By Andy Sullivan and Alister Bull
WASHINGTON -- U.S. lawmakers working to rein in the country's rising debt said on Monday they will have to make substantial progress this week to ensure the country retains its top-notch credit rating.
Democrats and Republicans said they face a crucial series of talks as they try to find the trillions of dollars in budget savings that will allow Congress to cover the country's borrowing needs through the November 2012 election.
"I'd say if we haven't made enough progress by the end of this week we're really going to have to reassess the situation," Republican Senator Jon Kyl told reporters.
Other Republicans have suggested Congress might have to opt for a short-term fix if the group can't reach a deal soon -- a scenario that recalls the protracted brinkmanship of a budget battle that took the government to the edge of a shutdown earlier this year.
Vice President Joe Biden is set to lead talks on Tuesday, Wednesday, Thursday and possibly Friday. Democratic Representative Chris Van Hollen said the group aimed to get a rough deal in place by the end of the week.
"We've also held open Friday for a number of hours of meetings if we're not able to get some kind of agreement in principle by the end of the week, certainly by the end of this month," Van Hollen said on the MSNBC news network.
The Treasury Department has warned the country could default on its debt if Congress doesn't raise the $14.3 trillion debt limit by August 2, a scenario that could push the country back into recession and upend financial markets.
President Barack Obama and House Speaker John Boehner, the top Republican in Washington, are expected to hammer out the final terms of the deal once the group wraps up its work. The two played golf together on Saturday.
Republicans have said that any debt-limit increase must be paired with a deficit-reduction package of equal size -- at least $2 trillion to ensure Congress does not have to touch the politically toxic issue again before the elections.
STARK DIVIDE ON TAXES
Though the two sides have agreed in principle on a number of spending cuts, they still must overcome a stark divide over some of the biggest-ticket items on the ledger. Republicans have said they will not support any tax increases, while Democrats have resisted cuts to popular health programs.
Kyl outlined other elements Republicans want to see in the deal: a reduction in annual spending programs; slowed growth in healthcare and other benefit costs; and mechanisms to ensure Washington's resolve does not weaken in coming years.
"Unless we do those things I don't think many people on my side of the aisle are going to have an appetite for increasing the debt ceiling," he said in a speech on the Senate floor.
If the Biden group does not reach a deal soon, Congress could opt to pass a smaller package that would cover the country's borrowing needs for a month or two, requiring another painful vote. That's a prospect neither party says it wants.
"I hope we don't have to," Democratic Senator Max Baucus, a participant in the talks, told reporters. "It's far preferable if it's increased to a date past the end of 2012."
The White House is "very focused on the need to move with speed" on raising the debt ceiling, spokesman Jay Carney said.
U.S. budget deficits in recent years have hovered at their highest levels relative to the economy since World War Two. The deficit for the current fiscal year, which ends September 30, is projected to hit $1.4 trillion.
Deficit-reduction efforts have been complicated in recent weeks by signs that economic recovery may be weakening. The White House has floated a payroll tax cut to spur growth, but Republicans have not been enthusiastic about the idea.
Carney said Washington will have to balance stimulus efforts with the need to set the nation's finances on a sustainable course.
"This is about achieving the right mix of decisions within a broader package, both within the deficit reduction talks and broadly going forward from there, that allow for the economy to continue to grow and create jobs," Carney said.
(Additional reporting by Richard Cowan; Editing by Todd Eastham)
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