President Joe Biden (R) meets with Republican House Speaker Kevin McCarthy in the Oval Office to discuss a standoff on raising the US debt ceiling

Washington (AFP) - President Joe Biden convened a high-stakes meeting with Republican leaders Tuesday in hopes of breaking an impasse over the US debt limit – with repercussions that could extend to next year’s presidential election.

The White House gathering at 4:00 pm (2000 GMT) involves Biden, House Speaker Kevin McCarthy and Senate Republican leader Mitch McConnell, setting in motion the deciding round of a power struggle that also threatens massive consequences for the world’s largest economy.

The lifting of the national debt ceiling, which allows the government to pay for spending already incurred, is often routine.

But raising the borrowing limit, currently at $31.4 trillion, has been a contentious issue in recent years, with congressional Republicans pushing for spending curbs and a smaller budget deficit in exchange for lifting the ceiling.

A 2011 impasse resulted in the United States losing the coveted AAA debt rating.

This year, McCarthy and his Republican Party have decided to say no to a debt ceiling hike – unless Democrats first agree to sweeping budget cuts.

“I hope the president is finally willing to negotiate,” McCarthy said as he left the Capitol for the White House on Tuesday.

In a tweet, he added that the meeting marks a “new opportunity” to find common ground.

Biden told reporters before the meeting began: “We’re going to get started, solve all the world’s problems.”

Time is critical. On Sunday, Treasury Secretary Janet Yellen warned that unless Congress acts in the coming weeks, “financial and economic chaos would ensue.”

Yellen has also had conversations with CEOs to discuss the dangers of brinkmanship, a source familiar with the matter confirmed to AFP.

- Digging heels in -

Treasury Secretary Janet Yellen has warned that unless Congress acts in the coming weeks to raise the debt ceiling, 'financial and economic chaos would ensue'

On Tuesday, Biden and the Republican leaders were joined by the top Democrats in Congress: House Minority Leader Hakeem Jeffries and Senate Majority Leader Chuck Schumer.

White House Press Secretary Karine Jean-Pierre argued before the meeting that it is the Republican lawmakers’ constitutional duty to act.

“It’s very simple. The exit ramp for them is to do their job,” she said, referring to raising the debt ceiling without condition.

Biden has repeatedly called for a “clean” lifting of the US borrowing limit, arguing that the deficit spending has already been approved by Congress and is therefore not up for debate.

But the talks are not expected to produce a quick resolution to the standoff.

Jeffries, in an interview Sunday, would not commit to supporting a short-term debt ceiling extension, saying the “only responsible” move is to approve a clean increase.

Democrats have also referred to a plan passed by House Republicans as the “Default on America Act.” The plan raises the borrowing limit, but would institute major government spending cuts.

The Senate is bracing for a clash too, as 43 Republicans in the Democratic-controlled chamber signed a letter over the weekend, pledging to impose legislative hurdles to any attempt to raise the debt ceiling “without substantive spending and budget reforms.”

It remains unclear when the government will run out of funds, but the Treasury has warned it could happen as early as June 1.

In addition to triggering Wall Street turmoil, failure to address the debt limit impasse may also impact Biden politically as he forges ahead into a re-election campaign.

- Uncertainties ahead -

Biden was joined in the White House meeting by the top two Democratic lawmakers, Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries

Should the United States be unable to meet all its obligations, the Treasury would likely prioritize debt and interest payments.

That could mean delays in doling out funds to politically sensitive groups, such as Social Security beneficiaries or Medicare providers.

Financial markets would also be rattled by the uncertainty.

In a recent report, Moody’s Analytics projected that the most likely date the Treasury Department will exhaust its accounting measures is June 8, signaling “precious little time” for Democrats and Republicans to reach agreement.

This date means Treasury payments will likely be disrupted for a few days “until a mid-June surge of tax payments materializes” and helps with revenue flows.

But financial markets are sure to react negatively, with the consequent selloff in equity markets likely to “catalyze subsequent action on Capitol Hill.”

“We think lawmakers will try to negotiate a compromise bill first if they are still at a stalemate when the debt limit is at risk of being breached, which seems likely,” said Nancy Vanden Houten of Oxford Economics on Tuesday.

In an earlier interview with AFP, she added that “risks are certainly elevated compared to prior debt limit standoffs.”