LibDems say parties agree on need to cut debt

Liberal Democrat treasury spokesman Vince Cable addresses an audience at Thomson Reuters in London February 23, 2010.

LONDON (Reuters) - The nation's biggest political parties are determined to cut the record budget deficit whatever the political landscape following an election on May 6, the Liberal Democrats said on Wednesday.

In an interview with Reuters Insider television, the finance spokesman for the LibDems indicated his party would be willing to work with either of the two larger parties if the election fails to produce an outright winner.

Opinion polls have suggested there could be no clear winner of the election meaning the incumbent Labour Party or Conservatives may need to woo the Liberal Democrats into a rare coalition government. Britain has not experienced an inconclusive election for more than a quarter of a century.

Sterling fell to a three-week low against the dollar on Wednesday reflecting a growing concern about the state of the British public finances after Standard & Poor's downgraded the credit rating of debt-laden Greece to junk status.

"All parties ... regardless of the outcome of the election are focussed very specifically on the deficit, how big it is, how to reduce it and coordinate it with monetary policy and I think that's the kind of thing that can carry conviction with overseas creditors," Liberal Democrat veteran Vince Cable told Reuters.

At just under 12 percent of gross domestic product for the financial year 2009/10, the budget deficit is approaching that of embattled Greece, which stood at 13.6 percent last year.

However, policymakers including Bank of England Governor Mervyn King have said Britain's debt position is much more secure because the average maturity of its government bonds is far longer than Greece and its economy is larger.

"The Greek position is much more serious but is a salutary warning that unless the next government gets seriously to grips with the deficit problems, as we're determined to do, we could have a serious problem," Cable said.

DOUBLE-DIP RISK REMAINS

The Conservatives, currently ahead in most opinion polls, have said Britain could be in for another economic crisis unless the deficit is tackled hard. Unlike the other main parties, the Conservatives want to start cutting spending this year.

Cable said such action could derail the nation's fragile economic recovery, echoing comments made by Labour Prime Minister Gordon Brown.

The economy emerged from a severe 18-month recession at the end of last year but only expanded 0.2 percent in the first three months of this year.

"There's a real danger of going into a so-called double-dip recession and it would be foolish to rush in significant cuts now which take the economy down even further, which lead to an even bigger deficit problem," Cable said.

While financial markets have grown more used to the idea that Britain could soon experience its first post-election hung parliament for more than a quarter of a century, debt developments in Greece and Portugal have stoked fears of contagion spreading.

The Conservatives have warned that a so-called "hung parliament" could drive Britain back into recession and even prompt a call for help to the International Monetary Fund, Cable said a coalition would not necessarily hamper any deficit cuts.

"It's worth reflecting that Greece and Britain have one thing in common: they have one-party governments that haven't carried the public with them, and that's one danger that I think we need to be mindful of going into this election," he said.

Greece is in talks with the IMF and the European Union on getting a 45 billion euro (39.5 billion pound) bail-out package to prevent a sovereign default.

(Editing by Toby Chopra)