Obama weakened as US passes debt bill

The immediate crisis has been averted, but the president has capitulated on nearly all of his key de

Hours ahead of the Treasury deadline that could have seen the US default for the first time in its history, the House of Representatives voted overwhelmingly in favour of a deal to raise the debt ceiling.

Reluctantly, both Democrats and Republicans voted the legislation through, although there were significant revolts on each side. It passed by 269 to 161 votes.

It will now be voted on by the Senate, although this is largely a formality as it has a Democratic majority. The House, which since November's mid-terms has been made up of many hardline Tea Party Republicans, was the main problem. Although the bill is seen by many as a complete capitulation by the president, many Republicans are still angry that the cuts outlined in the legislation do not go far enough.

While there is a sense of relief that the crisis has been ended without a potentially catastrophic default, Democrats are understandably frustrated as they have emerged from weeks of stand-off with little to show for it. Not only has Barack Obama surrendered on most of the key points, promising more than $2tn in spending cuts over the next ten years, but because a deal was reached so close to the deadline, the bill has not undergone the normal scrutiny.

It is a significant shift in fiscal policy at a time when economic recovery is fragile. Unemployment remains above 9 per cent, growth is slowing, and there is now no scope for any economic stimulus. Democrats also fear that it is the poor who will lose the most. In one of his main surrenders, Obama has agreed not to seek extra tax revenue. Given that George Bush's tax cuts for the rich are the main cause of the deficit (see this chart), this means the deficit will stay sky-high. Democrats hope to re-open this debate at a later stage.

The sense that Obama has caved in to the unreasonable voices on the right is also a cause of frustration. Writing last night, the Nobel-winning economist Paul Krugman criticised Obama for refusing to consider tabling the 14th Amendment to push his version through:

Those legal options are still there. Obama can move now; and even if he eventually loses in the courts, that gives him time.

Sure, it's risky. But the whole situation is immensely risky, thanks to the extremism and bloody-mindedness of the right. There are no safe options, and trying to play it safe when there is no safety lands you, well, where Obama is right now.

While laudable in theory, Obama's wish to seek reasonable, bipartisan solutions in the most partisan, extreme era the White House has seen for decades makes him a hostage to fortune.

The immediate crisis may have been averted, but this stand-off has shown how drastically the mainstream debate has been pulled to the right. It has also given a hint of the lines along which the next election will be fought -- drastically differing views on the size and scale of the state. Obama would do well to find his voice and be more assertive by then, if he does not want to lose the support of his own party.

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

Photo: Getty
Show Hide image

Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.