Fine Gael and Labour members agree on power-sharing deal

The next government in Dublin took shape yesterday with Ireland's two largest political parties striking a deal to work together.

Fine Gael and Labour, which both benefited hugely from the collapse of the ruling Fianna Fail party in the recent election, decided to form government.

A deal worked out by negotiating teams was yesterday endorsed by meetings of party members. Although their manifestos differed on many points and the two parties clashed during the campaign, they unveiled a programme for government based on a series of compromises.

They will have the advantage of a large majority in the Irish parliament, where together they won 113 of 166 seats. The formation of this particular coalition has been widely expected, since it was seen as offering the best chance of stability. The deal will see the installation of the Fine Gael leader Enda Kenny as Prime Minister with Labour leader Eamon Gilmore as his deputy.

During the campaign there were sharp exchanges between the two parties but the possibility of a coalition between them grew as their relative strengths became clear. A deal then became a near-certainty when votes were counted, with Fine Gael by far the largest party but falling short of a majority.

Fine Gael took 76 seats to Labour's 37. While various other arrangements were technically possible, most of them involved large elements of uncertainty – such as relying on independents.

These two parties have often gone into coalition in the past and this time the negotiations went smoothly, with no major rows reported during their intensive talks.

One of the most urgent tasks the new government has set for itself is to seek some easing of the terms of the €85bn (£73bn) bailout advanced to the last administration by the IMF and EU. Next will come years of tackling the country's economic problems.