With barely a day to act, a polarized US House of Representatives on Monday approved a massive austerity plan to avert a debt default that could have wreaked havoc through the global economy.
After intense round-the-clock talks, the Republican-led House voted 269-161 on a package backed by President Barack Obama to raise the limit on the US debt and authorize at least $2.1 trillion in spending cuts over the next decade.
The Democratic-led Senate was to vote later, but the measure appeared to be less controversial there than in the House. The government needs to raise the debt ceiling by Tuesday midnight (0400 GMT) or the world's largest economy will run out of cash to pay its bills.
Adding to the drama, Representative Gabrielle Giffords -- who was seriously injured in a shooting rampage in Arizona on January 8 -- returned to the House floor for the first time for the vote, setting off a standing ovation.
The vote was a key test for House Speaker John Boehner, a Republican, who said before the vote that the package would start "fixing our fiscal problems" and "provide more confidence for employers in America."
The ultraconservative "Tea Party" in the Republican Party had demanded a hard line. Tea Party favorite Michele Bachmann opposed the deal as too tepid, although other members of the movement called the deep spending cuts a triumph.
Liberal Democrats were outraged at what they saw as an abandonment by Obama of core principles. Representative Nancy Pelosi, the top House Democrat and member of the party's left-wing flank, took to the floor before the vote and pleaded with her colleagues to consider supporting the package.
"I'm not happy with it, but I'm proud of some of the accomplishments contained in it and that's why I'm voting for it," said Pelosi, who lost her job as House speaker when Republicans triumphed in November elections.
"Please think of what could happen if we defaulted. Please, please, please come down in favor of preventing the collateral damage to our seniors and our veterans," she said.
Liberals were aghast that the plan relied on spending cuts and did not include increases in tax revenues from the rich and wealthy corporations, although Obama has called for letting tax cuts for the top brackets expire in January 2013.
"This deal is a sugar-coated Satan sandwich. If you lift the bun, you will not like what you see," Democratic Representative Emanuel Cleaver, who heads the Congressional Black Caucus, said on his Twitter feed.
Financial markets also showed concern, with early optimism evaporating by midday on worries the deal could fall short in Congress or fail to prevent a painful downgrade of Washington's top Triple-A debt rating.
A downgrade could push up US interest rates, making debt payments more expensive and affecting any flexible-rate loan in the sputtering US economy, still grappling with historically high unemployment of 9.2 percent.
Vice President Joe Biden, a 36-year veteran of the Senate, held talks on Capitol Hill to press fellow Democrats to back the deal, fruit of six months of fitful talks between President Barack Obama and his Republican foes.
Emerging from closed-door talks with House Democrats, Biden said he had gotten an earful of their "frustration" but that there was a "a sword of Damocles hanging over everyone's heads."
The blueprint negotiated between Obama and congressional leaders would include more than $900 billion in cuts over the next 10 years -- $350 billion of it in defense. A special congressional committee would then be tasked with coming up with another $1.5 trillion in cuts to report by November 23.
A failure by the committee would trigger automatic cuts -- half in defense spending, a priority for many Republicans. Automatic cuts would not touch Democratic-backed Medicare payments for the elderly, although they would still affect providers of the health care program.and
White House spokesman Jay Carney rejected Democratic criticism that the package does not raise revenue, saying that the special committee could recommend measures such as cuts in oil and gas subsidies.
In a key point for Obama, the package will raise the debt ceiling into 2013 --- meaning he will not be forced into a similar showdown with Congress on spending in the midst of his re-election campaign next year.
The debt ceiling would rise by up to $2.4 trillion in two steps. The US government hit its current debt limit of $14.3 trillion on May 16 and has since been operating through spending and accounting adjustments, as well as higher than expected tax revenue.
Japan, the second-largest foreign holder of US debt after China, hailed the deal. Beijing made no official comment, but its state-controlled television called the package "more pomp and ceremony than substance."
Source: AFP Asian Edition