That default scenario is bringing increasingly urgent pleas from foreign leaders, some who describe their grave concern, others who chide the United States about the risks of political brinkmanship, beg its leaders to act responsibly and wonder whether the world’s superpower is showing some cracks.
“This is highly important for all of us,” Russian President Vladimir Putin said this week. “I am hopeful that all the political forces in the United States will be able to resolve this crisis as quickly as possible.”
Although the mood from afar hasn’t turned to panic, some in Europe and Asia say they are stunned by the quixotic partisan fervor shaking the pillar of the global economy.
“Parts of America seem to have turned fundamentalist,” said Jesper Koll, the managing director of research at JP Morgan in Japan.
Analysts in London’s financial district fret that a U.S. default could derail Britain’s recovery.
“The outlook for the British economy is decent but still fairly fragile,” said Howard Archer, chief U.K. economist at IHS Global Insight in London. “Anything like a U.S. debt default with significant global repercussions would be bad news for the U.K.”
Political analysts also worry about the impact a default could have on the United States’ diplomatic standing and the broader implications for global security and geopolitics. “What would the world look like if you had America no longer the reliable ally, the provider of global good?” asked Xenia Dormandy, a senior fellow at Chatham House, a London-based think tank.
Economists and traders worldwide think the United States will avert a default with an eleventh-hour deal, as happened in a similar Washington showdown two years ago. Markets, too, have shown few jitters, and several key Asian stock indexes were up slightly Wednesday.
If the United States does default, though, economists say the damage will exceed that of the Lehman Brothers collapse five years ago: Stock market indexes will plummet, borrowing rates will soar and foreign countries holding U.S. Treasury bonds will be devastated by the fallout.
A default also would undercut tenuous signs of recovery in some European countries and in Japan, which is on the upswing after nearly two decades of recession. Japan and China are the top foreign creditors of the United States, and Japan’s share — about $1.14 trillion — is equivalent to nearly 20 percent of its gross domestic product.
A default would mean that “the world’s most important ‘safe’ asset would no longer be safe,” said Willem Verhagen, senior economist at ING Investment Management in London. He added, “A default can set in motion an incredibly complex train of mechanical events in the financial system that is impossible to stop.”