Irish PM nears formation of new government after deal with rival

By Conor Humphries and Padraic Halpin DUBLIN (Reuters) - Acting Irish Prime Minister Enda Kenny took a major step towards forming a new government after nine weeks of deadlock on Friday when he secured the agreement of the country's second largest party to facilitate a minority administration. Under the deal Fianna Fail will abstain in key votes, leaving Kenny's Fine Gael just six votes short of the 58 needed to pass legislation. The party has been in talks with independents for weeks and senior members have voiced confidence they can secure their backing. "Fine Gael and Fianna Fail have reached a political agreement to facilitate a Fine Gael-led minority government," the parties said in a joint statement. The two parties will finalize the text of the agreement and each has to approve it, they said. The agreement will last for three annual budgets, meaning the minority government would last until October 2018, a source familiar with the arrangement told Reuters. It includes an agreed policy framework on issues such as taxation, public sector pay and housing. Ireland joined a growing list of EU countries suffering political paralysis on Feb. 26 when voters angry at the meager benefits from a brisk economic recovery ousted the coalition government but failed to pick a clear alternative. Since then Kenny has failed in three parliamentary votes to be re-elected. "It has been a tortuous, long and difficult, at times, process," Fianna Fail negotiator Michael McGrath told reporters after announcing the deal. Talks with independent deputies were scheduled for later on Friday evening. Wednesday is the earliest date a vote could be scheduled in parliament to re-elect Kenny as prime minister. Fine Gael and Fianna Fail are both center-right and differ little on policy but have been bitter foes for decades, tracing their rivalry back almost a century to Ireland's civil war. The impasse has so far had little effect on Europe's best-performing economy but analysts say a weak minority government could paralyze efforts to tackle bottlenecks in housing and infrastructure that threaten to choke the recovery. Many analysts also believe the government will be shorter-lived than envisaged, a view shared by one Fine Gael politician given that Friday's deal hinged on the incoming administration temporarily suspending charging households for water use, which triggered protests and was a major issue in the election. "If Fianna Fail are insisting in having their way on the very first issue, I don't think this will last very long. I don't see much trust there," Fine Gael lawmaker Michael D'Arcy told national broadcaster RTE earlier in the week. (Reporting by Conor Humphries; Editing by Mark Trevelyan)