ANTIQUES SHOPS

"Uncertainty which is created by the threat, the prospect, the specter, of sequestration, I believe, is a real threat to this economy," said Senator Carl Levin, referring to $500 billion in automatic cuts that will kick in unless Congress acts to stop them.

"Not only must we avoid sequestration - in my judgment we will - but we must do it in time to avoid a severe weakening to this economy. That's the greater challenge that we face," Levin, the Democratic chairman of the Senate Armed Services Committee, said at the National Press Club.

The Pentagon, which is already implementing $487 billion in cuts to projected defense spending over the next decade, faces another half a trillion dollars in automatic reductions over 10 years unless Congress acts.

The second round of defense cuts was included in a budget deal last year between Congress and President Barack Obama. The cuts were believed to be so extreme they would encourage rival Republicans and Democrats to compromise on alternative ways to reduce the country's trillion-dollar budget deficits.

But lawmakers failed to reach a compromise late last year, so the across-the-board cuts are scheduled to go into effect after the beginning of the year under a process known as sequestration.

The Pentagon has requested $525 billion in defense spending for the 2013 fiscal year beginning in October. The request was about $6 billion less than 2012, a drop for the first time after a decade of rising military spending. The budget was the first to reflect the initial round of spending reductions.

Levin said he was confident that lawmakers would ultimately act to avert the next round of budget cuts, but waiting until the so-called lame duck session of Congress after the November 6 presidential election would be too late.

"If it comes in the lame duck or thereafter it could come too late ... to avoid a severe weakening of the economy which results from the prospect of sequestration," Levin said. "Business folks have got to plan. Families have got to plan."

He said some businesses had already begun giving workers their layoff notices, and the issue would become more acute toward the end of the fiscal year in September.

"That kind of instability and uncertainty is what is going to drive us hopefully to finding a path, if not to a full solution ... at least to take some steps down the path of avoiding that train wreck," Levin said.

The senator said he expected any deal to resolve the budget impasse would probably require some additional reductions in defense spending over the next decade

"My best guess is it would be about $10 billion more a year, tops, which would be $100 billion over a 10-year period," Levin said.

He said raising revenues would have to be part of the solution, despite Republican resistance. He said government revenues historically had been about 19 percent to 20 percent of gross domestic product but had now fallen to about 15 percent.

"Every president that has achieved significant deficit reduction has made revenue part of the equation," Levin said.

(Editing by Doina Chiacu)

Speaking at the Leveson inquiry, John Major, whose tenure as British Prime Minister lasted between 1990 and 1997, said the founder of News Corporation had met him in 1997, asking him to change his stance on Europe.

"Just before the 1997 election it was suggested to me to try to get closer to the Murdoch press and I agreed that I would invite Mr Murdoch to dinner and we did have dinner in February 1997," Major told the inquiry.

"The dinner would have contained the usual amount of political gossip that these occasions tend to have."

"It became apparent in discussion that Mr Murdoch said that he didn't like our European policies and wished me to change our European policies. If we couldn't change those policies he could not and would not support the government.

"It is not often someone sits in front of a prime minister and says to a prime minister: 'I would like you to change your policy or my organisation cannot support you'," Major added.

He said he thought Murdoch was "edging towards" a referendum on leaving the European Union.

But he did not change his views after pressure from Murdoch.

"I made it pretty clear we weren't going to change our policies and we moved on to other matters," he added.

In April, Murdoch told the inquiry: "I have never asked a prime minister for anything."

The Conservatives lost the 1997 election to a resurgent Labour party under Tony Blair, supported by Murdoch titles The Sun and the Times.

(Editing by Steve Addison)