US Senate in intense debt debate

White House and Republican leaders in Congress have made significant progress toward a deal to raise the US debt ceiling and avert a potentially catastrophic default, according to officials familiar with the talks.


Under a plan negotiated late on Saturday night, the ceiling would be raised in two steps by about $2.4tn (£1.5tn) and spending would be cut by a slightly larger amount, the officials said. The first stage – to raise the ceiling by about $1tn – would take place immediately and the second later in the year.


Congress would be required to vote on a balanced budget amendment to the Constitution, but none of the debt limit increase would be contingent on its approval.


President Barack Obama is seeking legislation to raise the government's $14.3tn debt limit by enough to tide the US treasury over until after the 2012 elections. He has threatened to veto any proposals that might lead to a recurrence of the current crisis next year but has agreed to Republican demands that deficits be cut – without tax increases – in exchange for authorising additional US borrowing.


Without a compromise in place by Tuesday, administration officials say the treasury will run out of funds to pay the nation's bills.


The subsequent default, which would be the first in US history, could prove catastrophic for the US economy by causing interest rates to rise and financial markets to sink, and sending shockwaves around the world. With financial markets closed for the weekend, the parties to the negotiations had a little breathing space, but not much. Asian markets open for the new working week late Sunday afternoon Washington time.


"There is very little time," Obama said in his weekly radio and internet address on Saturday. He called for an end to political gamesmanship, saying: "The time for compromise on behalf of the American people is now."


One official commenting on the late night negotiations said the two sides had settled on general concepts, but that there were numerous details to be worked out – and no assurance of a final agreement.


"There are many elements to be finalised," Harry Reid, the Democratic majority leader in the Senate said. "There is still a distance to go."


Still, word of significant progress after weeks of stalemate offered the strongest indication yet that a default might be averted.


Mitch McConnell, the Republican leader in the Senate, said at a joint news conference with the House speaker John Boehner that he was confident a deal could be reached "in the very near future".


After a meeting at the White House with Obama and the House Democratic leader Nancy Pelosi, Reid initially disagreed with that optimistic assessment.


Democrat-led US Senate is holding an intense debate on its plan to raise the nation's $14.3tn (£8.7tn) debt limit, which could determine whether a deal to avoid default is possible.


Senate leaders say the bill is the country's best hope of a deal but Republicans say only direct talks with President Obama can resolve the crisis. The House of Representatives rejected the bill on Saturday afternoon.