Meeting of G7 leaders overshadowed by US debt dispute

The impasse over raising the US debt ceiling overshadowed a meeting of G7 financial leaders starting today in the Japanese city of Niigata.

The stormy discussions of the American rulers continue to increase fears against recession in United States.

As recently as Wednesday, President Joe Biden put pressure on Republican lawmakers to quickly raise the limit of government-allowed borrowing from the current $31.4 trillion or risk a recession in the world's largest economy.

US debt ceiling vs world economy

Treasury Secretary Janet Yellen is expected to face questions from her G7 counterparts on how Washington intends to avert the turmoil in financial markets already shaken by the recent collapse of several US banks. The US debt crisis is causing headaches, among others Japan, which chairs the G7 this year and is the world's largest holder of US debt.

Japan's top financial diplomat, Masato Kanda, said on Tuesday that G7 financial leaders may discuss a US debt ceiling but are unlikely to explicitly mention it in a joint statement at the end of Saturday's meeting.

The global economic threat, including persistently high inflation and the effects of aggressive interest rate hikes in the US and Europe, will likely be among the key topics of debates among G7 finance ministers and central bankers. Because rapid rate hikes by the US Federal Reserve are straining the US economy.

Add to that consumer prices in China, which rose at the slowest pace in more than two years in April, while deflation in factories deepened, Thursday's data showed, shattering policymakers' hopes that a rebound in Chinese demand would underpin global growth.

Other key topics to be discussed at the financial meeting the G7 group, include ways to strengthen the global financial system and steps to prevent Russia from circumventing sanctions for its invasion of Ukraine.

Arriving in Niigata yesterday, Yellen said the United States and a broad coalition of other countries had provided significant economic, security and humanitarian aid to Ukraine while using sanctions and export controls to impose heavy costs on Russia.

History card

Previous battles over the US debt ceiling have typically resulted in a hastily agreed deal in the last hours of negotiations, thus avoiding default.

In 2011, this scramble led to a historic downgrade of the United States' top credit rating. Veterans of that "battle" warn that the current situation is more risky as political divisions have deepened.

At the time, the G7's financial leaders said in a statement that they were "committed to addressing tensions arising from the current budget deficit and debt challenges."