US struggles to find deal to avoid default

Republican senators claim deal to extend debt limit unlikely by Thursday deadline

Federal workers calling  for an end to the US government shutdown in Washington yesterday. Photograph: Jonathan Ernst/Reuters

Federal workers calling for an end to the US government shutdown in Washington yesterday. Photograph: Jonathan Ernst/Reuters


Washington faces a tumultuous week as Democrats and Republicans struggle to agree a deal to raise the US’s borrowing limit to avoid a catastrophic default when the US runs out of cash on Thursday.

Talks between Senate rivals and party leaders Harry Reid, a Democrat, and Mitch McConnell, a Republican, continued yesterday as US lawmakers in the upper chamber took the lead following the collapse in discussions between the White House and the Republican-led House of Representatives.

Two Republican senators said a deal to avert a default seemed unlikely, threatening to push the government shutdown into a third week and the US closer to an unprecedented default.

Republican senator Lindsey Graham said he could not see a deal done by the October 17th deadline as Republicans would not support a Democratic proposal to roll back on the automatic government spending cuts, known as sequestration, which started to come into effect in March. “If you break spending caps you’re not going to get any Republicans in the Senate,” he told ABC talkshow This Week yesterday.

Republican senator Rand Paul told CNN talkshow State of the Union that the proposal to raise government spending beyond limits set earlier this year was “a real big step in the wrong direction”.

The Senate reconvened yesterday as Democrats and Republicans pushed hard to agree a deal to extend the debt limit before financial markets opened.

As the political standoff dragged on, financial leaders who had gathered in Washington for the annual meetings of the IMF and World Bank warned of the consequences of a US default. ECB president Mario Draghi said he found it “unthinkable that an agreement won’t be found”.

World Bank president Jim Yong Kim urged US lawmakers to agree to raise the debt ceiling, saying the economic fallout otherwise would be a “disastrous event” for the developing world. Not increasing the debt limit would have dire consequences for economies around the world, IMF managing director Christine Lagarde said.

Yesterday, Republican senators Mike Lee and Ted Cruz and former Alaska governor Sarah Palin joined protesters at the second World War memorial in Washington to protest over the the monument’s closure as part of the government shutdown.