Small Croatian party offers deal to patch new government together

ZAGREB (Reuters) - A small Croatian party whose support could deliver a majority coalition government gave the two main parties a one-week deadline on Monday to decide whether to accept its offer.

An election last month gave neither the conservatives nor the Social Democrats enough seats to rule alone.

Croatia is under pressure from the European Commission and the International Monetary Fund to take policy action to encourage investment, cut its 17 percent employment rate and restrain public debt, which is running close to 90 percent of gross domestic product (GDP).

"Our proposal to both sides is a consensual government. We call upon both sides to give us an answer on that within seven days because without that answer we're stuck," said Bozo Petrov, who leads the Most party, after the three parties met for the first time since the Nov. 8 election.

The conservative HDZ party won 59 seats in the 151-seat parliament, three seats more than the incumbent centre-left coalition led by the Social Democrats.

"Most" (Croatian for "bridge") won 19 seats but has since been reduced to 15 due to internal squabbles. Founded three years ago and made up largely of municipal politicians and independent experts, it wants a joint reformist and expert government and says it would overhaul the public sector and judiciary, reduce business taxation and shrink the budget gap.

However, both the Social Democrats and the conservatives expressed deep scepticism about a broad coalition government.

"We saw similar attempts in Greece and Italy which eventually failed. The government is a political body," Prime Minister Zoran Milanovic said.

HDZ's head Tomislav Karamarko said his party remained open for further talks but that such a government was "unnatural for a democratic environment".

Many analysts believe a new election is becoming ever more likely.

"A model put forward by 'Most' is realistically not applicable. I think we're getting closer to the new polls. The president should now start thinking about that option," said political analyst Andjelko Milardovic.

President Kolinda Grabar-Kitarovic said she would hold the next round of consultations at the beginning of next week.

If no one can win the support of at least 76 deputies, the president must call a new election, but there is no legal time limit for this decision. Many analysts believe time is running out for the country to tackle its budget troubles without outside help.

(Reporting by Igor Ilic; Editing by Ruth Pitchford)

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