US POLITICIANS moved one step closer last night to approving an eleventh-hour deal to raise the country’s debt ceiling, and hope to avoid the prospect of a default that would throw global markets into chaos.
Members of the Republican-controlled House of Representatives voted 269-161 in favour of the proposed plan, which will lift the debt ceiling by $2.4 trillion (£1.48 trillion) before the end of the year through a programme of spending cuts that politicians have spent recent weeks furiously debating.
Though the House vote was seen as the biggest hurdle to the bill’s progress, the Democrat-led Senate must grant final approval before tonight’s midnight deadline. After that the US coffers would officially run dry, risking the first full-scale default in the country’s history.
Representatives from both parties had spent the final hours before the vote rallying support for the bill, despite each side admitting that the compromise proposal was far from perfect. Democrat minority leader Nancy Pelosi was forced to make up for a number of defections among Republicans – led by the Tea Party faithfuls – by pledging her support for the deal, and encouraging other members of her party to do the same.
The approved plan spreads $2.4 trillion of spending cuts out over the next decade, with almost $1 trillion available immediately and a further $1.5 trillion in cuts to be agreed later in the year by a congressional committee.
No immediate tax increases will be introduced to contribute to the pot, after the Republicans, led by House speaker John Boehner, won a key concession during negotiations.
The vote saw the return of Congresswoman Gabrielle Giffords to the House for the first time since she was shot in the head in January this year. Democrat Giffords only left rehab in mid-June, but returned to Capitol Hill to vote in favour of the deal, earning a standing ovation from her colleagues.
Commentators spilled doubt yesterday on hopes that a last-minute deal would prevent the US from losing its AAA credit rating, after rating agency Standard & Poor’s said that a $4 trillion programme of cuts would be needed to sidestep the downgrade.
US markets, which had dipped from early gains yesterday after weak manufacturing data was released, pared back losses during the afternoon as optimism grew that the deal would be passed. But Japan’s Nikkei index fell 1.2 per cent in early trading this morning, as fears around the US debt crisis continued to rattle world markets.