Tory-LibDem pact looks good for UK, but is unlikely

May 8, 2010

-Ian Campbell is a Reuters Breakingviews columnist. The opinions expressed are his own.-

The UK’s third political party faces an ugly dilemma. Which way it turns will be critical for the British economy.

The Liberal Democrats trailed the Conservatives and the Labour party in Thursday’s general election.

But the lack of a majority for either of the other two parties leaves them powerful now. Entreaties to team up with either of the LibDems’ main rivals mean they could now help create a government.

The Conservative proposal looks the best for the UK: a coalition with a clear majority and the moral authority to tackle the fiscal deficit. That is now vital after the warning sounded by Greece. By contrast, a deal with Labour would partner the LibDems with a party that shares their gradualist approach to deficit reduction. But Labour has a strong suit: it offers a referendum on proportional representation. The Tories probably can’t match that. Their less appetizing carrot is a commission on electoral reform.

To back Labour, however, is an ugly option for the Liberals. It would mean they prop up a government voters have rejected. Still, the two parties’ electoral platforms were not poles apart. And if a referendum on proportional representation went their way, it could double the party’s future representation in parliament.

The better offer for the Liberals is the lesser one for the UK. The combined Liberal and Labour seats would still be short of a parliamentary majority, so the pact would be politically weak.

If it stuck to the policy of gradual deficit reduction it would do the UK few favours.

Tory leader David Cameron was right to stress that events in Europe this week underscore that the UK deficit must be tackled this year. At 11 percent of GDP, it is dangerously big. The UK economy is too unbalanced and its consumers too debt-ridden to grow its way out of trouble.

So the Tory proposal makes sense but the Liberals may prove understandably reluctant. If they go with Labour, there would be a weak government, in which case the Conservatives would need to show maturity in opposition. Otherwise the falling pound and rising gilt yields may escort the UK from political to economic crisis.

(Editing by Chris Hughes and Martin Langfield)

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