MercoPress. South Atlantic News Agency

US congress closer to deal on debt-ceiling but with Obama paying the political cost

Senate Republican leader Mitch McConnell has sketched a Plan B

United States government and opposition senators are crafting a plan that could avert an unprecedented US government default if by next 2 August the national debt limit is not raised.

Aides to President Barack Obama said there are hopes for a “grand bargain” with the Republicans that would combine a deal for up to 4 trillion dollars in deficit reduction with an agreement to raise the country's borrowing limit.

Behind the scenes, Senate Republican leader Mitch McConnell and Senate Democratic leader Harry Reid are negotiating over a fallback plan proposed by McConnell that would allow Obama to raise the debt limit while sparing Republicans from having to vote in favour of it.

Senior Democratic aides said the US Senate will likely begin considering the compromise measure this week. They predicted the Democratic-led Senate would pass the legislation, but winning over the Republican-led House of Representatives would pose a bigger challenge.

“Barring a breakthrough, this is going to be the plan” one congressional aide said. ”We are working under the assumption that there won't be a (deficit) plan.“

Making the rounds on the Sunday morning talk shows, White House budget director Jack Lew told CNN's ”State of the Union“ program he believed that all of the leaders in Congress ”understand it would be irresponsible to get to Aug. 2“ and not have a debt-limit increase.

If Congress does not raise the 14.3 trillion dollars limit on US borrowing by then, the US government will run out of money to meet all its payments. Economists and administration officials have warned this would trigger a crisis in global financial markets and plunge the United States into another recession.

Obama's quest for a debt-limit increase and a $4 trillion deficit reduction deal hit a major obstacle a week ago when Republicans in Congress rejected his demand that tax increases on the wealthy be part of the plan.

Lew told NBC's ”Meet the Press“ that there was still time to achieve a far-reaching deal. ”The president has made it clear he wants to do something substantial,“ he said.

But a growing number of private-sector experts believe the solution to the debt standoff might lie in the ”Plan B” sketched out by McConnell.

That proposal would involve a convoluted legislative manoeuvre to raise the debt limit in three stages. It would put the burden on Obama's Democrats to approve the increase, but, in its initial form, it would not require spending cuts.