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Caren Bohan, Andy Sullivan11 Jul 2011 07:13
Deficit reduction talks between President Barack Obama and Republican leaders ran into trouble on Sunday at a meeting marked by testy exchanges and a failure to mend rifts on taxes and social-spending cuts.
With negotiations aimed at averting a debt default entering a critical phase, Obama made clear that he and congressional leaders were racing the clock to reach a deal needed to avert a debt default.
In a 75-minute meeting at the White House, Obama’s Democrats and congressional Republicans were at odds, not only about the specifics of debt and deficit talks, but also on their scope.
Obama’s Democrats tried to revive a push for a sweeping $4-trillion package that would cut the deficit through spending cuts and tax increases while Republicans urged a focus on a smaller, $2-trillion measure and underscored their opposition to tax hikes.
A Democratic official familiar with the discussions said that when Republicans in the room said the time was not right for an ambitious deficit-cutting plan, Obama asked them: “If not now, when?”
More talks are scheduled for Monday and the White House said Obama would hold a news conference at 3pm GMT before reconvening with congressional leaders.
The Democratic official said the president was prepared to meet every day this week in hopes of breaking the impasse.
The US Treasury has said it will exhaust its borrowing capacity by August 2, meaning it will run out of money to pay all its debts.
Republicans have baulked at raising the $14.3-trillion US debt limit without steep spending cuts while Democrats want to increase revenue by eliminating tax breaks for the wealthy and corporations in some sectors such as the oil and gas industry.
Asked on Sunday whether an agreement could be reached within the next 10 days, Obama told reporters: “We need to.”
Failure to seal a deal by August 2 could spook investors, causing US interest rates to surge, stock prices to plummet and putting the United States at risk of another recession, Treasury officials and private economists have warned.
Sunday’s debt talks of less than one-and-a-half hours were unexpectedly brief. Late last week, the White House said it viewed the talks as “vital” and congressional aides predicted a session lasting four or five hours.
Loss of momentum
But Saturday’s decision by House of Representatives Speaker John Boehner to abandon the goal of a far-reaching deficit package in favour of a smaller one led to a loss of momentum and finger-pointing on both sides.
Boehner, the top US Republican, had previously agreed with Obama on the aim of a wider agreement.
One source familiar with the meeting said Boehner said little during the talks while Representative Eric Cantor, the number two Republican in the House, was more vocal.
In one particularly tense moment, Senate Democratic leader Harry Reid berated Republicans for talking a lot about deficit reduction but then backing out whenever it comes time to make tough decisions.
He raised several examples stretching over the past year and a half, most recently Cantor walking out of talks led by Vice-President Joe Biden and Boehner saying on Saturday that a big deal was not possible.
In addition to taxes, one major sticking point in the talks has been Democratic resistance to cuts in huge social welfare programmes such as the Social Security retirement programme and Medicare health plan.
Investor worries about the debt ceiling were expected this week to put pressure on the US dollar, which fell on Friday after a grim jobs report.
Christine Lagarde, the new head of the International Monetary Fund, warned that a US default would have global repercussions.
“If you draw out the entire scenario of a default, yes, of course, you have all of that, you know, interest hikes, stock markets taking a huge hit and real nasty consequences,” the former French finance minister told ABC’s This Week.
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