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Debt Deal's Prospects in House Uncertain

Stephanie Kirchgaessner, Financial Times
Monday, 1 Aug 2011 | 12:53 AM ET

The announcement by Barack Obama that a deal had been reached to increase the US debt ceiling late on Sunday night did not put to rest lingering questions about whether the agreement would overcome the most difficult remaining hurdle: passage of the legislation in the House of Representatives.

AP

While Democratic and Republican leaders signed off on the deal, some rank-and-file members from both parties appeared to be deeply unsettled by details of the plan.

In a late night conference call with his caucus, John Boehner, the Republican speaker, emphasized the extent of the concessions his party had been able to wring out of the US president and assured his members that any attempts to raise taxes had effectively been “shut down”.

“Remember how this all started: the White House demanded a ‘clean’ debt limit hike with no spending cuts and reforms attached. We stuck together and frankly made them give up on that,” Mr Boehner said. “And in doing this, we’ve stopped a job-killing national default that none of us wanted.”

The task Mr Boehner faces now will be different than the narrative that played out last week, when he struggled to quell a rebellion in his own party and barely managed to pass his proposal to increase US borrowing authority. The measure finally passed in a 218-to-210 vote on party lines, but was immediately killed in the Senate.

This time around, the Ohio congressman faces an even greater number of defections among rank-and-file Republicans who are ideologically opposed to an increase in the debt ceiling and have no intention of supporting any measure that Democrats in the Senate have signed off on.

While Mr Boehner will be expected to deliver at least about 120 votes, or half of his party, Democrats led by Nancy Pelosi in the House will also be expected to pitch in with a significant number of votes from her side of the aisle. Investors and the White House may have to hold their breath to see if the combined tally adds up to the 216 votes required for passage.

Before Mr Obama spoke on Sunday night, Ms Pelosi was vague with reporters on how many Democrats she could deliver, saying she had not yet read the proposed legislation.

Few analysts could gauge just how many of the 240 Republicans in the House would ignore the intense pressure from Mr Boehner and other senior Republican leaders to agree to the legislation and avoid being blamed for driving the US into a potentially disastrous default.

Both Tea Party Conservatives and Republicans who staunchly support military spending could oppose the deal. People close to late night negotiations on Sunday suggested Republican defense hawks had emerged as a potential obstacle in the House.

Chris Krueger, an analyst at MF Global, said that the chances of the US failing to raise the debt ceiling would decrease dramatically if the Senate passed the measure on Sunday. But he also noted that the coalition of moderate politicians that will be required to ensure passage in the House would be “eerily similar” to the one that failed to pass the first Wall Street bail-out in 2008. That legislation eventually passed, but only following a severe drop in the markets.

It was also unclear whether Ms Pelosi would be able to convince enough Democrats to back an agreement that appears to have forced the White House’s hand and included huge concessions to Republicans.

Of the 193 Democrats in the House who survived the brutal 2010 election, when control of the chamber switched to the Republicans, about 70 are members of the progressive, or liberal, caucus.

One Democratic official noted with frustration last week that while there has been much focus on intraparty warfare in the Republican camp, Democrats, too, were having to work hard to cajole members deeply unhappy with the state of negotiations.

David Plouffe, the White House senior adviser, emphasised in an ABC interview on Sunday that there was a “powerful case” for progressives to support deficit reduction.

“This isn’t about playing on a Republican playing field,” Mr Plouffe said, “Things like college loans, college scholarships, medical research, spending on things like roads and bridges that put construction workers to work, if we don’t reduce the deficit in the not-too-distant future, we’re not going to have room to do any of that.”

But many Democrats will not be convinced by the argument. “From what I am hearing, I’m not impressed,” said Eddie Bernice Johnson, a Democratic congresswoman, in an interview on MSNBC.

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