Catastrophe averted

US President Barack Obama signed into law a measure to raise the federal debt ceiling, shortly after it was approved by a wide margin in the Senate.

The Senate vote came just hours before the midnight deadline given by the Treasury Department. Failure to pass the deal would have put the United States into default, sending shockwaves across the global economy.

The Senate voted 74-26 to approve the legislation, which cleared the House of Representatives on Monday 269-161. Twenty-eight Senate Republicans joined 45 Democrats in voting for the deal.

The bill includes major spending cuts and sets up a special committee to find even more savings. The debt ceiling hike is expect to last until 2013.

Anger on both sides

While more Senate Democrats supported the bill than Republicans, many on the left and right were still unhappy with it. Progressives had wanted to balance spending cuts with new revenues through taxing the wealthy and corporations, while conservative Republicans had hoped for even more drastic budget cuts.

Speaking to reporters after the Senate vote, Obama said the debate over new revenues was not over.

"We can't balance the budget on the backs of the very people who have borne the biggest brunt of this recession," he said. "Everyone has to chip in. It's only fair. That's the principle I'll be fighting for during the next phase of this process."

Republicans have argued that the spending cuts will ultimately create jobs, but top economists have warned that they are more likely to slow down the already sluggish economic recovery.

World can breathe easy

Despite unhappy lawmakers in the US, international figures breathed a sigh of relief as the bill finally passed. Christine Lagarde, managing director of the International Monetary Fund, said she welcomed both the raising of the debt limit and the cutting of the deficit.

"By reducing a major uncertainty in the markets and bolstering US fiscal credibility, this agreement is good for both the US and the global economy," she said. "Raising the debt ceiling means a severe economic disruption has been avoided, and the accompanying deficit reduction deal is an important step toward fiscal consolidation."

Ratings agency Fitch announced that the United States would keep its prized triple-A rating on government bonds, certifying that the US Treasury is still as safe an investment as can be.

The agreement showed that "despite the intensity and theater of political discourse in the United States, there is the political will and capacity to ultimately do the right thing."

However Fitch said it would continue its review of the country's rating this month, and that the United States has yet to come up with "a credible multi-year deficit reduction plan."

Author: Andrew Bowen (AFP, Reuters, dpa)
Editor: Michael Lawton