WASHINGTON - (AP) - Ending a perilous stalemate, President BarackObama and congressional leaders announced historic agreement Sundaynight on emergency legislation to avert the nation's first-everfinancial default.
The dramatic resolution lifted a cloud that had threatened thestill-fragile economic recovery at home - and it instantly powereda rise in financial markets overseas.
The agreement would slice at least $2.4 trillion from federalspending over a decade, a steep price for many Democrats, toolittle for many Republicans. The Treasury's authority to borrowwould be extended beyond the 2012 elections, a key objective forObama, though the president had to give up his insistence onraising taxes on wealthy Americans to reduce deficits.
The deal, with scant time remaining before Tuesday's debt-limitdeadline for paying government bills, "will allow us to avoiddefault and end the crisis that Washington imposed on the rest ofAmerica," the president said in an announcement at the WhiteHouse.
Default "would have had a devastating effect on our economy,"he said.
House Speaker John Boehner telephoned Obama at mid-evening tosay the agreement had been struck, then immediately began pitchingthe deal to his fractious rank and file.
"It isn't the greatest deal in the world, but it shows how muchwe've changed the terms of the debate in this town," he said on aconference call, according to GOP officials. He added the agreementwas "all spending cuts. The White House bid to raise taxes hasbeen shut down."
The House Democratic leader, Rep. Nancy Pelosi, wasnon-committal. "I look forward to reviewing the legislation withmy caucus to see what level of support we can provide," she saidin a written statement.
No votes were scheduled in either house of Congress beforeMonday, to give rank and file lawmakers time to review the package.Senate approval seems virtually certain; the House could prove moredifficult.
Without legislation in place by Tuesday, the Treasury would notbe able to pay all its bills, raising the threat of a default thatadministration officials say could inflict catastrophic damage onthe economy.
If approved, though, a compromise would presumably preserveAmerica's sterling credit rating, reassure investors in financialmarkets across the globe and possibly reverse the losses thatspread across Wall Street in recent days as the threat of a defaultgrew.
Even word of an impending deal earlier in the day by SenateRepublican Leader Mitch McConnell of Kentucky sent U.S. stockfutures upward. And before Obama had finished speaking, Japan'sbenchmark Nikkei index, opening Monday morning - at 8 p.m. Sundayon America's East Coast - was up 1.7 percent in early trading.
Pending final passage, the agreement marked a dramatic reachacross party lines that played out over six months and severalrounds of negotiating, interspersed by periods of intensepartisanship.
"Sometimes it seems our two sides disagree on almosteverything," Senate Majority Leader Harry Reid said in floorremarks.
"But in the end, reasonable people were able to agree on this:The United States could not take the chance of defaulting on ourdebt, risking a United States financial collapse and a world-widedepression."
Across the weeks, Boehner emerged as Obama's principalRepublican antagonist in a new contentious era of dividedgovernment, yet struggled to corral his own rank and file at times.
At the end, though, McConnell and Vice President Joe Bidenprovided a negotiating channel to get the deal completed, includinga last-minute standoff over the impact of spending cuts on thePentagon budget.
The plan calls for spending cuts and increased borrowingauthority for the Treasury in two stages.
In the first, passage of the legislation would trigger $1.2trillion in spending cuts over a decade as well as a $900 billionincrease in the government's borrowing authority.
The spending cuts would come from hundreds of federal programsacross the face of government - accounts that Obama said would beleft with the lowest levels of spending as a percentage of theoverall economy in more than a half century.
The increased borrowing authority includes $400 billion thatwould take effect immediately, and $500 billion that would bepermitted after Congress had a chance to block it.
In the second stage, a newly created joint committee of Congresswould be charged with recommending $1.5 trillion in deficitreductions by the end of November and put to a vote in Congress byyear's end. The cuts could come from benefit programs such asMedicare, Social Security of Medicaid as well as from an overhaulof the tax code.
The committee proposals could trigger a debt limit increase ofas much as $1.5 trillion, if approved by Congress. But if they donot materialize, automatic spending cuts would be applied acrossgovernment to trim spending by $1.2 trillion.
Social Security, Medicaid and food stamps would be exempt fromthe automatic cuts, but payments to doctors, nursing homes andother Medicare providers could be trimmed, as could subsidies toinsurance companies that offer an alternative to government-runMedicare.
The deal marked a classic compromise, a triumph of dividedgovernment that would let both Obama and Republicans claim they hadachieved their objectives.
As the president demanded, the deal would allow the debt limitto rise by enough to tide the Treasury over until after the 2012elections.
But Obama's request to extend the current payroll tax holidaybeyond the end of 2011 would not be included, nor his call forextended unemployment benefits for victims of the recession.
Republicans would win spending cuts of slightly more than theincrease in the debt limit, as they have demanded. Additionally,tax increases would be off-limits unless recommended by thebipartisan committee that is expected to include six Republicansand six Democrats. The conservative campaign to force Congress toapprove a balanced-budget amendment to the Constitution would bejettisoned.
Congressional Democrats have long insisted that Medicare andSocial Security benefits not be cut, a victory for them in theproposal under discussion. Yet they would have to absorb evendeeper cuts in hundreds of federal programs than were included inlegislation they had advanced in the final days before an agreementwas reached.