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Last Updated: Tuesday, 8 May 2007, 11:50 GMT 12:50 UK
Labour-led assembly 'most likely'
Vaughan Roderick
By Vaughan Roderick
BBC Welsh affairs editor

Labour leader Rhodri Morgan
Best foot forward - Rhodri Morgan looking for a deal on power
"Don't hold your breath" seems to be the commonest phrase around the Senedd at the moment as the parties edge towards forming a new Welsh government.

The assembly has until the end of the month to nominate a First Minister and the indications are that any deal will come sooner rather than later.

As leader of the largest party Rhodri Morgan is in the driving seat for the first phase of negotiations.

Mr Morgan has to decide between pursuing one of two courses, both of which are problematic.

As Mr Morgan himself says, he faces a choice between the unpalatable and the inedible.

The first option is to form a full coalition with the Liberal Democrats. This would be the preferred option of many valleys AMs.

The difficulty with this choice is that the Liberal Democrats are embroiled in arguments about the leadership and direction of the party.

It is far from certain that Mike German could persuade his party to accept a deal, particularly if Labour refuses to budge on the thorny issue of proportional representation in local government elections.

The second choice is what is described as the "New Zealand" option - a deal with Plaid Cymru (and possibly the Liberal Democrats) ensuring support in key votes in return for an agreed programme of government.

This option is favoured by most Labour AM's along the M4 corridor, where Labour will be battling the Liberal Democrats in next year's council elections.

The problem with the Plaid option is that the main opposition party would demand a hefty price for its support, including an early referendum on increasing the powers of the assembly.

It may be a price that Labour is unwilling, or unable, to pay.

'Hard to stomach'

If both options fail, and Rhodri Morgan can't form a government, it will be Ieuan Wyn Jones's turn to try.

Mr Jones could attempt to reach a coalition deal with the Liberal Democrats while cutting a New Zealand style deal with the Conservatives.

The Tories, though, might well demand seats at the cabinet table in return for their support, a demand many Plaid and Liberal Democrat AMs would find hard to stomach.

If no government is formed by the end of the month then a new election will automatically be triggered - a prospect most AM's view with horror.

That threat is almost certain to ensure that a government will be formed and the likelihood is that it will be Labour-led.

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