Croatia's conservatives and center-right agree coalition

By Igor Ilic

ZAGREB (Reuters) - Croatia's conservative HDZ and the smaller center-right Most party said on Friday they had agreed to revive their coalition, clearing the way to form a new government this month after September's snap vote.

The country's president is expected to ask HDZ leader Andrej Plenkovic to form a government on Monday.

"I expect a stable and an efficient government in the next four years," Plenkovic told reporters. The previous HDZ-Most coalition collapsed in June after just five months amid squabbling over appointments and policy priorities.

The new cabinet faces an uphill task stabilizing public finances and spurring modest growth to bring down unemployment from 13 percent and cut public debt from its current level of about 85 percent of gross domestic product.

Economics-focused Most (meaning Bridge) would have four ministries in the new government, though no ministers have been named. The party will also hold the post of the parliamentary Speaker for the first two years of the mandate.

In last month's snap election, the HDZ won 61 seats in the 151-seat parliament, leaving it short of a governing majority but well ahead of its Social Democrat rivals. Most, a proponent of liberal economics, won 13 seats.

"Stability between HDZ and Most may be tested around municipal elections next year, but this time Most is not an irreplaceable partner," said political analyst Davor Gjenero, who expected the new government to be longer-lasting.

Plenkovic also won support from several other lawmakers, including statutory members of parliament who represent Croatia's ethnic minorities.

The European Union wants its newest member to cut red tape in order to improve the investment climate. The economy, heavily dominated by state enterprises, currently struggles to grow faster than 2 percent a year.

Economists say Croatia also needs to lower taxes and overhaul its pension and health systems, while streamlining or shuttering many loss-making public firms.

(Reporting By Igor Ilic; Editing by Thomas Escritt and Andrew Heavens)

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