Obama struggles to avert financial crisis

Mr Obama called on Tuesday for a deal to raise the nation’s borrowing limit that not only cut spending, as opposition Republicans demand, but also raised revenues through tax increases – something they oppose.

“We’ve made progress,” he said, “and I believe that greater progress is within sight, but I don’t what to fool anybody – we still have to work through real differences.”

Raising the US debt ceiling has turned into a game of brinksmanship ahead of the 2012 presidential elections. Republicans are insisting on at least $2 trillion (£1.25 trillion) in spending cuts before they will agree to increase the debt ceiling.

The White House has identified at least $1.3 trillion in spending cuts over 10 years and is proposing up to $400bn in new tax revenue. Currently, the debt limit is $14.3 trillion (£8.9 trillion).

Last night it was still not clear where compromise could be found. Democrats refused to sign up to such big cuts without at least some tax increases, which Republicans refused to countenance.

Mr Obama’s administration says if the debt ceiling is not raised the US would face default, throwing financial markets into turmoil.