At Issue: U.S. Debt Deal
U.S. lawmakers agreed to pass legislation raising the debt ceiling. REUTERS/Larry Downing

After weeks of debate, struggles and hesitation, a divided House of Representatives has approved a massive austerity plan to prevent the U.S. from entering into default.

With barely a day to act and after more than eight months of negotiations, the Republican-led House passed the new deal on Monday night, voting 269-161 on a package to raise the limit on U.S. borrowing and generate $2.1 trillion in spending cuts over a 10-year period.

The measure must now gain approval in the Democrats-led Senate, which is expected to approve the measure before it can go to President Barack Obama for his signature.

The first $400 billion debt-ceiling increase would go into effect immediately.

Emerging details of the package indicate a Republican win in the negotiations as there will be no increases in income tax and cuts of up to $2.4 trillion in government spending.

The vote was marked by the appearance of Democratic Representative Gabrielle Giffords, her first since she was gravely wounded in a January shooting rampage in her home state of Arizona.

Giffords, who has been undergoing rehabilitation since she was shot in the head in the attack, was widely applauded by her peers and casted her vote in favour of the bill.

The plan clearly exposed ideological divergences between the Democrats and the Republicans. While the former pushed throughout for a rise on taxes on the rich, Republicans won the fight as government spending cuts dominate the new deal.

It was also a key test for House Speaker John Boehner, who said before the vote that the package would start "fixing our fiscal problems" and "provide more confidence for employers in America."

"The process works. It may be messy, but it works," Boehner told CNN in brief remarks after the vote.

After the vote Boehner, smiling and confident said of the package, that his party got "98 percent of what we wanted."

The ultraconservative Tea Party wing of the Republican Party took a more hard-line attitude, with favorite Michele Bachmann opposing the deal.

Republicans backed the plan 174-66, while Democrats split evenly 95-95 on the measure with many of them waiting until the last minute to cast their ballots.

Liberal Democrats were the most angered by the plan, which they said betrayed the Democrats and Obama's core principles as it relied on spending cuts and did not include increases in tax revenues from the rich and wealthy corporations.

Representative Nancy Pelosi, the top House Democrat and member of the party's left wing, addressed the audience before the vote, pleading for her colleagues to support the President and back the plan.

"I'm not happy with it," she said, but "please think of what could happen if we defaulted. Please, please, please come down in favor of preventing the collateral damage to our seniors and our veterans."

The emerging plan, a deal that involved lengthy negotiations between Senate Republican Leader Mitch McConnell and Vice President Joe Biden, would raise the federal debt limit in two stages by at least $2.1 trillion, enough for the Treasury to go through 2012.

The cuts in Government spending would be phased in over a decade and thousands of programs could be trimmed to levels last seen years ago.

The first step would take place immediately, raising the debt limit by nearly $1 trillion and cutting spending by a slightly larger amount over a decade.

There will also be the creation of a new congressional committee that would have until the end of November to recommend $1.5 trillion or more in deficit cuts, which would in turn allow for a second increase in the debt limit -- which would be needed by early next year.

If the committee failed to reach its target, automatic spending cuts totalling $1.2 trillion would be implemented rising the debt limit by a similar amount.

Now that the bill is set to pass, analysts are dissecting the impact of the last few weeks, analysing the consequences on Obama's presidency and bid for re-election in 2012.

The crisis that has affected American politics and but is set to affect both the Republicans and the Democrats.

Republicans like Boehner might act like they won the battle but stalled talks almost put the U.S. into the brink of default, showcasing a polarised party, unable to overcome ideological differences and willing to put the country at risk to get what it wants.

The Chinese government used its official news agency to call the debt negotiations "dangerously irresponsible" and Christine Lagarde, the new head of the IMF, spoke of a "weakening positive bias" towards the US among investors.

Obama on the other hand, might have lost points with members of his party, but his strategy was well planned and turned out to work quite well. While Republicans were fighting and accused of slowing down the process, the President intervened, called for unity in front of adversity and showed he could also be a moderate and compromise, if the situation called for it.

Also, the budget crisis has managed to push the Republican presidential race into the background, which can only be good for Obama, who was involved throughout and addressed the nation twice in the space of a week, grabbing the headlines.

Sarah Palin, on the other hand, issued a statement about the need to hold the line against debt but was largely ignored by the media, while Mitt Romney avoided getting involved in the debate.

Michele Bachmann, the Tea Party favourite, claimed that the U.S. government was beyond fiscal redemption, which did not help resolve the situation. Boehner, the only Republican who dared standing up to Obama, is not a runner-up.

The President showcased a new tone and new strategy in the statement he issued after the vote and positioned himself as a moderate not afraid to take a bi-partisan attitude -- which could attract independent voters during the 2012 elections.

"Despite what some Republicans have argued, I believe that we have to ask the wealthiest Americans and biggest corporations to pay their fair share by giving up tax breaks and special deductions. Despite what some in my own party have argued, I believe that we need to make some modest adjustments to programmes like Medicare to ensure that they're still around for future generations," the president said in a statement.