Polish PSL party to play hardball in coalition talks

WARSAW, Sep 26 (Reuters) A small rural-based party raised the stakes today in efforts to build a new governing coalition in Poland, saying it would demand substantial concessions to join the conservative-led government.

With 25 deputies in the 460-member parliament, the Peasants' Party (PSL) can play kingmakers after the conservative Law and Justice (PiS) ditched leftist partners Self-Defence in a row over the budget and a decision to send troops to Afghanistan.

''(For us to agree to a coalition) there will have to be substantial changes to policy, both socially and economically,''party official Jaroslaw Kalinowski told private radio RMF.

The conservatives initially said they would call snap polls, possibly in late November, if they did not succeed in forming a new majority by parliament's next meeting on October 10.

But senior party figures appeared to backtrack today, saying the electoral law should first be altered to include changes designed to benefit the electoral victors -- a move that could be difficult to push through the legislature.

''If we were to have early elections without changing the electoral law there would be a probability that we will have a similar deadlock, threatening the country's stability,'' said Tadeusz Cymanski, deputy head of their deputies in parliament.

It was not clear whether this meant Prime Minister Jaroslaw Kaczynski's conservative cabinet could carry on as a minority government if the coalition talks fail. Kaczynski has ruled this out.

Coinciding with anti-government protests in Hungary, the latest political crisis in Poland worried investors concerned that reforms would stall in ex-communist states that joined the European Union in 2004.

But the zloty has recovered most of its losses after the coalition collapsed last Thursday, underpinned by strong economic growth and investment inflows.

''This is a political crisis, not a crisis for the country,'' one EU diplomat in Warsaw said.

RURAL SUPPORT A senior Law and Justice source said he was convinced it could secure a new majority although Kalinowski of the Peasants' Party said he believed the chances of a deal were ''minimal''.

The Peasants' Party has been part of several coalitions since the fall of communism 17 years ago, seeking to promote the interests of the country's large rural population.

Its leaders met today to discuss strategy and talks with the conservatives were scheduled for tomorrow.

''I believe that an agreement with PSL is very likely and an early election is almost impossible,'' the Law and Justice source said.

But even if the Peasants' Party joins the government, this would not be enough for a majority. Law and Justice and its small coalition partner, the nationalist League of Polish Families, have 183 seats.

The conservatives hope to convince some 15 Self-Defence MPs to quit their party and would also need the support of independent members of parliament to secure the 231 seats guaranteeing a majority in parliament.

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