Senators Harry Reid and Mitch McConnell have just announced a deal that they hope will allow the government to fully reopen and raise the debt ceiling. That's good news for America, but also good news for the rest of the world, which has been stuck wondering what would happen to their economies if the dollar, the most widely accepted currency in the world, was pummeled by a U.S. default. Beyond real economic concerns, the world has just kind of surprised that America — which prides itself on being an example, the best — is subject to the same political recklessness as the rest of the world. With each day of the government shutdown, America has steadily debunked the myth of its exceptionalism. "I think the U.S. is losing its place," Osama Shawki, a shopkeeper in Cairo, told The New York Times.
An American would be default an especially ironic prospect for countries like Greece, Mexico, Argentina and Russia, which have all defaulted in the past. Those countries have been quick, and entirely justified, in reminding the United States that defaulting is "irresponsible."
Mexico has already been affected: The economic position of our neighbors to the south have already been hurt by the shutdown — border crossing lines are longer and commerce between the two countries is slower and the value of the peso has dropped, notes the Times. "They are supposed to be an example of consensus and democracy for the rest of the world,” the owner of a men’s clothing business in Mexico told the Times. "The fact they can’t come to an agreement because of their pride and their need to show who has the power — it is just ridiculous. I find it quite irresponsible as well."
Economists were split on how Mexico would have been impacted by a full blown default. Last week Ernesto Revilla, the chief economist at Mexico Finance Ministry said the Mexican economy could face an "extreme situation." In an article published Sunday, Mexico's Central Bank Governor Agustin Carstens told El Economista that he was more optimistic. "Mexico is well prepared to confront [a U.S. Default]," Carstens said. "We have taken due care in the management of international reserves and we are well provisioned. The problem is so serious because the obstacle is political in nature, not financial nor economic."
Australia is worried it might be just as crazy: "God created war so Americans would learn geography, according to Mark Twain. Apparently He created government shutdowns so they could learn how to manage budgets," wrote Peter Hartcher of the Sydney Morning Herald. And yet, Hartcher notes that Australia's government has been just as petty in the past with the threat of a government shutdown. "Responsible management of government was sacrificed to political gamesmanship long ago. Those crazy Americans. It couldn't happen here, right? Wrong," he added. And that's as close as we're going to get to understanding from down under. Like much of the world, Malcom Fraser, Australia's former prime minister, sees the events in Washington as petty and self-serving:
China and Japan want their money: Earlier this week Zhu Guangyao, China's vice-finance minister, made it pretty clear that China has been a little uneasy with all of this U.S. default talk, reports The Financial Times. That's fair, considering America owes China $1.3 trillion. "The US has a large amount of direct investment in China, and China has a vast number of US Treasury bonds," Guangyao said. "The US is clearly aware of China’s concerns about the financial stalemate [in Washington] and China’s request for the US to ensure the safety of Chinese investments." Zhu also reminded the US that the last time they played games with the debt ceiling, when a last minute deal was reached in 2011, America's Standard & Poor rating was lowered. "We hope that the US can draw lessons from history," he said. Japan, to which the U.S. owes another $1.1 trillion, also wants to know it'll get paid. Last Tuesday Japan’s finance minister Taro Aso shared a similar sentiment, asking "the United States to resolve its debt ceiling stand-off without delay." According to The Fiscal Times, Japan has been worried that an American default would lower the value of its US Bonds and lead to US investors dumping the dollar in favor of the yen.
Greece isn't sure whether to laugh or cry: In the English-language version of Kathimerini, Nikos Konstandaras couldn't decide whether the Tea Party's takeover of American politics (by and large the world blames all of this on extreme Republicans) is a tragedy or a comedy. He wrote:
If, after all the shouting, the fundamentalists of the Republicans’ Tea Party faction give in to the pressure of their more serious colleagues and raise their siege of the state, we will know that what we were watching was a comedy, or, at least, just one more absurd chapter in the evolution of the ever-evolving government system we call democracy. If, however, the self-congratulating, self-declared “rebels” stick to their guns, if the paralysis of the US government leads to a default, the consequences will be unpredictable and most probably tragic for very many people across the globe.
On the streets of Athens, many are simply surprised that the U.S. finds itself in the same sort of financial peril Greece went through earlier this year. “Both countries are paying dearly for rising political tensions," Theodore Couloumbis, emeritus professor of international relations at the University of Athens, told the Times. "But in America’s case, there is the potential for serious global repercussions, too." And when the worst case scenario of those repercussions is another global recession, it's hard to see the country that's led us to this cliff as exceptional. Reid and McConnell may have reached a deal, but the damage as been done to America's image.
This article is from the archive of our partner The Wire.