The US debt crisis overshadows the meeting of the G7 financial leaders

  • Biden warns of an American recession unless the ceiling is raised quickly
  • Yellen is optimistic about the global economy and inflation
  • Slowing inflation in China adds to fears of a global recession
  • G7 financial leaders begin their meeting in Niigata, Japan

NIIGATA, Japan, May 11 (Reuters) – A meeting of Group of Seven financial leaders that began on Thursday was overshadowed by a standoff in Washington over raising the U.S. debt ceiling, adding to fears of a U.S. recession as central banks seek a soft fund landing. International Economy.

President Joe Biden increased pressure on Republican lawmakers on Wednesday to move quickly to raise the government’s borrowing limit from the current $31.4 trillion or risk throwing the world’s largest economy into recession.

Treasury Secretary Janet Yellen was expected to face questions from her G7 counterparts, meeting in the Japanese city of Niigata, about how Washington intends to prevent turmoil in financial markets, already tense after the recent failure of three US regional banks.

“A default would threaten the gains we’ve worked so hard for over the past few years in our recovery from the pandemic. It would trigger a global recession that would set us back much further,” Yellen said in Niigata on Thursday.

The US debt crisis is a headache for Japan, which holds the G7 presidency for this year and is the largest holder of US debt in the world.

“We will not touch on such specific issues,” Japanese Finance Minister Shunichi Suzuki told reporters Thursday when asked what kind of solution Japan wants from the United States.

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Instead, Suzuki added, G7 financial leaders will discuss ways to better address financial system risks by sharing their understanding of lessons learned from recent US bank failures.

“The G-7 will not be able to come up with a solution to a purely domestic and political American problem, although the group can reaffirm its determination to cooperate in stabilizing markets in the worst-case scenario,” said Takahid Kiyochi, a member of the task force. Analyst at Nomura Research Institute.

“Washington is solely responsible for fixing this. But when things go wrong, all the other countries bear the brunt.”

global dampers

Global economic risks, including stubbornly high inflation and the fallout from aggressive increases in US and European interest rates, are likely to be among the main topics of discussion for G7 finance ministers and central bankers.

Yellen said the global economy was in “a better place than many people expected six months ago,” with inflation falling in many G7 countries, including the United States.

Even as rapid rate hikes by the Federal Reserve weigh on the US economy, recent data has shown signs of weakness in China, the world’s second largest economy.

Data on Thursday showed consumer prices in China rose at the slowest pace in more than two years in April, while contraction deepened at factory gates, dashing hopes of policymakers that a recovery in demand in the country would support global growth.

Other major topics to be discussed at the G7 meeting include ways to strengthen the global financial system, steps to prevent Russia from circumventing sanctions over its invasion of Ukraine, and diversifying supply chains away from countries like China through partnerships with low- and middle-income countries. income states.

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Previous battles over the US debt ceiling usually ended with a hastily arranged deal in the final hours of negotiations, to avoid an unprecedented default.

In 2011, the scramble downgraded the United States’ credit rating for the first time. Veterans of that fight warn the current situation is even more dire because political divisions have widened.

At the time, the G7 finance leaders said in a statement that they were “committed to addressing tensions stemming from current challenges around fiscal deficits, debt and growth.”

(Reporting by Leika Kihara and Andrea Shalal in Niigata) Additional reporting by Tetsushi Kajimoto and Takaya Yamaguchi; Edited by William Mallard

Our standards: Thomson Reuters Trust Principles.

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