Irish coalition deal hangs on spending plans

TALKS between the Labour and Fianna Fail parties aimed at cementing a new Irish coalition reached a critical stage yesterday as negotiators sought to reconcile bold public spending plans with a bleak Exchequer outlook.

But no deal will have been reached by the time the Dail meets again tomorrow to attempt to elect a Taoiseach. Labour says agreement has been reached on 80 per cent of policy issues.

If a compromise is agreed this week on budget limits, the joint programme will be put to a special Labour conference next weekend for approval, and to a Fianna Fail parliamentary party meeting. This would clear the way for a government to be formed on 11 January.

Keen to calm markets as a new currency crisis looms, Bertie Ahern, finance minister and one of Fianna Fail's three coalition negotiators, has emphasised the need to adhere strictly to Maastricht treaty public borrowing guidelines.

His Labour counterpart, Ruari Quinn, while pressing for radical measures to contain accelerating unemployment, insists Labour's proposals would not mean exceeding those limits.

His party takes a more optimistic view of the budget outlook, hinting that foreign debt servicing costs in 1993 will be lower than officially forecast. But 1992 spending figures due out this week may show last year's budget limits were exceeded. In addition, the single market will lower this year's VAT and excise revenues.

Contacts between the two parties began more than three weeks ago after abortive attempts by John Bruton, leader of the centre- right Fine Gael party, to form a rainbow coalition with Labour and the Progressive Democrats.

Having long accused Fianna Fail under Charles Haughey and Albert Reynolds of putting pragmatism before principle, Labour is seeking commitments from the larger party on some 40 policy areas. Priorities include funding 4,000 new local authority houses this year - more than four times last year's total - and a third banking force built from state banks and the post office network.

The party is also committed to backing big public sector employers such as Aer Lingus with new investment. Far from objecting, Fianna Fail has adopted several of Labour's aims as its own, including the new banking initiative, new hospital commitments and a Dublin light rail service.

That coalition talks between Fianna Fail and Labour are taking place at all is close to miraculous. In the election aftermath, such an alliance seemed the least probable outcome. The poll had been preceded by blistering attacks by Labour leader Dick Spring on Fianna Fail's record.

An Ethics Bill may be moved in the coming session at Labour's instigation to restore public trust in politicians, shaken by 18 months of scandals which played no small part in Fianna Fail's slide.

Labour has promised to accept its responsibility to ensure a government is formed. Fianna Fail, with a sizeable working-class base of its own, has however been more sympathetic to Labour's economic agenda than Fine Gael or the new right Progressive Democrats. For Mr Reynolds there is a personal stake. Failure to hold on to the premier's post now would hasten his demise as party leader.