World warns of disaster if no debt deal done

Posted: July 31, 2011 in Washington Politics

Tomasz Janowski and Olesya Dmitracova
July 31, 2011

(Reuters) – Governments and policy makers around the world warned of the risk of financial disaster if Washington fails to raise the U.S. debt ceiling.

As Congress haggled over a deal to stave off the risk of an unprecedented U.S. default, British and Japanese officials on Sunday said failure could hurt households across the globe.

“The world is watching the United States with trepidation, with anxiety, with concern, but also with hope,” International Monetary Fund Managing Director Christine Lagarde told CNN.

“Instability is never a good idea, never a good idea. And this level of uncertainty, the trepidation arising from August 2, is bringing about a lot of instability,” she added.

U.S. Democrats and Republicans face a Tuesday deadline to reach agreement. The U.S. Treasury has said it will run out of borrowing room on that day although analysts say it may have enough cash to keep servicing its debt and paying its bills through the middle of this month.

The German central bank expressed confidence the United States would avert a debt default.

The key role of the U.S. dollar in global banking and trading means financial markets face the risk of major instability without an 11th-hour agreement.

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