- Associated Press - Saturday, August 21, 2010

CANBERRA, Australia (AP) — The leaders of Australia’s two major political parties began negotiating power deals with independent lawmakers Sunday after the nation’s closest election in decades failed to deliver a clear mandate to govern.

Prime Minister Julia Gillard, who remains caretaker leader, said it was clear that no party had won a majority of parliamentary seats in Saturday’s poll, which delivered an extraordinary voter backlash against her center-left Labor Party after a single three-year term.

Market analysts predicted the uncertainty would push the Australian dollar and stock market lower when trading resumes Monday.

Labor hemorrhaged votes to the environment-focused Greens party as the government was punished for shelving plans to charge major polluting industries for every ton of carbon gas they emit.

Ms. Gillard and Tony Abbott, leader of the conservative Liberal Party, said they had initiated talks with three independents in the House of Representatives as well as the Greens party in a bid to secure their votes in the House of Representatives. Neither revealed what they were prepared to offer in the confidential negotiations.

Both Labor and the Liberal-led coalition have conceded that neither is likely to hold the 76 seats needed to form a government in the 150-seat lower chamber.

“It’s my intention to negotiate in good faith an effective agreement to form government,” Ms. Gillard told reporters.

She suggested that Labor would be better able to get its legislative agenda through the Senate, where major parties rarely hold majorities. The Greens’ record support in the polls increased the party’s Senate seats from five to nine, giving them the leverage to become kingmaker in deciding which major party controls that chamber.

“So the question before all of us is this: Which party is better able to form a stable and effective government in the national interest?” Ms. Gillard said.

But Mr. Abbott, who doubts the science behind climate change and rules out ever taxing polluters for their greenhouse-gas emissions, said Labor had proved unstable even with a clear majority.

Bitter recriminations within Labor over the election result have begun, with at least one lawmaker who lost her seat blaming her colleagues’ dumping of former Prime Minister Kevin Rudd for Ms. Gillard. Some lawmakers have blamed the result on a series of damaging media leaks against Ms. Gillard during the election campaign that are suspected to be the work of disgruntled Rudd loyalists.

“It’s certain that any Labor government emerging from yesterday will be chronically divided and dysfunctional,” Mr. Abbott said.

The prospect of no party controlling Parliament added to concerns already shaking markets about the economy, AMP Capital Investors chief economist Shane Oliver said.

“Uncertainty over who will govern, fears of a possible drift toward less business-friendly policies reflecting the increased power of the Greens, worries about less decisive policy-making, and a likely absence of longer-term reforms under a minority government will all likely add to jitters in the Australian share market and in the Australian dollar,” he said.

Independent Tony Windsor said he planned to talk with fellow independents Bob Katter and Rob Oakeshott on Sunday to decide whether to negotiate a power deal with the major parties as a group or individually.

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