US leaders agree on debt deal (VIDEO)

United States President Barack Obama and Congressional leaders of both parties announced Sunday night that they had reached a tentative agreement that would extend the debt ceiling and avoid a default on the U.S. debt.

The agreement must be approved by Congress on Monday. Obama announced the agreement ahead of the opening of Asian markets on Monday as international markets have been jittery over the last minute negotiations.

Obama, speaking from the White House on Sunday night, said there was a framework in place to cut spending and guarantee further deficit-reduction steps to “end the crisis that Washington imposed on America.”

He said that the process had “been messy and taken far too long,” leaving him concerned about the impact on business confidence and consumer confidence. The president gave assurances that the deficit cutting “won’t be a drag on a fragile economy.”

He thanked Congress for reaching a compromise and he thanked the American people for pressing their Congressional leaders to reach an agreement.

The budget deal would cut trillions of dollars in federal spending over the next decade and clear the way for an increase in the government’s borrowing limit, reported the New York Times.

With the health of the fragile economy hanging in the balance and financial markets watching closely, the leaders said they would present the compromise to their caucuses Monday morning in order to prevent a default before the Tuesday deadline.

Just before Mr. Obama spoke on television, the two Senate leaders, Harry Reid and Mitch McConnell, took the floor to endorse the pact as well.

“I am relieved to say that leaders from both parties have come together for the sake of our economy to reach a historic, bipartisan compromise that ends this dangerous standoff,” said Reid, the majority leader.

The agreement came after a day of wrangling over Pentagon cuts, and it still must be sold to the Senate and the House, with the House providing a particular challenge.

The proposed compromise calls for at least $2.5 trillion in spending cuts over 10 years, a new Congressional committee to recommend a deficit-reduction proposal by Thanksgiving, and a two-step increase in the debt ceiling.

The tense, last-minute negotiations took place against a backdrop of uncertainty, with a looming threat of a costly downgrade of the nation’s credit rating and with investors worried about the global economic impact of a possible default.

The domestic political stakes were high as well, with leaders in both parties staking out positions that may well be central to their re-election chances in 2012.

Congressional leaders set to work sell it to the rank-and-file representatives. The leaders are anticipating objections from Republicans that the plan does not go far enough while Democrats are wary that Medicare spending will take a hit.

Despite the remaining political and procedural hurdles, the mood on Capitol Hill was one of cautious relief that the gears were turning to produce legislation that would eliminate the threat of a potential government default after Tuesday.