Barack Obama has announced that Republican and Democratic leaders have reached an agreement on raising the US debt ceiling by $900bn.
A second increase of between $1.2tn and $1.5tn would be available subject to a second vote of disapproval by Congress. In return for this increase in the government's borrowing limit, Congress will commit to deep spending cuts, reducing the deficit by a roughly equivalent amount over the next decade. A special bipartisan committee will be set up to agree areas to be cut.
The deadline for raising the debt cap -- currently at $14.3tn -- is tomorrow. While this deal marks a significant breakthrough after days of deadlock, it has yet to be voted on. Even as Obama announced the measures at the White House, the Speaker in the House of Representatives, John Boehner, was trying to sell the proposal to House Republicans. The hardline elements of his party are likely to vote against the bill, meaning that Boehner must make the deal sound appealing to Republicans without alienating the Democrats whose vote will also be needed to pass it.
Obama said that while it was not the deal he wanted, it would make a "serious down payment" on the deficit, and would prevent another crisis in a year's time. This is something Democrats were keen to avoid in the run up to the 2012 election.
While attention is now focused on getting the bill through the House in the face of intransigent right-wingers, many Democrats are also unhappy at the level of fiscal tightening the bill will involve. Mirroring the debate in Europe, economists have argued that slashing government spending at a time of dismal growth will depress the economy further.
In addition to this concern about the content of the bill are serious worries about the political message this debacle sends to the Tea Party representatives who precipitated, or at least worsened, the crisis. Obama's refusal to use legal manoeuvring to side-step the crisis -- or even to invoke the possibility to strengthen his bargaining position -- could well empower those set on derailing his presidency and blindly pursuing their own small-state agenda. Paul Krugman, describing the deal as an "abject surrender" by the President, expresses the view of many on the left:
Make no mistake about it, what we're witnessing here is a catastrophe on multiple levels.
It is, of course, a political catastrophe for Democrats, who just a few weeks ago seemed to have Republicans on the run over their plan to dismantle Medicare; now Mr. Obama has thrown all that away. And the damage isn't over: there will be more choke points where Republicans can threaten to create a crisis unless the president surrenders, and they can now act with the confident expectation that he will.
In the long run, however, Democrats won't be the only losers. What Republicans have just gotten away with calls our whole system of government into question. After all, how can American democracy work if whichever party is most prepared to be ruthless, to threaten the nation's economic security, gets to dictate policy? And the answer is, maybe it can't.
Both houses will vote on the deal today.