One of the great unknowns of the debt ceiling fight is how much freedom Republicans in Congress actually have. It seems clear that their political incentive is to demand maximal terms. This would allow them to keep their base together, and if the debt default triggers an economic crisis, the resulting chaos will probably increase their chances of winning the presidency in 2012. Cutting a deal with Obama not only forestalls such an event, it positions him as a centrist who's serious about reducing the deficit, which would aid his reelection prospects. The smart play from a pure political point of view, then, is to hold fast to maximal demands.
The only question is whether the business lobby can and will exert serious pressure on Republicans to lift the debt ceiling. This, too, is hard to game out. Most of the pressure will be exerted out of the public eye. And the business lobby obviously wants the debt ceiling lifted, but it would be happier to do so in conjunction with cuts to social spending. So business may well hang back and let Republicans exert their leverage now, while swooping in to demand a deal as the deadline nears. We don't know, but the answer is a key piece of the puzzle.
In that light, pay attention to this very interesting quote from Mitch McConnell:
“Nobody is talking about not raising the debt ceiling; I haven’t heard that discussed by anybody,” the Senate minority leader, Mitch McConnell of Kentucky, said on “Fox News Sunday,” adding that he had an unspecified “contingency plan” to raise the ceiling if the talks fell apart.
Does McConnell actually have a secret contingency plan? I dunno. The important thing is that he feels bound to claim he does. That's not a message for the GOP base or the broader public, neither of which see the need to raise the debt ceiling at all. It's a message for business. That McConnell feels compelled to say that he won't allow default suggests he faces real pressure .