WASHINGTON (Reuters) – White House and congressional negotiators worked on Tuesday on a plan to keep the United States from a catastrophic default, but one that is unlikely to save America's gold-plated credit rating.
Two weeks before their final deadline, President Barack Obama and top lawmakers face more pressure for a debt deal amid a growing sense that a last-ditch plan taking shape in Congress may be the only workable solution politically.
Talks on a comprehensive deficit reduction deal that would clear the way for Congress to raise the debt ceiling by August 2 have stalled over tax increases. Attention has now shifted to a "backup" plan proposed by Senate Republican leader Mitch McConnell.
The behind-the-scenes talks on McConnell's plan came as Republicans in Congress pushed forward on a vote on Tuesday on a deficit-cutting measure seen as mostly symbolic but a stark reminder of their ideological divide with Obama's Democrats.
Even as he launched debate on the deficit-cutting bill -- widely viewed as political theater aimed in part to soothe fiscally conservative Tea Party members -- House Speaker John Boehner acknowledged the need to consider a backup plan for reducing red ink and raising the ability for the government to borrow more money to pay its bills.
"There are a lot of options available to us, there have been no decisions made as yet," said Boehner, the top Republican in Congress.
While debate began on the House floor, Republican and Democratic negotiators worked on reshaping the McConnell plan, which would give Obama the authority -- and the blame -- for raising the $14.3 trillion debt limit before the government runs out of money on August 2. Democrats are proposing attaching $1.5 trillion in spending cuts to the plan.
The stalemate in Washington and debt problems in Europe have shaken global financial markets, and the situation could worsen unless a U.S. deal is struck soon.
The McConnell plan may not be enough to satisfy credit rating agencies, which have signaled they could downgrade U.S. debt unless there is a comprehensive deficit-reduction deal in the range of $4 trillion.
"The Senate plan may end the budget impasse in Washington, but it may not satisfy the rating agencies," Kevin Logan of HSBC Securities said in an analyst note. "Unless things change by the end of this week, investors should begin to prepare for a rating downgrade at some point in the next few months."
While insisting that Obama has not given up on forging a $4 trillion deal, the White House signaled on Monday that a broader plan may be out of reach -- something many in Washington accepted days ago.
Obama, who met five times last week with congressional leaders and held a secret meeting on Sunday with the top two Republicans in the House, has not scheduled meetings with them on Tuesday. But he has a wide open schedule on Tuesday and he and Vice President Joe Biden have stayed in close contact with lawmakers.
The No. 2 Republican in the Senate, Jon Kyl, said on Tuesday he expected the Senate to approve the McConnell plan. But he did not answer when asked if he thought it would pass the Republican-led House. Conservative lawmakers there have spoken out against the proposal, saying it would not lead to deep enough spending cuts and would give Obama too much power.
Republicans, meanwhile, began debate on the largely symbolic deficit reduction measure that would cut and cap spending and amend the U.S. Constitution to require a balanced budget. Obama has promised a veto if it passes.
The vote, due on Tuesday evening, gives Republicans a chance to argue the need for deep spending cuts. That could give Boehner, reluctant to see his Republicans blamed for a debt default, political cover to pursue a deal that includes less-dramatic spending cuts than his party has so far sought.
(Additional reporting by Richard Cowan, Thomas Ferraro, Donna Smith; Writing by Deborah Charles and Matt Spetalnick; Editing by Christopher Wilson)
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