In the end there was the longed-for white smoke. President Obama and the Republican leaders in Congress have reached an agreement which allows for raising the US deficit ceiling by 2.400 billion dollars, sufficient to meet the country's spending needs until 2013. In exchange, cuts in the budget for the same amount over the next ten years (900 billion in a first phase and 1.500 in the second). The increase in the debt ceiling will instead be divided into three periods: $400 billion immediately, $500 billion in 2011 and $1.500 trillion by the end of 2012.
Now it is a question of getting the two houses of Parliament to approve the agreement which, in detail, provides for:
a) a cut in spending over the next ten years of 917 billion;
b) an increase in the expenditure ceiling of 900 billion;
c) the creation of a bipartisan committee which will have to identify other expenses to be cut within the year for an amount of 1.500 billion.
Republicans and Democrats will discuss the agreement this morning (Italian afternoon). Then the Senate will have to vote, followed by the Chamber. "Now it's up to parliamentarians to do the right thing" commented President Obama at the end of the negotiation that put his leadership to the test against the Democrats who accuse him of having conceded too much to the Republicans: in fact, the possibility of raising taxes disappears to the wealthier classes. In return, the cuts in social spending (especially on the health spending front) will make themselves felt.
But for now the relief for the narrow escape prevails, even if the unknown factor of the vote and the hostility of the representatives of the Tea Party remain. "Reasonable people – said the Democrat speaker Harry Reid after the agreement with the Republican of the Senate Mitch Mc Connell – in the end identified a reasonable agreement that will allow the country to look forward".
However, investors are still waiting for the comments of the rating agencies to definitively avert the threat of a triple A downgrade. S&P's has already said that, if the United States fails to find a long-term solution to reduce the deficit, downgrade is still a possibility. "Rating agencies may believe that this plan is not sufficient to reduce the deficit and there remains some risk to the implementation of the various phases of this preliminary agreement," said Anthony Valeri, fixed income strategist at LPL Financial.
