(Reuters) - Republicans took a hard line ahead of White House debt talks on Tuesday, with one party leader saying a "real solution" to the budget deficit is probably not possible with President Barack Obama in office.
Ahead of a third straight day of White House debt talks, business leaders called on Obama and congressional leaders to act swiftly to raise the $14.3 trillion U.S. debt ceiling -- which caps how much the United States can borrow -- or risk derailing a sputtering economic recovery and endangering the global financial system.
But Republican and Democratic leaders appeared to be at an impasse over a deficit reduction deal that would clear the way for Congress to raise the debt ceiling.
While they agree on the need to raise the debt limit before the United States defaults on August 2, both sides have engaged in a furious blame game over the failure to advance the deficit reduction package.
Republicans on Tuesday ratcheted up pressure on Obama and his fellow Democrats, who have accused Republicans of refusing to compromise.
"I have little question that as long as this president is in the Oval Office a real solution is probably unattainable," Senate Republican leader Mitch McConnell said.
But he said Republicans will "do the responsible thing" and make sure the government does not default on its obligations on August 2, when the Treasury Department has warned it will run out of money to pay the country's bills.
Failure to seal a deal by August 2 could spook investors, causing U.S. interest rates to surge and stock prices to plummet, and could put the United States at risk of another recession, Treasury officials and private economists have warned.
Republicans have balked at raising the debt limit without steep spending cuts, while Democrats also want to increase revenue by eliminating tax breaks for the wealthy and corporations in some sectors such as the oil and gas industry.
Republicans oppose any tax increases, which they argue would hurt the anemic economic recovery.
After briefing restive Republican members of the House of Representatives about the status of the debt talks, House Speaker John Boehner said he was optimistic about a deal. But he called the debt limit increase Obama's problem.
"The debt limit is his problem," Boehner told reporters.
"The president talks a good game ... but can't quite pull the trigger" for a deal, he said.
Despite the heated rhetoric, investors still assume that Washington will ultimately dodge a crisis. Yields fell to seven-month lows on the benchmark 10 year Treasury bond on Tuesday morning, fueled by debt worries in Europe.
But the impasse has investors' attention, and as the clock ticks toward August 2 with no deal in sight, it is contributing to a broadly negative sentiment on Wall Street.
THIRD WHITE HOUSE MEETING
Obama and top lawmakers from both parties will hold their third meeting in as many days at the White House at 3:45 p.m. as they try to hammer out a deal.
Treasury Secretary Timothy Geithner, who has warned of catastrophic consequences if Congress fails to raise the debt ceiling, held firm to vows that the United States would not default. "Failure is not an option," he said ahead of Tuesday's talks.
Business leaders representing U.S. manufacturers, banks and other firms also sent a letter to Congress and the White House urging them to raise the borrowing level and agree on a long-term deficit reduction plan.
"Failure to raise the debt ceiling would strike an immediate and serious blow to any economic recovery, and failure to make significant progress on long-term debt reduction will continue the uncertainty which is hampering our investment climate," said Business Roundtable President John Engler.
Obama is pressing for a big, $4 trillion package that would encompass spending cuts, tax increases for top earners, and reform of expensive entitlement programs for the elderly and the poor. Republicans want a smaller, $2 trillion deal that is limited to spending cuts.
McConnell said the spending cuts offered by Democrats were little more than "smoke and mirrors" because they would only amount to a few billion dollars in the short term, with no promise that larger cuts would materialize down the road.
