President Joe Biden and his Republican opponents have announced an in-principle agreement to raise the US debt ceiling and avoid a default.

President Joe Biden called the deal a “compromise,” while House Speaker Kevin McCarthy claimed it was “worthy of the American people.”

After weeks of tense discussions, the agreement still needs to be approved by a divided Congress.

Without a deal, the US will run out of money on June 5th, according to the Treasury.

Because it spends more than it collects in taxes, the United States must borrow money to fund the government.

Republicans have proposed spending cuts in areas such as education and other social programs in exchange for extending the debt limit to $31.4 trillion (£25 trillion).

Details of the draft agreement have not been made public, although CBS, the BBC’s US partner, claimed that non-defense government expenditure will be frozen for two years before increasing by 1% in 2025.

It was unclear how a government program that offers food assistance to persons with low or no income would evolve.

A straightforward approach to the debt ceiling
Could a US debt default cause global devastation?
President Biden called the agreement in a statement as a compromise that is good for the country “because it prevents what could have been a catastrophic default, which would have resulted in an economic recession, retirement accounts destroyed, and millions of jobs lost.”

Mr McCarthy, for his part, spoke of “historic spending cuts and consequential reforms that will lift people out of poverty and into the workforce.”

“There are no new taxes, and there are no new government programs,” he stated.

Mr McCarthy went on to say that he hoped to finish authoring the measure on Sunday before bringing it up for a vote in Congress on Wednesday.

However, he has a hurdle in getting it through the House, where it may attract opposition from both Republicans and Democrats. Republican Representative Chip Roy of Texas said in a tweet on Sunday that he and others were “going to try” to stop it from passing.

Republicans control the House by a margin of 222 to 213, while Democrats control the Senate by a margin of 51 to 49.

Mr McCarthy told Fox News on Sunday that the agreement had the support of more than 95% of House Republicans.

A US default would destabilize the US economy and world markets.

In the United States, the government would swiftly run out of funding to pay for welfare payouts and other support programs, for example.

Over time, the crisis would plunge the US economy into recession, causing unemployment to rise.

A US recession would have significant ramifications for many countries around the world for which the US is a vital trading partner; they would be unable to sell to an economy that does not purchase as much.

Because the US dollar is the world’s reserve currency, a default would provoke panic around the world, eventually driving up the prices of numerous goods.