If the United States fails to strike an agreement to extend its debt ceiling and its GDP is “knocked off track,” it would be “absolutely devastating”, British Finance Minister Jeremy Hunt warned on Saturday .

Hunt told reporters that the finance chiefs of the Group of Seven (G7) countries met in Japan and had “very frank and open discussions” about the difficulties they face, including banking regulation and the impact of Russia’s war in Ukraine on the global economy.

The impasse between President Joe Biden and the Republican-controlled House of Representatives, which has raised the potential of the United States’ first-ever debt default, constituted a “very serious threat to the global economy,” Hunt added.

“It would be absolutely devastating if America, which is one of the biggest motors of the global economy, was to have its GDP knocked off track by not reaching agreement,” he said. He said he hoped that Biden and Congress would be able to resolve their differences.

According to Hunt, G7 officials also discussed the impact of Western sanctions on Russia for its invasion of Ukraine, as well as the need to avoid sanctions evasion, or leakage.

He stated that economic sanctions against Russia’s economy had not been as effective as military support for Kyiv, but were causing a “slow burn,” and that there would come a point when Western pressure “starts to bite.”

Hunt stressed the need of non-G7 nations – India, Indonesia, Brazil, Singapore, and the Comoros – participating in the Russia discussion.

One significant point of agreement was that the G7 rich countries wanted to “de-risk” its relations with China rather than disconnect from all commerce, according to Hunt, who added that Britain’s “strong view” was the need to avoid an approach that mistakenly reverted the globe to “protectionism.”

“No one’s talking about not trading with China, not exporting to China, not importing from China, but we do need to make sure that we don’t have dependencies that can make us vulnerable,” he said, adding that the difficult part was working out the concrete steps needed to accomplish that.

G7 members also agreed that any country engaging in economic coercion should anticipate a united reaction from advanced democracies, but provided no details.

Hunt, speaking before meeting US Treasury Secretary Janet Yellen, said one disappointment had been the G7’s inability to persuade more developing countries – or the Global South – to support the West’s unified response to Russia’s invasion, and that more soul-searching was required on that front.

(Adapted from CNBC.com)

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