Polish leaders agree to keep coalition intact

WARSAW, Sep 20 (Reuters) Poland's three ruling coalition parties agreed today to keep working together and avert early elections despite ongoing tensions over next year's budget and a military mission to Afghanistan.

Conservative Prime Minister Jaroslaw Kaczynski said earlier this week that his Law and Justice party's alliance with smaller leftist and nationalist right-wing partners was in trouble and suggested that an early election was possible.

The government spokesman said after emergency talks of leaders of the three parties that the alliance remained intact, but admitted the threat of a break-up had not disappeared.

''The coalition still exists. It is still intact even though one cannot exclude any scenario, including early elections,'' Jan Dziedziczak told reporters.

The conservatives' two partners are demanding more spending than earmarked in an initial 2007 budget draft and leftist leader and Deputy Prime Minister Andrzej Lepper has threatened a walk-out if his demands are not met.

Lepper's Self-Defence party has also called for an immediate withdrawal of 900 Polish soldiers from Iraq and a reversal of the defence ministry's decision to send 1,000 new soldiers to Afghanistan as part of its NATO contingent.

Tensions within the coalition have grown ahead of local government elections on November. 12 and Lepper has suggested Poland could hold general polls two weeks later if the three parties failed to bridge their differences.

BUDGET WORRIES Dziedziczak said the government would honour its NATO commitments and while discussions over the 2007 budget draft continued, he ruled out increasing the 30 billion zloty budget deficit to accommodate coalition partners.

''The budget anchor will be maintained, there are no negotiations about it,'' he said.

Lepper told reporters the leaders had reached a ''preliminary agreement'' but another senior Self-Defence politician said that his party would not abandon its demands for more spending on agriculture, education and healthcare.

The government, due to discuss the budget bill today and again next week, has to submit the draft to parliament by the end of this month, which then has until the end of January to pass it to the president for final approval.

Deputies cannot change the budget deficit target set by the government, but may shift funds around and pass other legislation that may lead to a deficit overshoot.

Dealers said that despite the leaders' agreement, concerns over the final shape of the budget remained.

''A deal between the coalition parties does not immediately mean a positive signal for the markets,'' Sylwester Brzeczkowski, a currency dealer with ABN AMRO, said.

''The budget is important and if there will be a higher deficit it would be a bad signal,'' he said.

REUTERS PB PM2231