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UPDATE 2-Dutch agree coalition with anti-Islam party support

* Centre-right agrees coalition with far-right support

* Anti-Islam party central to deal

* Christian Democrat party congress needs to approve

* Far-right leader Geert Wilders’ trial to resume next week

(Adds government agreement, quotes)

By Marcel Michelson and Aaron Gray-Block

AMSTERDAM, Sept 28 (Reuters) - Two Dutch parties agreed on Tuesday to form a coalition, with support from a far-right party whose leader is on trial for inciting hatred against Muslims, and its main task will be to implement austerity measures.

The parliamentary leaders of the VVD Liberal Party and CDA Christian Democrats reached agreement to form a minority government, the first in the Netherlands since 1939, with support in parliament from the anti-Islam PVV Freedom Party.

“We have just put the finishing touches on the agreements that will give form to our political co-operation,” VVD leader Mark Rutte said on Dutch public broadcaster NOS.

“I’m so happy that we have come so far.”

The VVD won most votes in the June elections on an austerity platform that found wide acceptance among voters worried about an anaemic economy, a major pension problem and reverberations from the debt crisis in Greece. [ID:nRISKNL]

But efforts to create a majority cabinet stumbled on differences over spending policy, and markets will be closely watching for hints on how fast the new government plans to press ahead with spending cuts.

Rutte said two agreements reached on Tuesday will be presented to party colleagues on Wednesday, one outlining the government pact and the other outlining the minority support.

The VVD and the CDA plan to govern with support in parliament from the PVV, which has called Islam a backwards religion and said the ‘islamisation’ of the Netherlands needs to be stopped.

Freedom Party leader Geert Wilders said the coalition deal would prove “fantastic” for the Netherlands.

“There will be a historic policy, which will be very different on various matters,” he said.

The case against Wilders, who has compared the Koran to Adolf Hitler’s book “Mein Kampf”, resumes on Monday.

Farid Azarkan, at the Dutch Moroccan lobby group SMN, warned the government agreement could lead to growing acceptance for the Freedom Party’s policies.

“The gap between Muslims and non-Muslims will be widened by this and that won’t be good for (immigrant) integration at a time when it’s not actually going so badly,” he told agency ANP.


Prominent party members of both CDA and VVD have spoken out against working with Wilders. One CDA negotiator left parliament after losing an internal debate over ending the PVV talks.

But any government accord still needs to be approved by the CDA party congress, due on Saturday, where some members are expected to speak out against the cooperation.

CDA leader Maxime Verhagen said the government agreements sufficiently respected his party’s principles, allowing him to present Tuesday’s deal to his party with confidence.

The previous government fell in February after the PVDA social democrats left the coalition in a row over the Dutch military presence in Afghanistan.

Last week, the caretaker government proposed cutting 2011 spending by 3.2 billion euros ($4.3 billion) and the new government is expected to seek deeper cuts of 18 billion euros over their potential four-year term.

On Tuesday, the Dutch state sold one billion euros in state loans. Bond investors are confident that the Netherlands can maintain its fiscal discipline, keeping its cost of borrowing NL10YT=RR among the lowest in the euro zone. [ID:nLDE64Q1LS] * For a related story please double click on [ID:nLDE6880FI] (Additional reporting by Gilbert Kreijger and Greg Roumeliotis; Editing by Louise Ireland)