut, cap and balance. The cuts proposed amount to 1.5 billion dollars. The Grand Old Party (GOP) also wants to fix the ceiling of public spending to 18 % of GDP and to vote on an amendment to the constitution which would make it an obligation to keep the federal budget under control. If these measures pass, “we are ready to raise the ceiling,” said Republican senator, Lindsey Graham. Certainly, the more moderate wings of the GOP could soften the angles and succeed in finding a compromise with the Democrats. In reality, however, a split seems to be taking place: the Tea Party is categorically opposed to any concession. “If we raise the ceiling without a credible solution, we will have big problems,” explained Marc Rubio, one of the major exponents of the conservative movement in the Senate, which hopes to lower fiscal pressure.

The Republican proposal has little chance of passing in Congress because of President Obama’s clear refusal. He prefers a more ambitious plan – cuts of more that 4,000 billion spread over the next 10-12 years, beginning in 2013 – attempting to marry reduction in spending and increase in taxes for the most wealthy. The White House’s fear is that massive cuts would create a frightening social impact. Washington is asking to balance austerity with an increase in fiscal pressure.

A third plan could become the winning option, presented by Republican Mitch McConnell and Democrat Harry Reid. It is more complex than the others and suggests that the President could raise the debt limit to 2,500 billion dollars without the approval of Congress. A commission of exponents of the major political parties will be charged with studying the plan in detail. The entourage of President Obama has not yet officially commented on the proposal. It is true, however, that the President can always invoke the 14th amendment of the Constitution which gives him special powers on questions of debt.

Tensions are very high at the Treasury: without an agreement the United States cannot respect its commitments and will be forced overnight to cut 40% of public spending, affecting wages, pensions and services.

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