Relief on debt deal but more cuts needed: OECD

ATHENS Tue Aug 2, 2011 8:21am EDT

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ATHENS (Reuters) - A last-minute deal on the U.S. debt brings welcome relief but further negotiations involving much bigger cuts will be needed to resolve America's debt problem, the OECD's top official said Tuesday.

The deal to raise the $14.3 trillion borrowing limit by enough to last into 2013, with $2.1 trillion in spending cuts, cleared its biggest hurdle when the House of Representatives approved it Monday despite opposition from lawmakers on both sides.

"There is a general sense of relief because an agreement was achieved, this allows time," Angel Gurria, head of the OECD club of industrialized nations, told Reuters in an interview. "Clearly we've now overcome a very important hurdle."

The deal is far from a $4 trillion deficit-reduction package including revenue increases that U.S. President Barack Obama and House Speaker John Boehner appeared close to clinching just over a week ago.

"The question of the substance of the debt of the United States is still pending ... that has still to be addressed in the medium and the long term," Gurria said during a visit to Athens.

Relief in financial markets over an end to the gridlock quickly turned to concern about the risk that the deal is not enough to avoid a possibly damaging downgrade of the top-notch U.S. debt rating.

"There will have to be very forward-looking decisions taken on that matter, and clearly the numbers involved are going to have to be a lot bigger in order to turn the situation back," Gurria said. "There are going to be other chapters in the next few months, having to do with further reductions in spending."

The Democratic-controlled Senate is expected to approve the deal in a vote due to take place at 1600 GMT. If approved, Obama would sign the bill into law shortly afterwards.

(Editing by Barry Moody)