BREAKDOWN

SOMETIMES THE TURNING POINT in a war comes not from a battlefield victory but from a private surrender of faith. It happens when leaders discover that they care less about what they hope to win than about what they stand to lose. And so last week, as a blizzard shut down the government they had just reopened, President Clinton and the Republican leaders of Congress were still saying that it was in America's interest to reach a budget deal, that they weren't very far apart, that they had everything to gain by making peace and much to lose by fighting on, that the markets would shriek if the talks ruptured. And yet there came a moment when they all quietly reached the same conclusion. To varying degrees, they all wanted a deal, they all needed a deal, and without a miracle, they probably weren't going to get a deal. This is the story of why not.

The latest, perhaps final, chapter of the yearlong budget battle was written a week ago Saturday at a restaurant near the Treasury Department. For days Newt Gingrich had been stewing over how to make his best and final offer to Clinton. The Speaker had fought all year for the principle of a seven-year balanced budget; now he hoped to prove once and for all that he is capable of governing, not just breaking windows and upsetting the furniture in the House. So he sat with his advisers at the Old Ebbitt Grill on 15th Street, scribbling notes, picking at appetizers and searching for some magic mix of spending cuts, entitlement reductions, tax cuts and policy changes that could win an overwhelming majority of Republicans in Congress and still get the President's signature.

That same day the President, for his part, finally delivered what he had promised weeks ago: a seven-year plan that had the Congressional Budget Office seal of approval: the numbers were real this time, no sunny assumptions about economic growth. Clinton actually borrowed it from Senate minority leader Tom Daschle, who had been trying to sell a compromise for weeks. When Daschle first unveiled his plan in December, hardly anyone noticed. But by last week, with his poll numbers drooping, Clinton needed a credible proposal, fast. A top Daschle aide, John Hilley (soon to join the White House as its congressional liaison), kept CBO staff members working overtime trying to figure out how to squeeze in at least a teeny tax cut, which Clinton had promised. When Hilley had trouble getting the help he needed at CBO, it was actually Gingrich's staff that turned up the pressure on the exhausted number crunchers. This was because the Republicans also needed Clinton to endorse a CBO-approved plan, so they could claim they had got at least something out of him in return for what they considered their big cave-in, the agreement to reopen the government.