Uncertainty over UK as Conservatives, Liberal Democrats try to hammer out power-sharing deal

UK parties try to hammer out power-sharing deal

LONDON — The Conservatives and the Liberal Democrats were trying to hammer out a power-sharing deal Monday as politicians faced rising pressure to compromise and create a new government to calm fears about Britain’s economic stability.

The two parties are likely to find some common ground on the economy and taxes but are seen to be furthest apart on the issue of voting reform.

The Liberal Democrats want Britain to shed a system that gave them just 9 percent of the seats in Parliament after they won 23 percent of the popular vote. That is a crucial concession Liberal Democrat leader Nick Clegg needs to sell any coalition deal to his party.

But Conservatives will be loathe to give in on this issue because it would damage their chances to hold power in the future, since it would leave them at the mercy of smaller parties and left-leaning coalitions.

The divide could offer an opening for Prime Minister Gordon Brown’s Labour Party to stay in power through a coalition with the Liberal Democrats and some smaller parties.

Conservative leader David Cameron and Clegg held their second face-to-face meeting on Sunday, with both sides describing the talks as being “amicable.”

“We’re very conscious of the need to provide the country with a new stable and legitimate government as soon as possible,” Conservative foreign affairs spokesman William Hague told reporters before negotiations with senior Liberal Democrats.

After six hours of negotiations, Hague emerged to announce that the two parties agreed that they should focus on economic stability and reducing the ballooning budget deficit.

The prospect of days of political horse-trading has fueled anxiety in financial markets already unsettled by the Greek debt crisis.

Markets opened sharply higher Monday, buoyed by an enormous EU euro bailout deal, but even so, anxiety remained about prolonged political uncertainty in Britain.

“With the markets being highly nervous and fragile in the wake of the Greek crisis and in the mood to penalize any country that is perceived to be falling short on its deficit reduction needs, it is of paramount importance that a credible commitment on how to tackle the dire UK public finances is in place sooner rather than later,” said Howard Archer, chief UK and European economist at IHS Global Insight.

Cameron’s right-of-center Conservatives won 306 of the 650 seats in the House of Commons in Thursday’s national election but fell 20 votes short of a majority. For the first time since 1974, voting resulted in a “hung Parliament” in which no party is able to take overall control.

Cameron is now hoping to woo the center-left Liberal Democrats, who finished third place with 57 seats. Labour finished with 258.

Britain’s voting system is based on races in individual districts, as it is in U.S. congressional elections. Clegg wants a system more like those in continental Europe in which parties win seats in proportion to their share of the total vote — a system that is much less likely to put one party in a dominant position. The Conservatives fear such reforms would leave the Liberal Democrats holding the balance of power indefinitely.

Former Liberal Democrat leader Paddy Ashdown told the BBC that although the dialogue between the parties was congenial and respectful “that isn’t enough … because there is a mountain to climb here.”

“I don’t believe that anybody can now establish a new government who is deaf to the calls from the British people for reform to our political system,” Ashdown said.

Brown, still hoping that his unpopular party can cling to power, has offered to legislate for a referendum on changing the voting system — a step further than Cameron’s offer to the Liberal Democrats to create a “committee of inquiry” into the issue.

Cameron and Clegg also would have to compromise on their positions toward Europe. Clegg’s party is in favor of Britain eventually joining the euro currency, a policy Cameron’s bloc bitterly opposes.

The Observer newspaper reported Sunday that it obtained a secret Conservative Party document drafted by Hague that outlined a strategy for Britain to take back some powers from the European Union and emphasized “we will never join the euro.” A Conservative spokeswoman said no one in the party had knowledge of it.

Conservatives and Liberal Democrats agree on the need for spending cuts, although Cameron wants a more severe pace for austerity measures. The two also have similar policies on cutting taxes for the lowest-paid British workers. Both have pledged action on civil liberties and would likely take quick action to scrap Britain’s planned national identity card program.

Both are committed to keeping British troops in Afghanistan, at least in the short term, and both have signaled they may take a more skeptical tone in relations to the White House. Cameron previously attacked as “slavish” the links that Labour leaders Tony Blair and Brown have shared with Washington.

Meanwhile, Brown remains in power — and will continue to live at 10 Downing Street until it becomes clear that Cameron can form a new government.