US closes in on €3tn debt deal

US LAWMAKERS were close to a last-minute $3 trillion deal yesterday to raise the country’s borrowing limit and assure financial markets that the US will avoid a potentially catastrophic default.

“We’re very close,” said Senate minority leader Mitch McConnell, the top Senate Republican who is playing a key role in the debt-ceiling negotiations.

Prospects improved for a significant package to cut the deficit after Republican and Democratic leaders re-opened stalled talks with the White House.

A senior White House official cautioned that a deal was “not there yet”.

Speaking on CNN yesterday, McConnell said he hoped Senate majority leader Harry Reid, a Democrat, would be able to present an agreement soon that he can recommend to Republican senators.

Asked if a deal would emerge yesterday, McConnell replied, “soon”.

Democratic senator Charles Schumer said it seemed clear that the emerging deal would raise the debt ceiling enough “so we don’t have to come back to this until 2013”.

A key demand of President Barack Obama was to not take up the issue in 2012, an election year.

Mr Reid pushed back a key procedural vote on a debt limit plan by 12 hours to 1pm eastern time (6pm Irish time) yesterday, buying time for both sides to hammer out details before Asian markets opened.

“There are negotiations going on at the White House now on a solution that will avert a catastrophic default on the nation’s debt,” Reid said late on Saturday.

However, he added that “there is still a distance to go”.

Tomorrow is the deadline for a deal to be agreed to raise the debt ceiling.

The political gridlock over how to reduce the US deficit and raise the debt ceiling has put the US at risk of losing its triple-A credit rating.

A downgrade could prompt global investor flight from US bonds and the dollar, raising borrowing costs for Americans for years to come.

It could also threaten an already fragile economy that could easily fall back into recession.

A US default would plunge financial markets and economies around the globe into turmoil.

US stock markets last week posted their worst losses in a year, the dollar slumped and nervous investors pulled up cash into insured bank accounts.

Japan, the second largest holder of US debt, was increasingly alarmed that the US would miss the Tuesday deadline.