UPDATE 2-Slovak party says coalition agrees on govt, budget

(Adds quotes on euro, analyst quote)

By Peter Laca

BRATISLAVA, Nov 29 (Reuters) - Slovak ruling coalition parties agreed to keep their government and support the 2008 budget draft despite rifts that have threatened to break up the cabinet, HZDS party chief Vladimir Meciar said on Thursday.

The centrist Movement for a Democratic Slovakia (HZDS) and the leftist Smer have clashed over land deals at an agency supervised by HZDS, destabilising the government as Slovakia tries to enter the euro currency zone in 2009.

But Meciar told journalists coalition leaders had met late on Wednesday and ironed out some of their differences, which he said had been largely caused by miscommunication.

"All parties have expressed interest in approving the budget," Meciar told a news conference. "There is no reason not to have a majority in the vote."

Meciar added that Prime Minister Robert Fico, leader of Smer, had told him he would tie the budget vote, expected by Friday, with a vote of confidence in the cabinet.

The coalition appeared on the brink of collapse on Wednesday when Meciar said Fico had told him he did not want to continue governing with him.

The Slovak crown currency firmed in early Thursday trade as high as 33.26 to the euro <EURSKK=> from 33.375 on Wednesday.

Approval of next year's budget and Slovakia's plan to adopt the euro in 2009 were among the main reasons for the three government parties to stick together, the HZDS leader said.

Slovakia's application to join Europe's single currency area in 2009 will be assessed in spring next year and Meciar said government instability would damage the integration process.

"Nothing will happen until May. Until the adoption of the euro, we have to cooperate in a way to be perceived as a politically consolidated country."

Fico, pursuing leftist welfare policies funded by economic growth of more than 9 percent, strengthened his position in the ruling coalition after the spat with Meciar, analysts said.

They saw future clashes in the coalition as inevitable but expected Fico to keep the cabinet afloat, perhaps sidelining Meciar but making a deal with his party colleagues.

"Sooner or later, this coalition will not last ... with Meciar," said Samuel Abraham, a political analyst. "Meciar is already seen as disposable. However, some members of his party might stay in the coalition, and preserve the coalition."

HZDS has split several times in the past since Meciar ruled as autocratic prime minister in the 1990s. Meciar has strong grip over executive bodies of his party but some of his deputies have rebelled against him in the past year. (Writing by Peter Laca and Jan Lopatka; Editing by Janet Lawrence)

((jan.lopatka@reuters.com; +420 224 190 477; Reuters Messaging: jan.lopatka.reuters.com@reuters.net))

Keywords: SLOVAKIA COALITION/