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The Star Online: World Updates

U.S. fiscal negotiations sputter as deadline nears


WASHINGTON (Reuters) - Congressional negotiations to end a U.S. fiscal crisis gripping Washington and spooking financial markets hung by a thread on Saturday after bipartisan talks broke down in the House of Representatives and shifted to Senate leaders.

Senate Majority Leader Harry Reid, a Democrat, held an initial session with Senate Republican leader Mitch McConnell. But uncertainty remained about their ability to reach an agreement quickly to end a partial government shutdown and increase the nation's borrowing authority.

Thursday is the deadline for raising the debt ceiling, necessary to avoid a possible government default. The Senate was set to meet on Sunday, but the U.S. House of Representatives was not, so Congress will be cutting it close.

"Economists say it won't be long before financial markets react negatively to this continued uncertainty," Reid said on the Senate floor.

"The life savings of ordinary Americans are at risk."

Among the unresolved issues is the duration of the debt ceiling increase. House Republicans were pushing a boost that would last only six weeks, producing another potential showdown in the middle of the holiday season. Democrats want to push the next debt ceiling deadline at least well into the new year.

Also at issue were government spending levels and Republican concerns about President Barack Obama's signature healthcare law, popularly known as Obamacare. Republican demands for defunding Obamacare led to the shutdown on October 1.

Reid and other Senate Democratic leaders went to the White House to confer with Obama in the afternoon, but said nothing to reporters as they left after an hour and 15 minutes.

At the meeting, Obama and Senate Democratic leaders agreed that talks should continue between Reid and McConnell, a senior party aide said.

"But Democrats' position remained the same: Democrats are willing to negotiate on anything Republicans want to discuss as soon as we reopen the government and pay our bills," the aide added.

Lawmakers are also scrambling to put hundreds of thousands of federal employees back to work after their failure to fund the government resulted in the partial shutdown.

Dick Durbin, the second-ranking Democrat in the Senate, said the goal was to reach a bipartisan deal in the Senate before financial markets reopen on Monday.

But the road to a deal appeared difficult, as Reid dismissed Republican Senator Susan Collins' plan to extend the U.S. debt limit until January 31 and fund the government for six more months.

That plan had given some moderate lawmakers hopes for a quick compromise, but Democrats said it was saddled with too many objectionable add-ons.

Collins expressed disappointment, but said she remained hopeful "that a bipartisan solution to reopen the government and prevent a default is within our reach."

The "preliminary" Reid-McConnell negotiations - at 9 a.m. on Saturday in Reid's office - were launched one day after Obama rejected a proposal by House Republicans for a short-term increase in the debt limit to November 22.

Democrats warned that such a small increase in borrowing authority would simply lead to another round of bitter confrontations in Congress and could choke off consumer confidence just as the Christmas buying season was starting.

The flurry of action in the Senate came as House Speaker John Boehner informed his fellow Republicans in a private meeting that the White House had rejected its proposals and there likely would be no more ideas delivered to Obama now that attention was shifting to Senate negotiations.


Although McConnell initiated talks with Reid, the Republican has maintained a relatively low profile as he faces a tough re-election campaign back home in Kentucky.

"We had a good meeting" was all McConnell would say to questions shouted by reporters in a Senate hallway.

While some senators were hopeful now that Reid and McConnell were negotiating, no clear path to a deal was evident.

"Senator Reid and Senator McConnell are talking to each other for the first time and that's good," Republican Senator Roy Blunt said.

Even if senators craft a proposal to end the government shutdown and raise the debt ceiling, at least some Republican support will be needed to pass it in the House. That support is far from guaranteed, especially if the Senate deal does not include any new attacks on the healthcare law.

As Senate leaders tried to craft a deal, many House members headed to their home districts, having been informed there would be no votes before Monday evening.

With every passing day, according to opinion polls, Americans' patience has worn thin with Republican tactics that led to the government shutdown, enhancing prospects of a deal.

"Markets rose on hope for a deal, so markets are likely to fall as reality check alters sentiment," said David Kotok, co-founder and chief investment officer at Cumberland Advisors. Kotok said he believed there would be no deal before Thursday, adding, "This fight is a long way from over."

Companies and trade associations have been stepping up their efforts on Capitol Hill as the debt ceiling deadline approaches.

"I was optimistic yesterday morning," David French, the chief lobbyist for the National Retail Federation, told Reuters on Saturday. "I'm a little less optimistic today and so are folks I've talked to" on Capitol Hill.

Retailers are particularly concerned about going into a holiday season with debt ceiling jitters hanging over the economy.

Beyond that, French said: "They're concerned about Washington. They're concerned about the level of dysfunction. Our members do not like lurching from crisis to crisis without hope of a resolution."

Scott DeFife, top lobbyist for the National Restaurant Association, said his industry was "extraordinarily concerned with the debt limit."

For his members, he said: "Consumer confidence is critical. Any financial issue like this can really put a damper on activity."

(Additional reporting by Richard Cowan, Diane Bartz and David Gaffen; Editing by Doina Chiacu, Fred Barbash and Peter Cooney)

Schaeuble sees new German government by mid-November


WASHINGTON (Reuters) - Talks to form a German government are on track and the new administration should be in place by mid-November, German Finance Minister Wolfgang Schaeuble said on Saturday.

An inconclusive general election result three weeks ago has left Chancellor Angela Merkel's conservatives looking for a coalition partner in the form of either the centre-left Social Democrats (SPD) or the left-leaning Greens.

Schaeuble said he expected it to become clear in the coming week who would be the conservatives' favoured coalition partner and hoped talks could be wound up quickly.

"I believe it will go more quickly than you think. I believe we will have a new government by about the middle of November," he said at a news conference on the sidelines of International Monetary Fund meetings.

Germany's European partners are watching the coalition manoeuvring in Berlin closely, concerned that delays could push back EU-wide decisions on important crisis-fighting measures like the ambitious banking union project.

Andrea Nahles, general secretary of the SPD, has said it could take until January to form a new government. A 'grand coalition' with the SPD is seen as more likely than an alliance with the Greens.

Schaeuble, who has signalled a desire to stay in his post in the new government, said on Friday Germany was committed to finding a way forward on banking union before the end of the year.

(Reporting by Krista Hughes; Editing by Andrea Ricci)

Dispute on immunity for U.S. troops blocks Afghan-US security pact


KABUL (Reuters) - U.S. Secretary of State John Kerry and Afghan President Hamid Karzai ended two days of talks on a bilateral security pact on Saturday without a deal because they could not agree on the issue of legal immunity for U.S. troops.

The pact would determine, among other things, how many U.S. troops remain in Afghanistan after 2014 when most foreign combat troops are due to exit.

U.S. officials had previously said they wanted the pact finalised by the end of October. Kerry's visit was seen as a last-ditch effort to push the deal through before the deadline.

The United States is insisting it cannot agree to a deal unless it is granted the right to try U.S. citizens who break the law in Afghanistan at home in the United States.

Karzai said that was beyond the scope of his government to decide on the issue, calling it a question of "jurisdiction", and that it would have to be put to the country's Loya Jirga, an assembly of elders, leaders and other influential people.

"We need to say that if the issue of jurisdiction cannot be resolved, then unfortunately there cannot be a bilateral security agreement," Kerry said at a news conference, stressing an agreement was otherwise essentially in place.

Karzai said the talks had focused on protecting Afghan sovereignty and that major differences had been resolved, including a U.S. request to to run independent counter-terrorism missions on Afghan territory.

Such operations carried out by the U.S. have long infuriated the Afghan president, who had been demanding the U.S. agree to share intelligence instead.

Karzai said the U.S. snatching of a senior Pakistani Taliban commander was an example of the kind of action that Afghanistan wanted to avoid.

"This is an issue that we have raised in earnest with the United States in the past few days as we have all previous occasions of such arrests in which the Afghan laws were disregarded," Karzai said, referring to the capture of commander Latif Mehsud.

"Therefore our discussion today in particular has been focused on making sure that through the bilateral security agreement such violations are not repeated."

Kerry attributed the complaint to a misunderstanding.

"We followed the normal procedures that the United States follows ... we did what we are supposed to do," he said.


The Afghan government rejected an initial U.S. proposal on immunity at the start of the year and it has been a sticking point ever since. The failure to reach a deal could prompt the U.S. to pull all its troops out after 2014, in an outcome known as the "zero option".

It was considered almost unthinkable a few months ago, but U.S. officials have since raised the possibility, with an implicit warning that Afghan security forces are not ready to fight the Taliban-led insurgency without their help.

The collapse of similar talks between the United States and Iraq in 2011 - partly over the issue of immunity - led to the United States completely ending its forces' mission there rather than maintaining a significant presence.

U.S. officials had said earlier that Kerry did not intend to close a deal on the Bilateral Security Agreement (BSA) during the visit, but Washington is concerned that as Afghan election campaigning intensifies it will be harder to broker a deal.

Karzai's brothers this week began their campaign to take power and plan to offer the outgoing president, constitutionally barred from running again, a position in their government.

The April election is seen as the most crucial since the U.S.-led overthrow of the Taliban in 2001, which brought Karzai to power.

International aid donors, who provide Afghanistan with the bulk of its income, hope a transfer of power will enable the country to move beyond years of damaging allegations of corruption and maladministration.

In an interview this month, Karzai blamed corruption on irresponsible spending by donors and said coalition troops had brought nothing but suffering because security was still poor.

Security has been deteriorating, increasing worry about the country's prospects after Western forces leave. On Saturday, a car bomb killed four people in the eastern city of Jalalabad.

Efforts to draw the Taliban into negotiations have come to nothing. The militants say they will fight on until all foreign forces leave and they dismiss Karzai as a U.S. "puppet".

The Afghan president said the question of whether Afghanistan would be able to try U.S. citizens for crimes committed on its territory could not be decided by his government.

"The issue of jurisdiction is one such issue that is beyond the authority of the Afghan government and it is only and entirely up to the Afghan people to decide upon through two mechanisms," said Karzai, referring to the country's traditional assembly and its parliament.

Kerry said U.S. troops operated under the same standards wherever they were deployed.

"Wherever our forces are found, they operate under the same standard," he said. "We are not singling out Afghanistan."

(Writing by Jessica Donati; Editing by Andrew Roche)


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