UPDATE 2-Prospects for Irish economic consensus slim

* Labour leader rejects Irish PM overture on budget plan

* Analysts say some sort of deal would reassure markets

* Four-year budget plan to be unveiled in November

* Irish spreads narrow on back of U.S. fund purchases

* Cost of insuring against Irish default drops

(Recasts with more quotes, detail)

By Padraic Halpin and Matt Scuffham

DUBLIN, Oct 14 (BestGrowthStock) – The leader of Ireland’s Labour
Party rejected on Thursday Prime Minister Brian Cowen’s
invitation to forge a cross-party deal on tackling the country’s
fiscal woes and called for new elections.

The other main parties had yet to comment but Labour’s
comments signalled Cowen’s plan, meant to reassure investors,
looked set to fail.

Deeply unpopular and struggling to shrink the worst budget
deficit in the European Union, Cowen wrote to the heads of the
main opposition parties on Wednesday, inviting them to talks.

But doing a deal with Cowen, whose government is expected to
fall next year, would curb their own policy options and give the
embattled prime minister a boost.

“We are not going to fool people into believing that there
is some kind of phoney consensus that can be put together as a
substitute for having a strong and stable government that will
see through budgetary plans over the next four-to-five years,”
Labour leader Eamon Gilmore told national broadcaster RTE.

The main opposition party, Fine Gael, had welcomed Cowen’s
offer but its leader Enda Kenny said previously that he would
not replicate a 1987 move by the party to support its rivals’
economic policies because it cost it votes.

Both Gilmore and Kenny, who is in New York, have said they
will meet with Cowen, but a deal is not expected.

“A lot of this is just posturing because neither side wants
to be seen to be the villain of the piece,” said David Farrell,
professor of politics at University College Dublin.

“The political reality is that it’s not a consensus at all
in any shape or form. I can’t personally imagine a scenario in
which anything approaching a National Government type of
consensus can emerge on this side of an election.”

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Take a Look [nLDE69C2FV]

Snap analysis [nLDE69C2D1]

Factbox on political parties [nLDE69A1B9]

Graph of key indicators http://r.reuters.com/wuv48p
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LABOUR WANTS ELECTIONS

Riding high in opinion polls, leftwing Labour wants Cowen to
dissolve parliament and call a snap election — something the
premier will not do.

All of Ireland’s main political players agree it needs to
get its deficit, set to blow out to 32 percent of gross domestic
product (GDP) this year due to the one-off inclusion of a
banking sector bailout, below an EU limit of 3 percent by 2014.

Cross-party agreement would reassure investors that Dublin
will stay in austerity mode even if the government falls at some
point next year but markets are not expecting a deal.

Despite Gilmore’s rebuff, the spread between Irish bond
yields and benchmark German issues — a key gauge of investor
confidence — dropped 26 basis points to 398 bps in afternoon
trade, falling below the 400 bps level for the first time in a
month after a large U.S.-based fund said it had bought Irish
sovereign debt aggressively in recent weeks. [ID:nLDE69D0BH]
[ID:nN13229078]

The cost of insuring against an Irish default also fell
below 400 bps for the first time in a month. [ID:nLDE69D0RR]

Irish borrowing costs hit euro lifetime highs in September
on fears Dublin would not be able to cut its deficit and shell
out up to 50 billion euros to clean up its banking sector
following a devastating property crash.

ELECTION NEXT YEAR?

Cowen’s government needs to unveil a detailed and credible
four-year fiscal plan next month explaining how he can get the
country’s finances back on track despite anaemic economic
growth, a busted banking system and two years of austerity
already under his belt.

Irish consumer prices fell month-on-month in September, data
on Thursday showed, highlighting the economy’s fragility.
[ID:nLDE69D0Qu]

Speaking to reporters in Dublin, Cowen said even a meeting
with Kenny and Gilmore would be a positive step.

“A meeting between us confirming that we are all on the same
broad field of play is something that would be helpful as a
signal to the international community,” he said.

Cowen’s government is expected to fall when by-elections for
three vacant parliamentary seats are held next year. The polls,
likely in April, are expected to cut his majority to just one
leaving the administration vulnerable to opposition offensives.

The nationalist Sinn Fein party is taking a legal challenge
against the government on Monday to try and force them to hold
an election for a seat in the northern county of Donegal this
year but legal experts say it is unlikely to succeed.

Fine Gael and Labour are expected to form a coalition
government following a general election but Labour,
traditionally the junior party in power, may have a much larger
say in any administration due to Gilmore’s popularity.

Fine Gael has been trailing Labour in opinion polls due to
dissatisfaction with its leader, Kenny, who has been
overshadowed by Gilmore’s polished performance in parliament and
stung by a botched internal coup over the summer.
(Writing by Carmel Crimmins and Noah Barkin; editing by
Philippa Fletcher)

UPDATE 2-Prospects for Irish economic consensus slim