US risks AAA over runaway debts as 'political' dangers rise in Europe, warns Fitch The debt ceiling is currently fixed by law at $16.4 trillion. Washington will hit the buffers within weeks despite emergency measures to keep the federal government afloat. "It is highly uncertain what would happen if Congress did not raise the debt ceiling before cash balances were exhausted," said Fitch. The agency slammed the debt-ceiling law as an "ineffective and potentially dangerous mechanism for enforcing fiscal discipline." The legislation relies on the nuclear option of a sovereign default. This ultimately renders the threat "incredible" and does little to compel Congress to rein in runaway spending. Standard & Poor's has already downgraded the US to AA+. Moody's issued a negative alert after the last debt-ceiling clash. Fitch followed suit in November 2011. Fitch said the US is keeping its debt burden in check to a certain degree with inflation, negative real interest rates, and economic growth, but Washington will find it ever harder to "honor its obligations in a timely fashion" if it continues to run peace-time deficits of unprecedented scale. The US dodged a bullet over the New Year with a "short-term fix" on the budget but Capitol Hill has yet to tackle a clutch of major fiscal risks in late February and March, including an automatic sequester of spending cuts worth $109bn. Britain is also in danger of losing its AAA rating after a double-dip recession played havoc with public finances last year, leaving the budget deficit at 8.2pc of GDP. Public debt will now peak later, near 97pc of GDP in 2016. The Government's supplementary target has weakened fiscal credibility. The UK has very little headroom for fiscal shocks," said the agency, warning that any slippage of economic growth in 2014 will imperil debt dynamics. The US and the UK have their own sovereign currencies and central banks, allowing them to print money if need be. This reduces credit default risk, switching it into currency risk instead. The eurozone is an entirely different animal. The European Central Bank's pledge last summer to backstop EMU sovereign debt has greatly reduced the risk of an immediate debt crisis but there is still the slowburn threat of a political dissent in countries that have lost intra-EMU competitiveness, cannot devalue, and face festering unemployment. "The longer the austerity drags on, the higher the political risk," Douglas Renwick's, Fitch's head of European ratings. While 2012 may have been the year of "peak austerity," a string of countries face belt-tightening as far as 2017. Greece, Spain, Portugal, and Ireland are less than half way through the fiscal pain required to stabilise debt trajectories, a task made harder by the eurozone's near slump conditions. While households in the UK and the US have steadily cut their debt to disposable income ratio since 2008, there has been almost no improvement in Spain and Portugal. Budget cuts have displaced the strain from the public sector to the private sector - leaving the economy as a whole even more indebted than before. Greece's household debt ratio has shot up from around 60pc to over 100pc since austerity began as people run down their savings. Mr Renwick said there is a "strong possibility" that eurozone taxpayers will have to take a haircut on their loans to Greece to restore economic viability.