January 18, 2013 6:55 pm

Republicans to pass debt limit extension

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Republicans in the House of Representatives vowed to pass a three-month extension of the US debt ceiling next week, tempering their tough stance on raising America’s borrowing limit and raising hope that the economy could avert a new brush with default.

Following a two-day retreat at a resort in Williamsburg, Virginia, House Republicans said they would support a short-term extension of the US borrowing limit to give Congress more time to pass a long-term budget.

They said that if either the House or the Senate did not pass a budget by mid-April, they would withhold salaries for lawmakers, coining the slogan “no budget, no pay”.

The move means Republicans are no longer seeking immediate and deep spending cuts as a condition for all increases in the debt limit. Until now this had put them strongly at odds with Barack Obama and congressional Democrats, who oppose such reductions and do not believe debt ceiling legislation should be tied to any policy measures.

Heading into their annual retreat this week, Republicans in the House were deeply split about the strategy to pursue in confronting Mr Obama and congressional Democrats over the debt ceiling.

Some conservatives have been pressing hard for Republicans to keep their nerve and maintain their aggressive stance, making a deal very difficult and default likely in mid to late February or early March.

However, other Republicans, including members of the leadership and other conservative groups, said a new debt limit fight – after the 2011 showdown – would be too politically risky, and the party should focus on lower-stakes fiscal battles over spending and government funding in March. The latter view appears to have prevailed in Williamsburg. “This is the first step to get on the right track, reduce our deficit and get focused on creating better living conditions for our families and children. It’s time to come together and get to work,” said Eric Cantor, the House majority leader, in a statement on the new plan released on Friday.

The strategy by House Republicans is to put pressure on the Democratic-controlled Senate and the White House to take a position on the short-term extension, which could be awkward. However, Republican House leaders first need to make sure they have the votes to pass the measure, which has proved a challenge given their unruly and deeply conservative caucus, and with little or no Democratic support. “The House Republican plan fails to give American families, small businesses, and economic markets the certainty needed to boost economic growth,” said Chris Van Hollen, the top Democrat on the House budget committee. “This is also a thinly veiled attempt to gain political leverage at the expense of the economy,” he added.

This is the first step to get on the right track, reduce our deficit and get focused on creating better living conditions for our families and children. It’s time to come together and get to work

- Eric Cantor, House majority leader

The Obama administration has in the past said it would not back stopgap debt limit hikes, which would lead to a near-permanent state of budgetary tension with Congress, create additional uncertainty for business and the economy, and prevent progress in other areas of the president’s second-term agenda.

On the other hand, it would be preferable to a possible default on US debt, which would have unforeseen and potentially devastating consequences for the economy and financial markets.

“The President has made clear that Congress has only two options: pay the bills they have racked up, or fail to do so and put our nation into default,” said Jay Carney, White House press secretary, in response to the Republican move.

“We are encouraged that there are signs that Congressional Republicans may back off their insistence on holding our economy hostage to extract drastic cuts in Medicare, education and programmes middle-class families depend on.”

Though a three-month extension of the debt limit would defuse the biggest economic threat, it would still mean that big fights would occur in the run-up to the March 1 deadline to avoid “sequestration” – automatic spending cuts that are due to take effect on that day unless Congress can stop them. Later in March, government agencies will run out of funding authority, which could lead to a shutdown unless more money is approved by Congress.

“[The short-term deal] limits downside risk to the economy: sequestration and government shutdown are each possible but would only have modest effects presuming reasonably swift reversal,” said US policy analysts at the Eurasia Group. “But budget battles are likely to drag on through the spring and beyond, as a broader deal seems out of reach in the near-term,” they added.

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