Obama, Republicans aim to end crisis after meeting, hurdles remain

Reuters

* Lawmakers from both parties say meeting could lead to endof standoff

* Debt ceiling agreement may be close

* Quick end to shutdown also under discussion

* Republicans battered in polls

By Richard Cowan and Tim Reid

WASHINGTON, Oct 10 (Reuters) - President Barack Obama andRepublican leaders appeared ready to end a political crisis thathas shuttered much of the U.S. government and pushed the countrydangerously close to default after meeting at the White House onThursday.

No deal emerged from the 90-minute meeting, but talkscontinued into the night in an effort to re-open the governmentand extend the government's borrowing authority beyond an Oct.17 deadline. One senior Republican said an agreement could comeon Friday, though hurdles remain.

The plummeting standing of congressional Republicans inpublic opinion polls helped spur a move toward ending thestandoff, Oklahoma Republican Representative James Lankford saidon CNN Thursday night. The latest, an NBC-Wall Street Journalsurvey published on Thursday, showed the public blamingRepublicans by a 22-point margin - 53 to 31 percent.

The President's meeting with Republican leaders was thefirst sign of a thaw in a 10-day standoff that has weighed onfinancial markets and knocked hundreds of thousands of federalemployees out of work.

"It was a very adult conversation," said RepublicanRepresentative Hal Rogers, who attended the meeting. "Both sidessaid they were there in good faith."

Republicans in the meeting offered to extend thegovernment's borrowing authority for several weeks, temporarilyputting off a default that otherwise could come as soon as nextweek. Obama pushed to also reopen government operations thathave been closed since Oct. 1.

Significantly, Republicans seemed to be steering clear ofthe restrictions on Obama's healthcare reforms and spending thatprompted the crisis in the first place. Instead, negotiationscentered on how far to extend the debt limit and how muchfunding they would provide the government when it opens,according to Republicans.

The two sides are working on "defining parameters to see ifwe can make progress," said Republican Representative PeteSessions, a member of the leadership.

"The President looks forward to making continued progresswith members on both sides of the aisle," the White House saidin a statement.

The proposal is a significant shift for Republicans, who hadhoped to use the threat of a shutdown and a default to undermineObama's healthcare law.

But they have been hammered in opinion polls and pressuredby allies in the business community who worry the brinkmanshipis killing jobs and slowing the economy. Republicans worry thatthe standoff could imperil lawmakers in competitive districts,giving Democrats an increased chance of winning control of theHouse next year.

Now Republicans hope a short-term debt-limit extension,perhaps until the middle or end of November, will buy time toseek spending cuts, a repeal of a medical-device tax, or othermeasures they say are needed to keep the national debt at amanageable level.

Conflicting reports of the outcome of the meeting sentimmediate ripples through financial markets. U.S. equity indexfutures tracking the S&P 500 index dropped after a report thatObama had rejected the Republican offer, but rose when detailsof the meeting trickled out. Major U.S. equity indexes closed 2percent higher earlier on Thursday on hopes of a deal.

DIDN'T STOP OBAMACARE

The crisis began in late September when Republicans tiedcontinued government funding to measures that would undercut theAffordable Care Act, Obama's signature legislativeaccomplishment.

The gambit didn't work, as "Obamacare" unveiled its onlinehealth-insurance exchanges on Oct. 1 even as much of the rest ofthe government shut down. Even so, the exchanges have beenplagued by serious technical problems unrelated to the shutdown.

In recent days, Republican leaders have emphasized othergoals, such as reining in the retirement and health benefitprograms that pose a long-term threat to the country's fiscalhealth.

For the first time in weeks, lawmakers from both partiespredicted they would be able to resolve their differences.

"Both sides will be able to claim victory," said DemocraticRepresentative Chaka Fattah of Pennsylvania.

Many hurdles remain. Obama has said he will not negotiate onanything until Republicans agree to reopen the government andremove the threat of immediate default.

Rank-and-file Republican conservatives who remain focused ondefeating "Obamacare" also could reject the deal. Even ifdisaster is averted for now, the entire dispute could come tothe fore again when the temporary agreement expires.

House Speaker John Boehner's grip over his troops has beentenuous this year and many of the chamber's most conservativelawmakers have defied him repeatedly on other crucial votes.

Boehner has taken pains to show his party's most rebelliousmembers that he listens to their concerns. He took a differentapproach when he told them of his plan to extend the debtceiling.

"He put his best Coach Boehner voice and demeanor on andsaid, 'Guys, this is what we are going to do. The play has beencalled. I'm happy to answer questions,'" said RepublicanRepresentative Tom Cole of Oklahoma.

The Obama administration says it will be unable to pay allof its bills if Congress does not raise the $16.7 trillion debtceiling by Oct. 17. Treasury Secretary Jack Lew said he would beunable to prioritize some payments over others among the 30million transactions his department handles each week.

"It would be chaos," Lew told the Senate Finance Committee.

But Lew and Federal Reserve Chairman Ben Bernanke told theircounterparts of the G20 group of economies on Thursday that thestandoff over the debt ceiling will be resolved by Oct. 17,Russian Finance Minister Anton Siluanov said.

"Colleagues from the U.S. Treasury and the Federal Reservehave said that they hope to solve the issue soon. They said thatthe problem will be solved by the 17th," Siluanov told reportersafter a dinner with G20 counterparts gathering on the sidelinesof the IMF/World Bank meetings.

"It's an important issue for everyone. Both Lew and Bernankebelieve that these difficulties can be overcome soon," Siluanovadded.

Democrats who control the Senate are readying a vote,possibly on Saturday, that would extend government borrowingauthority for more than a year, rather than the weeks-long timeframe Republicans have proposed. Still, they did not entirelydismiss the Republican plan.

"Let's see what they have offered," House Democratic LeaderNancy Pelosi said.

House leaders canceled a recess planned for next week andsaid they would remain in Washington instead.

Opinion polls indicate that Republicans appear to be gettingmore of the blame for the standoff. The NBC/Wall Street Journalpoll released on Thursday found approval of the Republican Partyat 24 percent, a record low. Democrats won the approval of 39percent of the U.S. public.

Business groups that have close ties to the Republican Partyhave pressed for an end to the brinkmanship and some are layingplans to mount primary challenges next year to lawmakers whorefuse to raise the debt ceiling.

Hundreds of thousands of federal employees have been thrownout of work by the shutdown and individual businesses, from armsmakers to motels, have begun to lay off workers as well.

The Labor Department said on Thursday that 15,000private-sector workers have filed for unemployment benefits dueto the shutdown.

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