China bluntly criticised the United States on Saturday one day after the superpower's credit rating was downgraded, saying the "good old days" of borrowing were over. Standard & Poor's cut the US long-term credit rating from top-tier AAA by a notch to AA-plus on Friday over concerns about the nation's budget deficits and climbing debt burden.
China - the United States' biggest creditor - said Washington only had itself to blame for its plight and called for a new stable global reserve currency. "The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency said in a commentary.
After a week, which saw $2.5 trillion wiped off global markets, the move deepened investors' concerns of an impending recession in the United States and over the eurozone crisis. Finance ministers and central bankers of the Group of Seven major industrialised nations will confer by telephone later on Saturday or on Sunday, a senior European diplomatic source said.
The source said the credit rating downgrade had added a global dimension on top of the eurozone debt issue, raising the need for international co-ordination. "The G7 will confer by telephone. It's not yet confirmed whether it will be in one stage or in two stages, tonight and tomorrow," the source said.
French Finance Minister Francois Baroin, who would chair such a meeting under France's G7 and G20 presidency, said it was too early to say whether there would be an early G7 gathering. In the Xinhua commentary, China scorned the United States for its "debt addiction" and "short sighted" political wrangling.
"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," it said. It urged the United States to cut military and social welfare expenditure. Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.
"International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country," Xinhua said. In Washington, US President Barack Obama urged lawmakers on Saturday to set aside partisan politics after the debt battle, saying they must work to put the United States' fiscal house in order and refocus on stimulating its stagnant economy.
S&P blamed the downgrade in part on the political gridlock in Washington, saying politics was preventing the United States from addressing its deficit and debt problems. Obama called on Congress to back measures to give tax relief to the middle class, extend jobless benefits and pass long-delayed international trade pacts. "Both parties are going to have to work together on a larger plan to get our nation's finances in order," he said.
"In the long term, the health of our economy depends on it...in the short term, our urgent mission has to be getting this economy growing faster and creating jobs." In contrast to the Chinese criticism, France's Baroin said France had faith in the United States' ability to get out of this "difficult period". Friday's US unemployment numbers were better than expected and so things were heading in the right direction, he said.
"Therefore, one should not dramatise, one needs to remain cool-headed, one should look at the fundamentals," he told France's iTele. While the impact of the rating cut on financial markets when they reopen on Monday may be modest because the decision was expected, the shift may have a long-term impact for US standing in the world, the dollar's status, and the global financial system.
Norbert Barthle, a budget expert for German Chancellor Angela Merkel's conservatives said the downgrade would certainly provoke further turbulence in markets. In Europe, Italian Prime Minister Silvio Berlusconi on Saturday ruled out calling early elections to stem market panic that has pounded Italian assets and forced his government to bring forward austerity measures. European policy makers are concerned that a debt emergency in the eurozone's third largest economy could completely overwhelm bailout mechanisms set up to help smaller troubled countries like Greece or Ireland.
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