China, EU voice concerns over US shutdown

China has said the US government shutdown has exposed “the ugly side of partisan politics” in Washington and expressed concern about its effect on the world economy.

An editorial on the state-run Xinhua news service, considered a channel for Beijing’s official views, said on Wednesday: “The United States, the world’s sole superpower, has engaged in irresponsible spending for years.”

“With no political unity to redress its policy mistake, a dysfunctional Washington is now overspending the confidence in its leadership,” the editorial said.

The US shutdown went into its second day on Wednesday with no end in sight to the funding battle in Congress that triggered it. Major stock markets and the dollar fell.

Xinhua’s commentary said the shutdown might lead to the US failing to meet its debt obligations, referring to a similar conflict in 2011 over raising the government’s debt ceiling. While default was ultimately averted, the crisis resulted in Standard & Poors downgrading the rating of US sovereign debt.

“In the view of the latest political failure, a replay of the 2011 summer drama seems likely, which is certainly a concern for US foreign creditors,” it said.

China is the largest single holder of US government debt, a side effect of its managed exchange rate policy, which requires it to purchase massive amounts of dollars from Chinese trading companies to hold back the yuan from appreciating. 

EU concerned

Top European officials are keeping a worried eye on the US government shutdown, saying it could pose a risk for the continent’s fledgling recovery.

The US has the world’s largest economy and close business ties with Europe. So the shutdown, which has seen some 800,000 federal employees put on furlough, could hurt growth around the world if Congress does not agree on a new budget deal within days.

The president of the European Central Bank, Mario Draghi, said Wednesday that the shutdown “is a risk if protracted,” though he added that “the impression is that it won’t be”.

Earlier, France’s top officials expressed similar concerns.

“If this situation lasts, it could slow down the ongoing economic recovery,” Pierre Moscovici, the finance minister, said at the government’s weekly Cabinet meeting.

France is just emerging from a double-dip recession and, like much of Europe, its economy remains fragile. Najat Vallaud-Belkacem, the government spokeswoman, said the situation was troubling.

“It seems that every day, the shutdown has a financial cost to the US, and so has consequences for its partners,” she said.

The US Congress also needs to find a deal on raising the country’s debt ceiling later this month.

If it does not, the US would face a potential default, a development that could inflict massive damage on the global economy.

Draghi, however, was not worried about that prospect. Asked if he thought the US could default on some of its debt obligations, he said: “I don’t.”