Germany hopes for 'grown-up' US debt ceiling decision

German Finance Minister Christian Lindner said on Friday he hoped US politicians would come to a "grown-up" decision on talks to raise the federal debt ceiling. He also warned that there would be a risk to the global economy if they didn't.

Speaking on the sidelines of the G7 summit in Japan, the German minister said the global economic outlook was still "fragile" and said he hoped that those in the standoff would not be swayed by short-term priorities or partisanship.

Elaborating later on he meant by "grown-up," Lindner said it was reaching an acceptable decision that was not dictated by party political considerations or short-term motives.

Politics is risk to global economy

Lindner's remarks underscore concerns as a meeting between the US President Joe Biden and lawmakers scheduled for Friday back in Washington was postponed.

Regular Congressional approval is required to raise the US debt ceiling. At least technically, failure to do so could lead to the US defaulting on some of its repayments. Similar standoffs have taken place in recent years, usually ending in a compromise and once resulting in an unprecedented downgrade of US creditworthiness.

It's not that the US is struggling to borrow more money at competitive rates on the markets, the more typical reason for fears of a country defaulting on debt, but simply that the extra borrowing must be authorized, in this case by a Republican-led lower house of Congress. 

Yellen and others have repeatedly warned that even a technical default could be catastrophic, with Lindner making a similar point in Japan on Friday.

Lindner said that this was a case of politics posing a risk to the global economy and financial market stabilization. "That's why we're looking at the United States in particular these days and hoping that an adult decision will be made with regard to the development of American government finances and the associated effects on the global economy," he said.

Kazuo Ueda, Japan's central bank governor, also said a US default "will become a big move and a big problem, and I think that the Fed alone, for example, may not be able to counteract it."

Default is unthinkable, Yellen says

Meanwhile, US Treasury Secretary Janet Yellen said that "a default is frankly unthinkable." 

"America should never default. It would rank as a catastrophe," she told reporters ahead of the talks.

However, she acknowledged that while there was still uncertainty as to when exactly the Treasury Department would run out of cash to pay off the US government debt, she would keep Congress informed of any change in the date, which she previously warned could come as early as June 1.

Yellen said that she would meet with senior Wall Street bankers on the debt ceiling next week, and she viewed it as appropriate for them to speak out about how the debate over the debt limit was affecting the US economy.

dh/msh (dpa, Reuters)