US lawmakers grapple with budget impasse under default cloud

Washington (AFP) - All eyes turned to the US Senate Sunday to work out a deal to remove the threat of a historic default with just days before the United States reaches its borrowing limit.

The Senate convened for a rare Sunday session, grappling with an impasse that has shut the US government for nearly two weeks, sending tremors of concern around the world.

With the United States projected to hit the limit of its borrowing authority on October 17, political leaders on both sides were maneuvering with increasing urgency to find a way out of the crisis, but with little to show so far.

Senate Majority Leader Harry Reid said he would be meeting later in the day with his Republican counterpart, Mitch McConnell, on the impasse, their second talks in as many days.

"Americans want Congress to compromise. Americans want Congress to give the economy certainty and security, not more indecision and doubt," he said.

Other senators expressed cautious optimism that an agreement could be reached soon, but differences remain.

"This is something that's wreaking havoc around the world and will affect economic growth, and I do hope that over the next week we'll reach a conclusion and I think we will," Republican Senator Bob Corker said on Fox News Sunday.

Still he added: "Over the last 24 hours, there's not been good productivity on this issue."

The action has shifted to the Senate since President Barack Obama on Saturday rejected an offer by House Republicans to lift the debt ceiling for six weeks while negotiations continued, insisting on a longer term solution.

Reid later in the day turned down another compromise proposal, this one offered by moderate Republican Senator Susan Collins.

It called for lifting the US debt limit for up to a year, reopening the government and repealing a tax on medical devices under Obama's signature healthcare law.

But Collins remained optimistic her proposal could become the basis of a solution, telling CNN's State of the Union she had support from a growing, bipartisan group of senators.

"There's a lot of justifiable anger at Congress and at the president for failing to solve these problems.

"But I do want to say despite what people may read, there are a lot of constructive discussions going on behind the scenes," she said.

She said she believed "we're going to see a resolution this week."

Senator Charles Schumer, a key Democratic powerbroker, said Reid and McConnell "were not that far apart" Saturday when they held their first talks of the crisis.

"I'm cautiously hopeful, optimistic, that we can come to an agreement and open up the government and avoid default based on the bipartisan meetings that are going on," Schumer told CBS's "Face the Nation."

"With the president, with Senate Democrats, with Senate Republicans, there's a will. We now have to find a way. We know the House won't find that way, so all of it rests on our shoulders," he said.

Democrats, meanwhile, have added a demand of their own -- that any deal also involve undoing the across-the-board spending cuts known as the sequester that went into effect earlier this year.

Schumer acknowledged it was "a sticking point."

Corker, for his part, said House Republicans had gone too far in demanding that Obama's signature health care law be defunded, the initial cause of the government shutdown.

But "now the democrats are on the verge of being one tick too cute," he said, referring to the bid to undo the sequester.

"They now are overreaching and what we have got to do is get this back to the middle of the road, act like adults, deal with these issues," he said.

Meanwhile, international pressure for action mounted amid fears a US default would send the world economy into a tailspin.

International Monetary Fund chief Christine Lagarde compared the effects of failing to raise the debt ceiling and reopen the government to the 2008 global financial meltdown.

"The standing of the US economy would, again, be at risk," Lagarde said on NBC's Sunday show "Meet the Press."

World Bank chief Jim Yong Kim urged policymakers to avert the crisis.

"If this comes to pass, it could be a disastrous event for the developing world, and that in turn will greatly hurt the developed economies as well," Kim said at the close of the annual World Bank-International Monetary Fund meetings in Washington on Saturday.

China's official news agency Xinhua questioned Washington's fitness to lead the global economy, and said in a commentary the world should consider "de-Americanizing."