No Deal Yet on Forming U.K. Coalition Gov't

A senior lawmaker with Britain's Liberal Democrat Party says no deal has been reached yet with the Conservative Party in their attempts to form a new government.

Britain's election deadlock had appeared closer to resolution Monday as David Cameron's Conservatives and their potential ally, the third-place Liberal Democrats, reported progress, amid fears that prolonged uncertainty following last week's election would rattle the markets.

Lawmaker David Laws said Monday that the Liberal Democrats are seeking clarification on a proposed deal with the Conservatives, who won the most seats in Thursday's national vote but not a majority in Parliament.

The key issue: Electoral reform, which the Liberal Democrats demand but which the Conservatives fear would banish them to the political wilderness for years to come. Other sticking points are education and tax reform.

Laws said there has been extensive debate among party members because the party needs to "make sure we get these matters right."

He also said the Liberal Democrats are still speaking with the Labour Party, which has also made overtures to the third-place Lib Dems. Labour is led by Prime Minister Gordon Brown who is refusing to give up on a chance to stay in power.

The Conservatives spent the last few days wooing Nick Clegg and his Liberal Democrats in hopes of forming an alliance.

Cameron and Clegg met face-to-face Monday as teams of party negotiators tried to hammer out a power-sharing deal - and Clegg also met separately with Brown.

Top Conservative Party lawmakers were guarded as they arrived for a meeting in Cameron's office Monday afternoon. Asked if Cameron would be prime minister by Tuesday, lawmaker Des Swayne, an aide to the leader, said: "I hope so."

Some observers suggested that Clegg's party might be open to talks with Labour if Brown agrees to step down, due to Cameron's expected refusal to back sweeping electoral reform.

It's a critical juncture for Clegg. His position as kingmaker could determine his party's influence not only in the next government but in elections for decades to come, but only if the Liberal Democrats can get their main wish - an overhaul of Britain's electoral system.

Proportional representation is critical to Clegg because it would mean his party would gain a greater share of seats in House of Commons. On Thursday, his party earned 23 percent of the vote yet got only 9 percent of the body's 650 seats.

Clegg on Monday urged voters to "bear with us a little longer."

"All political parties, all political leaders are working flat out, round the clock, to try and act on the decision of the British people," Clegg said. "(But it's) better to get the decision right rather than rushing into something which won't stand the test of time."

Clegg has a tough sell to persuade his party to accept an alliance with Cameron that doesn't include voting reform.

But the Conservatives strongly oppose the change, as it would likely mean fewer seats for Britain's two main parties - the Conservatives and Labour. So far, Cameron has offered the Liberal Democrats only a review of the voting system and the prospect of a House of Commons vote on changing it - a vote that Clegg is unlikely to win.

Still, the experience of decades as Britain's third-place party is likely to weigh heavily on the Liberal Democrat lawmakers as they meet with Clegg later Monday to discuss the possible alliance.

Like Clegg, Cameron also faces dissent in his ranks - caught between his circle of reformers and the Tory old guard, which blames him for failing to secure a majority in an election that months ago he was supposed to win.

William Hague, Cameron's de facto deputy, said negotiators had made "further progress" in talks Monday with the Liberal Democrats.

"The negotiating teams are working really well together," he said.

Former Conservative Party prime minister John Major told BBC radio that a quick deal was necessary. "Everybody is looking at the compromises that may be necessary, but I don't think this is a dance that can go on for too long," Major said.

The Liberal Democrats and Conservatives said they'd found some agreement on action to reduce Britain's record 153 billion-pound ($236 billion) deficit and reform of its education system.

Although all three main parties are committed to keeping British troops in Afghanistan - at least for now - Clegg and Cameron's groups have wide differences over foreign policy, nuclear power and plans to replace Britain's fleet of nuclear-missile armed submarines.

They also differ widely on relations with the rest of the European Union. Clegg's party is in favor of Britain eventually joining the euro currency, a move the much more Euroskeptic Conservatives bitterly oppose.

Britain's inconclusive election on Thursday produced a hung Parliament in which no party holds a majority of seats. The only other two-party pact in Britain since World War II came in 1977, when a weakened Labour government struck an informal deal with the then-Liberal Party lasting less than a year.

Cameron's center-right Conservatives won 306 of the 650 seats in the House of Commons, 20 short of a majority. Brown's center-left Labour won 258 and the center-left Liberal Democrats took 57 seats.

Labour Party lawmaker Alistair Darling, Britain's Treasury chief, said his party would be prepared to offer Clegg a deal on voting reform if the Liberal Democrats' talks with the Conservatives break down.

"I hope that by the end of today they will decide whether they can do a deal or not," Darling said. "We have made it clear that if they can't, then - of course - we are ready to listen to the Liberals."

Brown's Labour party could seek to form an alliance or a coalition with Clegg's party, the Scottish Nationalist Party, the Green Party's single lawmaker and other minor parties.

Despite worries that days of political horse-trading would rattle the financial markets, Britain's FTSE 100 index soared 248.72 points, or about 4.5 percent, to 5,371.74 in early trading. World stock markets surged on news of the European Union agreement on a package worth almost $1 trillion for the embattled euro.

But Howard Archer, chief U.K. and European economist at IHS Global Insight, warned political progress was necessary.

"It is of paramount importance that a credible commitment on how to tackle the dire UK public finances is in place sooner rather than later," Archer said.