A Republican plan to cut the US deficit faced delay and stiff opposition on Wednesday, raising the risk of default and a ratings downgrade as the clock ticks towards a deadline less than a week away.
Deeply divided Republican and Democratic leaders are scrambling to find common ground before August 2, when the government is expected to hit its $14.3 trillion borrowing limit that could trigger a default and roil world markets.
Republican Speaker John Boehner rushed to rework his bill after an analysis found it would cut spending by $350 billion less than the $1.2 trillion over 10 years he had claimed.
President Barack Obama has threatened to veto the Boehner plan and top Senate Democrat Harry Reid described it as “dead on arrival.”
The White House said on Tuesday it was working with Congress to craft an unspecified Plan B, providing a glimmer of hope that an 11th-hour deal could be reached as lawmakers feel the pressure from increasingly anxious financial markets.
The gridlock dragged global stocks down on Wednesday, particularly in Europe. Worried investors shifted funds into traditional safe havens gold and the Swiss franc , which both rose to record highs in dollar terms. Still, there have been no signs of panic in markets because most investors expect a deal will be struck by the deadline.