Leaders agree debt ceiling deal -- but Obama's crisis isn't over

US president announces deal that will raise debt ceiling and slash spending by trillions.

Barack Obama has announced that Republican and Democratic leaders have reached an agreement on raising the US debt ceiling by $900bn.

A second increase of between $1.2tn and $1.5tn would be available subject to a second vote of disapproval by Congress. In return for this increase in the government's borrowing limit, Congress will commit to deep spending cuts, reducing the deficit by a roughly equivalent amount over the next decade. A special bipartisan committee will be set up to agree areas to be cut.

The deadline for raising the debt cap -- currently at $14.3tn -- is tomorrow. While this deal marks a significant breakthrough after days of deadlock, it has yet to be voted on. Even as Obama announced the measures at the White House, the Speaker in the House of Representatives, John Boehner, was trying to sell the proposal to House Republicans. The hardline elements of his party are likely to vote against the bill, meaning that Boehner must make the deal sound appealing to Republicans without alienating the Democrats whose vote will also be needed to pass it.

Obama said that while it was not the deal he wanted, it would make a "serious down payment" on the deficit, and would prevent another crisis in a year's time. This is something Democrats were keen to avoid in the run up to the 2012 election.

While attention is now focused on getting the bill through the House in the face of intransigent right-wingers, many Democrats are also unhappy at the level of fiscal tightening the bill will involve. Mirroring the debate in Europe, economists have argued that slashing government spending at a time of dismal growth will depress the economy further.

In addition to this concern about the content of the bill are serious worries about the political message this debacle sends to the Tea Party representatives who precipitated, or at least worsened, the crisis. Obama's refusal to use legal manoeuvring to side-step the crisis -- or even to invoke the possibility to strengthen his bargaining position -- could well empower those set on derailing his presidency and blindly pursuing their own small-state agenda. Paul Krugman, describing the deal as an "abject surrender" by the President, expresses the view of many on the left:

Make no mistake about it, what we're witnessing here is a catastrophe on multiple levels.

It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn't over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.

In the long run, however, Democrats won't be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation's economic security, gets to dictate policy? And the answer is, maybe it can't.

Both houses will vote on the deal today.

Samira Shackle is a freelance journalist, who tweets @samirashackle. She was formerly a staff writer for the New Statesman.

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Yanis Varoufakis: The left never recovered from the fall of the Soviet Union — yet there is hope

A radical internationalism is needed to democratise the EU and breathe new life into the left.

The left has been in disarray since 1991 – it never fully recovered from the collapse of the Soviet Union, despite widespread opposition to Stalinism and ­authoritarianism. In the past two decades, we have witnessed a major spasm of global capitalism that has triggered a long deflationary period across the United States and Europe. Just as the Great Depression did in the 1930s, this has created a breeding ground for xenophobia, racism and scapegoating.

The rise of centrism is also partly to blame. For a period in the late 1990s, it seemed that this had become the new doctrine of the left. In Britain, New Labour under Tony Blair was never part of the left. Margaret Thatcher was delighted by the manner in which his governments copied her policies and adopted her neoliberal mantra, though she did ask the question: if you want to vote for a Conservative, why not vote for a real one instead?

Parties such as New Labour, the Socialists in France and the Social Democrats in Germany might have called themselves the radical centre, but that was just labelling. What was happening under the surface was that the progressive parties of the left were being lured into financialisation. In the 1960s and 1970s the centre left was aware of its duty to act as a mediator between industrial capital and labour. Harold Wilson’s Labour Party, Willy Brandt’s Social Democrats in Germany and others understood that their duty was to strike a grand bargain whereby industrial capital ceded to workers’ demands for higher wages and better conditions, while they agreed to help fund the welfare state.

From the mid-1980s onwards, the left-wing leadership abandoned this duty. Industrial capital was in decline and it was much easier to look towards the super-profits of the City of London and the global banks. A Faustian pact was made with the financial sector – European governments turned a blind eye to what the bankers were doing and offered them further deregulation in exchange for a few crumbs from their table to fund welfare. This is what Tony Blair and Gordon Brown did in Britain, Gerhard Schröder did in Germany and the Socialists did in France. Then the financial crisis struck. At that point, social democrats throughout Europe lacked the moral strength and analytical power to tell bankers that although they would salvage the banks, their reign was over.

The best hope for the left is to come together to defeat the worst enemy of European democracy: “Euro-tina”, the reactionary dogma that “there is no alternative” to the continent’s current policies. Hence the EU’s true democratisation is the only alternative. This is what my collaborators and I hope to achieve with our new Democracy in Europe Movement 2025 (DiEM25). We are compiling a new economic agenda for Europe, which will answer the question I am asked on the streets everywhere I go, from Sweden to the UK: what can we do better within the EU? If the answer is “nothing”, the Brexiteers have a point – we might as well blow the whole thing up and start afresh. The alternative to the “Year Zero” approach is to recalibrate European institutions in the context of a practical and comprehensive agenda comprised of policies that will stabilise Europe’s social economy.

The EU institutions are anti-Europeanist and contemptuous of democracy. People might wonder: if that is the case, why am I arguing to stay in, but against the Union? In response, I ask those who support the left-wing argument in favour of Brexit: since when has the British state been a friend of the working class? Never. And yet their argument is: do not dismantle it. The nation state was created to promote a fictitious notion of a national interest to co-opt labour and those on the fringes of society – the “lumpenproletariat”, as we once called them. The left understands that it is not our job to destroy institutions. Instead, we struggle to take them over and use them for good. I cut my political teeth protesting against the Greek state but I do not believe that it should be dismantled and the same argument applies to the EU.

Good people who are motivated to change society often fall out with each other. I am reminded of a scene in Monty Python’s Life of Brian – when the Judaean People’s Front confronts the People’s Front of Judaea and the Popular Front of Judaea. DiEM25’s task is to try to convince our fellow left-wingers that the solution is a pan-European unity movement. A concrete example of the power that this can have is the election of Barcelona’s new mayor, Ada Colau. A DiEM25 supporter, she won the race against the odds,
having started her career running a protest movement that championed the rights of citizens threatened with eviction because they were unable to pay their mortgages.

The Syriza government, in which I served as finance minister from January to July 2015, failed to achieve change because we ended up disunited and the prime minister capitulated to the EU at the moment when he had a mandate from the Greek people to do the opposite. My hope was that if Syriza had carried on with the struggle, we would have been a catalyst for movements across Europe (such as the one that has fuelled the rise of Jeremy Corbyn) to join us.

The capitulation of Alexis Tsipras was a hefty blow to the concept of radical inter­nationalism, but I still believe that internationalism offers the solution to the problems facing Europe in this deflationary era. The number of good-quality jobs has decreased, investment is depressed and optimism about the future is being destroyed. It is the left’s duty to do all we can to end this. If we can explain to the masses what the sources of their discontent are, we have a chance to breathe new life into the left. There are no guarantees – just a chance.

This is the latest article in our “New Times” special series

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories