Italian shares surge after crisis eases, as US shutdown begins - as it happened (2024)

That's a good moment to stop.

Remember, my US colleagues arelive-blogging the latest developments in America as the government shutdown continues. It's a damn good read -- including the news that veterans from the second world war pushed down barricades when they discovered they were barred from visiting their own memorial. That's the spirit.

President Obama should be speaking on the situation shortly.

The big story in Europe tonight is that Silvio Berlusconi's rebellion against the Italian government has stumbled, and may have crumbled. We'll find out tomorrow.

This liveblog has all the overnight reaction to the US government shutdown (starting here), including David Cameron's warning that the deadlock could hurt the world economy, early photos, and this video of highlights and analysis

Back first thing tomorrow. Cheers all. Goodnight. GW

Rome correspondent Lizzy Davies has interviewed one of the radical Five Star Movement's MPs,Paola Carinelli.

M5S, which stunned Italy with a strong performance in February's election, is not part of Enrico Letta's coalition. And Carinelli told Lizzy that the party is not planning to support Letta in tomorrow's vote.

Carinelli said:

If there is this confidence vote we certainly won't be voting for it. We haven't given [done that] for the past six months and we won't be doing it now. The situation has not improved in the past six months- rather, we feel that this government has done nothing that it promised.

She added that M5S was united:

We have spoken about it between ourselves and we are very sure that we will not vote for the confidence vote… Everyone confirmed that they will not vote for it.

That leaves open the possibility that M5S would abstain, rather than vote against.

Carinellisaid she was angry that politicians in Rome have spent the last few weeks fighting among themselves, rather than solving Italy's economic problems. She also argued that it would be better to have fresh elections, rather than for Letta to limp on with a "totally fractured majority"

And she was scathing about the man who triggered this latest crisis:

Berlusconi is certainly a man at the end of his road. Now he's doing everything to avoid being kicked out.

So, an Italian government confidence vote on Wednesday - that'll either calm the eurozone crisis, or inflame it.

And with delicious timing, the European Central Bank will hold its monthly meeting tomorrow too. Mario Draghi is going to get some tough questions about Italy.....

Swiftly followed by the story from our Reuters terminal:

Italian Prime Minister Enrico Letta will seek support in parliament to continue at the head of a solid government next year, President Giorgio Napolitano said in a statement on Tuesday after a meeting with Letta.

Letta is due to outline a programme of priorities in a speech to parliament on Wednesday and is expected to call a confidence vote afterwards.

Napolitano said Letta would seek "stable commitment for continuing government action from the most immediate deadlines to objectives to be pursued in 2014".

One more key news flash from Italy:

16:58:29 RTRS - ITALY PRESIDENT NAPOLITANO SAYS HAS AGREED WITH PM LETTA TO SEEK SUPPORT FOR SOLID GOVERNMENT WITH OBJECTIVES TO PURSUE IN 2014

Twitter is abuzz wit reaction to the latest twists in Italy:

Our Rome correspondent,Lizzy Davies, explains that Silvio Berlusconi could still throw his own support behind Enrico Letta.

That would let the disgraced former PM, facing expulsion from the Italian Senate over his tax fraud conviction, to present himself as the responsible man.

One constitutional lawyer has already told Lizzy thatwould be a disaster for Letta, as he'd be much happier to not have to work with the hawkish members of the People of Freedom Party.

The lawyer explained:

If Berlusconi votes to to give confidence in the government, [Letta] ... ends up being held hostage by Berlusconi's blackmail power….

If Berlusconi votes 'for', it's a tactical choice to try to make the government take decisions which are favourable to him – on the justice system, for instance – or political useful for the PdL/Forza Italia election campaign which we will be seeing sooner or later.

The Wall Street Journal also flags up that as many as 40 members of Berlusconi's party could be prepared to revolt, and back Enrico Letta's government.

And the Italian stock market just closed 3.1% higher, driven by hopes that the immediate Italian political crisis is over.

Thekey measure of market panic over Italy is the yield, or interest rate, on its 10-year bonds. If they're going up, it means fund managers are more worried about political instability.

Well, yields are sharply lower this afternoon --- 10-year Italian government debt is changing hands for 4.43% now, down from 4.57% this morning and as high as 4.74% on Monday morning.

That means prices are up, as traders dash to hold Italian debt again on the news that Silvio Berlusconi's PDL party is refusing to bring down Enrico Letta's government.

Here's a snap of Alfano looking serious, a little while ago, as he leftSilvio Berlusconi's private residence, the Palazzo Grazioli in Rome.

OK, here's the key quote fromAngelino Alfano, the secretary ofSilvio Berlusconi's centre-right party:

I remain firmly convinced that our entire party should support Letta in a confidence vote. There are no groups or factions.

That is a resounding rebuke for Berlusconi -- whose efforts to unseat Letta appear to have turned sour.

This won't be the final act in the drama, though -- we probably won't know the score until tomorrow's confidence vote.

The Italian stock market has jumped by almost 3% this afternoon, up 512 points at 17,947.

Traders are cheering the news that Silvio Berlusconi's party are defying him, refusing to withdraw their support for Enrico Letta's government

(some background for readers new to the eurozone crisis -- Berlusconi's PDL party are part of a two-party grand coalition let by Letta, and he has threatened to bring that coalition crashing after being convicted of tax fraud).

Michael Hewson of CMC Markets in the City, explains:

The rest of Europe’s markets have been led by theItalian FTSE MIB which has bounced back quite stronglyas hopes rise that Enrico Letta’s government will be able to limp on in the wake of tomorrow’s scheduled confidence vote, with talk of widening cracks in support of Berlusconi within his own party, after his own party secretary broke ranks to state that the entire party shouldvote for Letta in any confidence vote.

There's also political drama in Italy this afternoon, ahead of a crucial confidence vote in the Rome parliament.

The newswires are buzzing with reports that Silvio Berlusconi's party has turned on their leader, and are planning to throw their support behind prime minister Enrico Letta.

Shares are surging on the Milan stock market in late trading.

Crucially, the party's secretary Angelino Alfano is reported to have urged the People of Freedom party to end their revolt.

This Reuters story has the details:

A majority of parliamentarians in Silvio Berlusconi's centre-right People of Freedom (PDL) party want to back Italian Prime Minister Enrico Letta in a confidence vote on Wednesday, a prominent moderate "dove" in the PDL said on Tuesday.

Carlo Giovanardi, a Senator and former minister said there was widespread sympathy in the party for Berlusconi in his battle against moves to expel him from parliament for tax fraud but that the majority of senators and deputies did not want to bring down Letta's coalition of left and right.

"We are for keeping this government, which is the sole point of political balance," Giovanardi said.

He made the comment at the same time as PDL Secretary Angelino Alfano was at the prime minister's office for meetings, along with Letta's uncle Gianni Letta, one of Berlusconi's closest advisers.

It comes just three days after Berlusconi ordered his ministers to quit Enrico Letta's government, threatening a new political crisis. This gamble may be backfiring.

An early development from Tom's new Shutdown liveblog -- as flagged up early this morning, the Senate has rejected the requestfor a bipartisan budget conference.

Senators voted along party lines, 54-46.

More details here.

Delighted to reportthat my US colleagues are notfurloughed, and instead have launched a new liveblog covering the shutdown.

US government shutdown begins as Congress fails to reach deal – live

The excellentTom McCarthyis in the chair, and will becovering all the political drama for the day ahead*.

I'll do a round-up shortly...

Mark Knoller, White House correspondent for CBS News, rounds up the impact on some US government agencies:

Heads-up, the White House has announced that President Obama will give a statement at 12.25pm Eastern Time, or 5.25pm BST.

Here, our economics editor Larry Elliott explains the impact of the US Federal government shutdown, and the risk that the US could breach its debt ceiling:

It includes highlights of last night's debates in Congress, and the key contributions from the major players in Washington DC. Well worth watching.

Tres Knippa, a trader on the floor of the Chicago Mercantile Exchange, says investors simply aren't worried about the government shutdown.

He points out that stock markets have risen during previous shutdowns, particularly those which only lasted a few days. And the deadlock in Washington DC is likely to deter the Federal Reserve from easing off ("tapering") on its stimulus package any time soon.

Knippa told Bloomberg TV:

The point is that this just doesn't matter.

And as stocks go, isn't it reasonable to suggest that this pushes back tapering by Ben Bernanke?

So a general shrug from the financial markets, apart fro, the drop in the value of the US dollar (still down around 0.2% against the pound and euro). That doesn't increase the pressure on politicians in Congress.

Wall Street is open for business, and there is NO sign of panic at the fact that the Federal government is on ice.

The Dow Jones industrial average has risen by 14 points, or +0.1%, in very early trading. The S&P 500 and the Nasdaq are also shrugging off the Capitol Hill deadlock, gaining a few points each.

Reaction to follow

From the Statue of Liberty to the WashingtonDC transit system, the signs of the shutdown are clear to see:

Willem Buiter,Citi’s global chief economist, has dubbed America as "the land of Oz run by the munchkins".

Buiter said the shutdown was an irresponsible act, tellingCNBC this morning:

It really is scandalous that theworld’s largest economy looks like the Land of Oz run by the munchkins.

Here's the clip:

One US government service that is still operating today is the Securities and Exchange Commission, America's financial regulator.

Bloomberg'sPhil Mattingly is stood outside the SEC headquarters, and reports that it's pretty much operational. That's because the agency has "carry-over funding", which allows it to keep running today.

However... if the shutdown lasts longer than a couple of weeks, then the SEC could have to close non-essential services. That would include the area that handles filings for stock market flotations. Companies who are looking to file an IPO "could have a problem", says Mattingly. And one of those companies is Twitter....

NASA tweets that its non-essential work is now on hold:

Our Washington bureau chief, Dan Roberts, compares the last 48 hours to a classic Western:

The great US government shutdown of 2013 began, said Iowa senator Tom Harkin, "like a scene from the Hollywood western High Noon".

There was Democrat sheriffBarack Obama, squared off against a gang of southern gunslingers, both sides determined not to give an inch and prepared to blow each other's brains out to get what they came for.

Unfortunately, much of Washington acted as if it had seen this movie before. The metaphorical tumbleweed blowing down the corridors of Capitol Hill reflected not a fear of being caught in the crossfire, but a cynical war-weariness that left many lawmakers on the sidelines until it was too late. After three years of similar standoffs over the federal budget that were resolved at the last minute, no one could quite believe that this one would finish with shots fired.

Here's the full piece:US shutdown: Gunslinging and standoffs straight out of Hollywood

Just in, a couple of photos from America this morning:

Traders on Wall Street are expected to shrug off the shutdown , when trading begins in around 90 minutes time.

Having fallen by 128 points, or 0.85%, last night as the deadlock deepened, the Dow Jones is expected to rise around 30 points at the open (although there is still time for that to change).

Just spoke with David Madden of IG in the City, who says he's surprised that there's not more of a reaction to the shutdown. In Europe, too, markets are still calm (London's blue-chip FTSE 100 is down just 0.35% today).

However, as mentioned before, that could all change as the debt ceiling deadline of 17 October approaches:

Equity markets have reacted relatively well to the deadlock in Washington, which has led to the first partial shutdown in 17 years. The failure to reach an agreement over a budget could leave thousands of state workers on a reduced week with no guarantee of back pay.

The budget discussions will soon take a back seat to the debt ceiling talks which take centre stage in mid to early October, and these negotiations pose more of a threat to the US credit rating than a partial shutdown.

Over in the Pentagon, staff will be calculating which employees can be classed as "essential" and thus kept on duty.

US Secretary of DefenseChuck Hagel, who is in Seoul on an official trip, saidAmerica has been reassuring its allies that military services will continue . Last night, President Obama signed an emergency legislation that means serving staff will continue to be paid.

Here's more details of Hagel's comments:

The Pentagon’s lawyers are reviewing how many of the military’s roughly 400,000 civilians employees expected to be furloughed -- or about half the civilian workforce -- can be considered “exempt” from shutdown provisions and stay on the job, Hagel, the U.S. defense secretary, said today inSeoul.

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“We will fulfill our mission of maintaining the the alliances we have,” Hagel said. “But it does cast a very significant pall over America’s credibility with our allies.” The shutdown “is nonsensical,” and “completely irresponsible,” he said. “It’s needless. It didn’t have to happen.”

Another key line from David Cameron on UK radio this morning (more details here) is also attracting attention as America wakes up to a partially-shutdown nation .

Asked about the implications for the UK economy, the PM was pretty blunt, saying:

It is a risk to the world economy if the United States can't properly sort out its spending plans and its deficit reduction plans. Of course that's a risk.

US political analystDaniel Clifton, ofStrategas Research, argues that the longer the shutdown lasts, the more Republicans will be blamed.

Clifton told Bloomberg TV that a protracted shutdown will put pressure on the party, bringing splits between Tea Party supporters and more centrist members. So while president Obama can continue to "speak with one voice", there could be mixed messages and conflict from his opponents.

Clifton also predict that the US public will make their feelings known:

We know that the phones on Capitol Hill are going to be ringing off the hook.

PhilMattingly, Bloomberg News reporter, isn't confident of early progress in Washington (where it's approaching 7am).

There are no meetings planned, he says. And while the Senate will reconvene at 9.30am, it is only likely to reject the Republican's proposal for a bipartisan committee.

Mattingly added:

We're all in wait and see mode, until constituents start calling in and saying who they blame.

And here's a full Q&A on the economic consequences of the US government shutdown:

US shutdown: what does it mean for markets and the global economy?

I flagged up earlier thatDavid Cameron had cited the US government shutdown as a warning light when on Sky News. He took the same message to radio listeners. Here's more details:

Speaking on BBC Radio 4's Today programme, Cameron gave the US situation as a reason why Britain should stick to the path of fiscal discipline. He said aiming to run a budget surplus was a reasonable and "perfectly possible" thing to do.

"It is a reminder to all of us that we need to have properly planned public expenditure systems, properly planned tax, properly planned arrangements for getting our deficit down," he said. "I know some people want to get away from the subject of deficit reduction and sorting our economy out and turning it around, but I think we will have lots of reminders over the coming months, like what's happening in America, that it's absolutely vital we grip it."

More here:US shutdown shows UK must keep grip on finances, says David Cameron

The 17 previous US government shutdowns have been triggered by intractable rows over a range of issues, from defense funding to welfare spending. More often than not it involved a Democrat-controlled House of Representatives -- often facing down Ronald Reagan's White House.

Here's your handy cut-out-and-keep guide to the 17 previous shutdowns since 1977:

Much angst on Bloomberg TV thatAmerica's next employment report will probably be delayed.

The monthly Non-Farm Payroll, which shows now many new jobs were created last month, is one of the hottest announcements in the economic world. It is due on Friday, but unless the shutdown ends swiftly the Bureau of Labor Statistics won't have time to complete it.

And that will make it very hard for the Federal Reserve to decide whether it should slow its bond-buying stimulus programme (through which it pumps $85bn into the US financial sector each month).

Another reminder that the debt ceiling is looming:

How much will the shutdown cost?

Analysts at IHS have calculated that it will wipe at least $300m off economic output per day, as people who are forced into unpaid leave by the shutdown rein in their spending.

That rate will accelerate if the shutdown continues for several days, as people and businesses become more worried about the situation.

A week long hiatus would knock 'annualised'* US economic growth down to 2% in the final quarter of 2013, from 2.2%., IHS said.

But a three week shutdown, as we saw in the Clinton era, could slash as much as 1.4% off annualised growth.

* - roughly four times the quarter-on-quarter rate

So it it all the Tea Party's fault?

President Obama certainly pinned the blame on that wing of the Republican party, when he gave a televised address to give them a final push:

One faction of one party in one house of Congress in one branch of government doesn't get to shut down the entire government just to refight the results of an election.

You don't get to extract a ransom for doing your job, for doing what you're supposed to be doing anyway, or just because there's a law there that you don't like.

TheTea Party movement argues for a smaller government, and a less daunting national debt. Some of itssupporters have argued that a government shutdown is a good thing, and won't cause serious problems.

Over on the Telegraph, Tim Stanley explains this point of view:

US Government Shutdown: don't blame the Republicans – blame whoever spent all the money

The bottom line is that the US debt pile has risen through successive presidents. It increased 60% or so under Obama as the president pushed through a stimulus package to ward off a new Great Depression, but had already almost doubled during the previous eight years under George W. Bush.

Meanwhile, Europe's manufacturing growth has stumbled, underlining its vulnerability to any shocks from America.

My colleague Nick Fletcher has full details here:Eurozone manufacturing growth slips in September

Breaking away from America briefly, we have economic news from the eurozone -- the unemployment rate is slightly lower than we thought, but it's not actually falling.

The total eurozone jobless rate was 12.0% in August. July's figure of 12.1% has also been revised down, to 12%, Eurostat just reported.

That may indicate that Europe's slump is bottoming out, with the economy also growing. However, it could quickly be derailed if events deteriorate in America.

And today's data also included plenty of black spots, including Italy's youth jobless rate hitting a record high of over 40%.

The last shutdown took place in 1995-1996, when Bill Clinton clashed with the Republican-backed lower house, and its speaker Newt Gingrich.

Dr Matthew Ashton of Nottingham Trent University, explains that This Time It's Different:

To a certain extent the shutdown is being played as a political theatre, with both Republicans and Democrats blaming the other. The Republicans are in the weaker position though. In 1996 when a similar situation occurred Clinton was actually strengthened by the deadlock and the Republicans came across as inflexible and dogmatic. Whether the same result will play out today though is unclear. The fact that Obama was re-elected less than a year ago might well count against them in the court of public opinion.

Ashton also points to the fragile nature of the US recovery, and the pressing need to raise America's debt ceiling before 17 October:

Key differences between now and 1996 include the weakness of the US economy and the upcoming vote on the debt ceiling. Anything that looks like it might jeopardise the recovery could have a big impact on both parties' popularity. What's certain is that this will do little to reassure Americans about the democratic process and the ability of their leaders and representatives to behave like grown-ups in the face of a crisis.

The 1995-1996 shutdown also had another, unpredictable impact. With White House staff "furloughed" (sent home without pay), a young intern named Monica Lewinsky was sent to cover....

Associated Press sums up the deadlock in Washington:

For the first time in nearly two decades, the U.S. government staggered into a partial shutdown on Monday at midnight after congressional Republicans stubbornly demanded changes in the nation's health care law as the price for essential federal funding and President Barack Obama and Democrats adamantly refused.

As Congress gridlocked, Obama said a "shutdown will have a very real economic impact on real people, right away," with hundreds of thousands of federal workers furloughed and veterans' centers, national parks, most of the space agency and other government operations shuttered.

He laid the blame at the feet of House Republicans, whom he accused of seeking to tie government funding to ideological demands, "all to save face after making some impossible promises to the extreme right wing of their party."

House Speaker John Boehner responded a short while later on the House floor. "The American people don't want a shutdown and neither do I," he said. Yet, he added, the new health care law "is having a devastating impact. ... Something has to be done."

There are few issues Republicans feel as passionately about as the health care reform, which they have dubbed "Obamacare." They see the plan, intended to provide coverage for the millions of Americans now uninsured, as wasteful and restricting freedom by requiring most Americans to have health insurance.

There were plenty of tired, stressed faces in Washington when time ran out.

John Boehner, the House Speaker, held a brief press conference with journalists at 1am local time, or 6am BST.

Boehner, who has been criticised for failing to get his fellow Republicans to agree a budget deal, told reporters that "The House has made its position known very clearly".

He added:

We believe we should fund government, and we think there ought to basic fairness for all Americans under Obamacare.The Senate has continued to reject our offers, but under the Constitution, there's a way to resolve this problem — and that is to go to conference and talk through your differences.

And I would hope that the Senate would accept our offer to go to conference and discuss this so that we can resolve this for the American people.

But as I flagged up earlier, Senate majority leader Harry Reid is expected to rebuff this proposal.

Boerher then took just two questions, in a 73-second Q&A session (Business Insider has the details).

Here's more photos from late night and this morning:

The US dollar is losing value on the foreign exchange markets, following the first American government shutdown since 1995.

It's lost around half a percent so far, pushing the pound up to$1.6238. That's the highest level since 3 January 2013. The euro has risen to $1.357, the highest level since early February.

What's Next?

Well, much of Washington is asleep right now, but late last night the Republican side proposed creating abipartisan "conference" of lawmakers from both sides to plot a path forward.

TheSenate is scheduled to reconvene at 9.30am Eastern Time (or 2.30pm BST). Its first job, according to majority leader Harry Reid, is to kill that plan for a conference.

That would send the ping-pong ball back into the House of Representative's side of the table. It could then propose a short-term budget that does not include cuts or delays to Obama's Affordable Care Act -- which the Senate would surely approve. Or it could stick to its guns.

Non-essential Federal government services will remain closed until a budget to pay for them has been agreed.

Worth noting that a key part of Obamacare, theopen enrollment period, begins today. That will allow millions of uninsured Americans to start shopping for health insurance (CBS has a full explanation here)

Joe Rundle, head of trading at ETX Capital, explains that the stock markets are calm because traders reckon the shutdown will be brief:

Investors are taking the view that a partial shutdown, if resolved quickly, will do little damage to the overall health of the US economy. That does however mean that we will need to hear the right sounds out of Washington to feel confident enough that the shutdown will not damage economic growth.

No signs of a crash in European stock markets . The German and French stock markets are up almost 0.5%, as fears ease over the Italian government collapsing. In London the FTSE 100 is down 0.2%.

Earlier Asian stock markets were calm, with the Nikkei finishing 0.2% higher and Australia's ASX 200 finishing 0.2% lower.

The New York Times also has a handy interactive, explaining how the legislative warfare betweenthe House of Representatives and the Senate resulted in the partial shutdown of the US Federal government:

The Back and Forth Over the Shutdown

There was a flurry of last-minute moves by all sides in the run-up to the shutdown, in an attempt to get agree a budget to keep funding the US federal government.

The crux of the crisis is that Republicans control the Lower House of Representatives, while the Democrats have a majority in the Senate.

Proposed budgets bounced back between the Upper and Lower houses, but Republicans continued to demand a delay toObama's Affordable Care Act in return for a six-week 'stopgap' spending bill. And the Senate refused to budge, stripping out the healthcare section and booting the legislation back.

The New York Times explains:

In the hours leading up to the deadline, House Republican leaders won approval,in a vote of 228 to 201, of a new plan to tie further government spending to a one-year delay in a requirement that individuals buy health insurance. The House proposal would deny federal subsidies to members of Congress, Capitol Hill staff, executive branch political appointees, White House staff, and the president and vice president, who would be forced to buy their health coverage on the Affordable Care Act’s new insurance exchanges.

But 57 minutes later, and with almost no debate, the Senate killed the House health care provisions and sent the stopgap spending bill right back, free of policy prescriptions. Earlier in the day, the Senate had taken less than 25 minutes to convene and dispose of a weekend budget proposal by the House Republicans.

“They’ve lost their minds,” saidHarry Reid, the Senate majority leader,before disposing of the House bill. “They keep trying to do the same thing over and over again.”

David Cameron, the UK prime minister, has become the first world leader to comment on the US government partial shutdown.

Interviewed by Sky News at the Conservative Party conference in Manchester, Cameron tried to link the Washington deadlock to the wider issue of fiscal responsibility.

It is a reminder to all of that we need properly planned budgets,properly planned taxes,properly planned ways to get the deficit down, said Cameron, adding:

It's absolutely vital that we grip it.

We're not expecting a market panic this morning -- European stock markets will probably be calm. However, that could change, if we don't see signs of progress in America later today.

The US economy slid into its first shutdown since 1995 despite Barack Obama appealing to lawmakers to meet their responsibilities and pass a budget acceptable to the Senate.

President Obama warned that the consequences would be severe, as America must also agree a deal to raise its debt ceiling before the US debt mountain hits $16.7 trillion (the legal limit), probably on 17 October.

He said:

Certainly we can't have any meaningful negotiations under the cloud of potential default – the first in US history.

Jack Ablin, chief investment officer at BMO private bank, predicted wider economic pain:

This is a contrived crisis that is going to have real consequences....It will cause unnecessary volatility in the market and ultimately cost the economy.

My US colleagues live-blogged all the drama last night, as the two sides struggled in vain to reach an agreement over a new deal to fund the US government:

US government on verge of shutdown - as it happened

There were no fireworks at midnight in Washington when time ran out to agree a new budget to fund government services, just a sombre announcement that the shutdown was beginning. Followed by the blame game, with both sides saying the other are at fault (I'll round up the reaction shortly)

So who will be hit?

Over 700,000 non-essential workers at operations from NASA to the national parks are being sent home.

Even the Statue of Liberty will be closed - not the image America likes to present to the world.

Late last night, President Obama also signed a bill that will ensure that military staff keep being paid.

Ladies and Gentlemen, we have shutdown.

A couple of hours ago, the US government began closing down non-essential services and putting hundreds of thousands of "non essential workers" on unpaid leave, in the first such shutdown in17 years .

Despite last-minute negotiations that ran up to midnight, theUS House of Representatives and the Senate provedunable to agree a budget for the new financial year, which began today. With Republicans insisting on cuts to President Obama's Affordable Care Act, and Democrats refusing to budge, time simply ran out.

It's the first shutdown in 17 years, and the impact could be felt across the global economy.

Our Washington bureau chief, Dan Roberts, explains how the shutdown was triggered:

As a midnight deadline to extend Congressional spending authority ticked ever closer, Republicans staged a series of last-ditch efforts to use a once-routine budget procedure to force Democrats to abandon their efforts to extend US health insurance.

Three separate attacks on the Affordable Care Act, known as Obamacare, were staged by the House of Representatives, only to be rejected in turn by the Democrat-controlled Senate, which accused Republicans of holding the country to ransom.

Shortly before midnight, Senate majority leader Harry Reid marked the end of the process by rejecting House calls for formal talks to reconcile their conflicting positions, arguing it was impossible to negotiate with a “gun to our heads”.

“This is a very serious time in the history of our country,” Reid said. “Millions of people are going to be affected tomorrow and the Republicans are still playing games”

But the impact of the shutdown could be felt outside America too, if the warring sides cannot agree a deal soon. And once they've managed that, the US faces the separate challenge of raising its debt ceiling before the middle of October.

We'll be tracking the reaction to the shutdown, and explaining what it could mean for the world economy, through the day - along with other key events.