Compromise or Contingency: The Path Forward on the Debt Ceiling

There is a certain irony in the fact that the two men who spoke the least at White House debt ceiling negotiations over the last week will likely be responsible for forging the path ahead. And like any grand compromise in Washington, no one will like it.

Thursday’s final White House meeting between President Obama and congressional leaders striving to reach an agreement on how to raise the nation’s debt ceiling ended at an impasse. After Wednesday’s fireworks between Obama and House minority leader Eric Cantor, this session was quiet – – literally. Cantor said not a word. The President wrapped up the meeting by asking the leaders to find a path forward over the next 24 to 36 hours. The only prerequisite: that the compromise can pass both the House and the Senate before Aug. 2, when the U.S. begins to default on its sovereign debt. Obama said that the White House would remain on call all weekend, waiting for an agreement.

At the other end of Pennsylvania Avenue, far from the cameras, Senate majority leader Harry Reid and Senate minority leader Mitch McConnell have been quietly brokering a contingency plan for days. While the two have had little to say in the White House meetings, they’ve found plenty to say to one another. Earlier this week, McConnell put forth an unexpected plan that abandoned months of Republican machinations to use the debt ceiling vote as a vehicle to force deep spending cuts. Instead, McConnell’s plan simply called for three politically tough votes for Democrats — and particularly Obama — on deficit spending over the next year in exchange for raising the debt ceiling without other preconditions. McConnell’s plan was first met with outrage by rank-and-file House Republicans. But over the last few days, House leaders have been conspicuously neutral on the plan: neither endorsing it nor panning it.

Reid, meanwhile, expressed openness to McConnell’s suggestion and added one of his own: the creation of a deficit reduction commission comprised of Senators and Representatives from both parties. The Obama talks stalled at $1.5 trillion in spending cuts out of the $2.4 trillion Republicans have demanded to raise the debt ceiling through the next election. And so, Senate negotiators are looking at taking parts of several different plans and cobbling together a solution. Under one scenario described to TIME by two Senate Democratic aides, the Senate would pass the $1.5 trillion in spending cuts, which would match an increase to the federal borrowing limit through July 2012, with an additional $900 billion in savings needed to raise the ceiling through November of that year. Reid would form his commission, which would spend the next year looking for that $900 billion – and maybe more. If the commissions succeeds, the debt ceiling would be renewed through November. If they fail, they would fall back on one of McConnell’s embarrassing political votes. Either way, the country avoids default through the next election. Senate Republicans, when asked about this plan, merely said that many such pieces are on the table and nothing is certain.

The deal sounds like a pretty good one for Republicans. It gives them leverage on an issue they feel will be important in the 2012 elections. And it gives them trillions of dollars in cuts, which – at least in the first tranche – will not be offset by any new revenues. But, Republicans argue, they lose out in the cuts themselves. Like the $38.5 billion slashed from the 2011 budget earlier this year, much of the cuts would be cosmetic or delayed. The deal gives Democrats the imprimatur of fiscal responsibility while only carving $2 billion from the 2012 and 2013 budgets, respectively.

While such a Frankenstein deal can probably pass the Senate, it remains to be seen if the House can swallow it. House Democrats and Republicans are scheduled to meet separately on Friday morning to mull over the options. House Republicans sources told TIME that while such a deal might not be able to pass this week, as the deadline looms – and Wall Street starts to freak out – positions are likely to soften.

Wall Street is already aghast at Washington’s brinksmanship. Standard & Poors warned on Thursday it had a one-in-two chance of downgrading the U.S.’s AAA credit rating over the next three months if Washington does not act on the debt ceiling soon. At the end of Thursday’s White House meeting, House Speaker John Boehner, who has hardly spoken up since his grand bargain with Obama to cut $4.5 trillion collapsed under pressure from Cantor and the right, reiterated the importance of doing a deal that not only raised the debt ceiling, but also calmed market worries about long-term U.S. deficits. The potential Senate plan may not be pretty, but it seems to be the most viable option out there right now that addresses both problems and has a shot at passing both chambers of Congress before Aug. 2.