1 Aug 2011

US parties reach agreement over debt crisis

10:00 pm on 1 August 2011

US President Barack Obama says Democrat and Republican leaders have reached an agreement to reduce the country's deficit and avoid a potentially disastrous default.

Congress now has less than two days to approve the borrowing limit before the Treasury deadline on Tuesday.

After weeks of wrangling, Mr Obama on Sunday announced a breakthrough, saying the leaders of both parties now believe they have the framework for something they can put to their party rank and file.

Radio New Zealand's Washington correspondent reports the deal will extend the government's borrowing authority, increasing the $US14.3 trillion debt limit by up to $US2.4 trillion in two stages.

It includes at least $US2.5 trillion in spending cuts over the next 10 years, of which $US1.2 trillion would be approved now and the rest decided by a bipartisan committee.

About half the savings will come from defence spending and the rest from other domestic programmes.

Mr Obama said it was not the deal he would have preferred, but noted the plan would make a ''serious down-payment'' on the country's deficit. However, he said the process had been messy and had taken "far too long".

The Republican and Democrat parties will hold further discussions on Monday before the agreement is drafted into legislation that can be put to a vote in Congress.

But Republican Tea Party members are unlikely to support the deal because the cuts do not go far enough, while many Democrats will be furious that it does not include tax increases.

House of Representative Speaker John Boehner, a Republican, said he hoped to hold the vote ''as soon as possible''.

Mr Obama stressed that any solution had to be balanced. The recommendations of the committee tasked with identifying further savings by November would also be put to a vote in Congress.

It remains unclear whether Sunday's agreement will be enough to avert downgrade of America's AAA credit rating.