EXCLUSIVE-"Sword of Damocles" Hangs over US Deficit Panel

* Economic turbulence adds sense of urgency

* Van Hollen supports extension of payroll tax holiday

* "Super committee" to hold some public hearings

By Dan Burns

NEW YORK (Reuters) - Turbulence in world financial markets will add a sense of urgency to the work of a powerful new congressional committee charged with finding ways to cut the ballooning U.S. deficit, panel member Chris Van Hollen said Friday.

Democratic Representative Van Hollen said markets, which are gripped by fears of a global recession, would be closely watching the committee's progress. It has to find at least $1.2 trillion in budget savings over 10 years by Nov. 23.

Since the committee was formed as part of a deal to raise the U.S. debt ceiling earlier this month, America's AAA credit rating has been downgraded by Standard & Poor's, the European debt crisis has worsened and financial markets around the world have seesawed over uncertainty about the global economy.

"I think there will be an added sense of urgency," Van Hollen, one of six Democratic lawmakers on the bipartisan 12-member "super committee," told Reuters Insider in an interview from Washington.

Angered by the protracted battle between Republicans and Democrats over raising the debt ceiling, Americans' approval of the job Congress is doing has dropped to a historic low of 13 percent, according to a Gallup poll released this week.

Americans have sent a clear message that they want lawmakers to put politics aside and reach agreement on how to cut the deficit, Van Hollen said.

"There's this sword of Damocles hanging over the process, meaning that if we're not able to reach agreement we're going to see across-the-board, indiscriminate cuts in both defense and non-defense so I think all those factors should focus all the minds of the members of the committee," he said.

If the panel fails to reach agreement on deficit reduction, or if Congress does not act by a Dec. 23 deadline, it will trigger some $1.2 trillion in automatic budget cuts that will begin in 2013 -- a prospect expected to motivate lawmakers.

PUBLIC HEARINGS

Van Hollen said the committee, which must hold its first meeting by Sept. 16, is still working out details of how it will proceed. He said he hoped they would begin meeting soon.

There have been widespread calls for the committee to conduct its work in public after the months-long debt ceiling negotiations were conducted behind closed doors.

"I can say with confidence that it will be an open and transparent process in the sense that there will be hearings and opportunity for input from the American people as well as from other members of Congress," Van Hollen said.

He also said he supported an extension of the payroll tax holiday, which President Barack Obama has also said he favors. The tax cut will likely become a bargaining chip in the super committee's negotiations, with Republicans expected to demand cuts to popular social programs in return.

Democrats and Republicans have sparred for months over how to reduce the deficit. Democrats have resisted cuts to the Medicare and Medicaid healthcare programs for the elderly and poor and to the Social Security retirement program. Republicans are firmly against any tax increases.

"I believe that a very important part of what this committee should be doing is trying to get the economy back on track because the fastest way to address the deficit in the near term is to get the economy going," Van Hollen said. (Additional reporting by Mari Saito in Washington; Writing by Deborah Charles; Editing by Eric Beech)