By Ian Talley
Head of the IMF
On ABC’s “This Week” news program, Ms. Lagarde called on lawmakers and the Obama administration to agree on a compromise budget package before an Aug. 2 deadline, when the U.S. could default on its obligations if Congress hasn’t raised the $14.29 trillion borrowing limit.
“I can’t imagine for a second that the U.S. would default,” Ms. Lagarde said. But if lawmakers fail to reach an accord, “that would be a real shock and it would be bad news for the U.S. economy” and would “certainly jeopardize the stability” of the global economy, Ms. Lagarde said.
“I would hope that there is enough bipartisan intelligence and understanding of the challenge that is ahead of the United States, but also of the rest of the world,” the former French finance minister added.
Losing credibility in the debt markets could potentially cause a sudden spike in the cost of debt and a downgrade by rating agencies, the IMF has said.
If no deal is reached, Ms. Lagarde said she would expect “interest hikes, stock markets taking a huge hit and real nasty consequences, not just for the United States, but for the entire global economy.’’
Democrats and Republican leaders are set to meet later Sunday at the White House to try to hash out a budget deal. But so far, Republican lawmakers and the White House are at an impasse, fighting over future budget cuts and tax policies.
Ms. Lagarde addressed the case of her predecessor, Dominique Strauss-Kahn, who resigned six weeks ago after being arrested on sexual-assault charges. The future of the case now is unclear amid reports raising questions about the accuser’s credibility. Ms. Lagarde said Mr. Strauss-Kahn had done an excellent job as fund chief, despite the damage from the fallout of his case.
“But when an institution loses its managing director under such circumstances, there are clearly wounds as a result,” she said. “Some people feel very hurt, other people feel betrayed, it’s a very strange chemistry, of frustration, irritation, sometimes anger, sometimes very deep sadness.”