US politicians creep towards agreement on debt ceiling

SENIOR politicians in the United States said last night that they were "confident" a deal to raise the debt limit and avert a potential default could be reached by tomorrow.

Republican and Democrats were locked in negotiations as they continued to search for an agreement on how to raise the amount of money the American government can borrow for spending.

The White House warned details have still to be agreed after a plan to increase the debt ceiling in exchange for a ten-year deficit reduction of $2.4 trillion (1.46tn) was rejected by the Senate.

Following the vote, Democratic Senate Leader Harry Reid said he was "hopeful and confident" a deal could be reached before tomorrow's deadline.

However, he added: "The arrangement that is being worked on with the Republican leader and the (Barack] Obama administration and others is not there yet".

In a sign of the level of worry surrounding the fall-out, American troops serving in Afghanistan have been told there is no guarantee they will be paid should politicians fail to reach an agreement.

However, Mr Reid's Republican counterpart, Mitch McConnell, said a breakthrough was "very close" following talks with vice-president Joe Biden.

Mr Obama said yesterday that it was essential that any deal was accepted by both parties. He said: "Congress must find common ground on a plan that can get support from both parties in the House and in the Senate, and it has to be a plan that I can sign by Tuesday."

The potential deal would include immediate spending cuts of about $1tn (608 billion) and create a special panel to recommend further savings that would include defence and Medicare, the healthcare programme for the elderly, congressional aides said.

It would also include an enforcement mechanism to ensure that additional deficit reduction programmes are enacted into law.

Across-the-board cuts would be triggered if there is no agreement by the special panel or Congress fails to act on the recommendations.

At the same time, the agreement would include none of the tax increases Mr Obama has sought.

Democrats and Republicans have so far rejected each other's plans in both the Senate and Republican-controlled House of Representatives.

Without a compromise by tomorrow, White House officials have said they will run out of money to pay the country's bills.

The US treasury is already drawing up emergency contingency plans in case a deal is not reached by tomorrow.

It is believed the plan would allow the government to function for about a week.

On Saturday, during his weekly radio address, the president told Americans that there was "very little time" left for a deal to be done.

He added: "The time for compromise on behalf of the American people is now."