POTENTIAL MELTDOWN

It is possible that a meltdown will take place this week. No, not at the Fukushima Daiichi nuclear plant in Japan (though it may still go that way in time). I am talking about the U.S. Federal Government, one of the largest spending organisations in the world.

The U.S. federal fiscal year runs from 1 October to 30 September. The normal procedure is that an overall budget is agreed and passed in Congress, followed by detailed appropriation bills for various departments. The snag is that no budget was agreed for the current fiscal year, so Government agencies have been surviving on a series of ad hoc measures of ever increasing desperation. These will come to an end at midnight on Friday; if a budget is not agreed by that deadline, then large parts of the Government will have to shut down.
President Obama met with Congressional leaders yesterday, but could not reach agreement. Discussions are ongoing, but the gap between the various parties is still large.

At bottom, this is all about politics and not money. The Republicans in Congress, and in particular the first-timer Tea Party elements elected in last November's landslide, want to slash Government spending, and are prepared to paralyse the workings of Government in order to get their way. The Democrats are willing to countenance some reductions, but not as many as the Republicans want. This is not the first time that the Federal Government has shut down; the last time it did so was in 1995, under President Clinton. Then it was the Republicans who lost out in the forum of public opinion and took the blame for being intransigent, but they think it will be different this time around.

A European Government that failed to have its budget passed by Parliament would resign, leading to Government by the opposition or fresh elections. That is exactly what will happen in Portugal, where Parliament recently refused to pass the minority Government's proposed spending cuts; elections will now take place on 5 June. Yet in the U.S., politicians are elected for fixed terms and stay there, come what may. In the event of deadlock, what "gives" is not the politicians, but the very Government they are supposed to be running.

It is weird to think that in 2 days' time, the world's most powerful elected body might well shut down; but it could happen.

Walter Blotscher