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Swedish government faces battle to stay in power as labour talks fails

STOCKHOLM (Reuters) - Sweden’s minority government faces a potential rebellion by three small parties that keep it in power over plans to ease rules in Sweden’s rigid labour market.

Talks between trade unions and employer organizations broke down early on Thursday morning, handing the job of finding a solution to the Social Democrat-Green government. It needs the backing of the Left Party as well as two small centre-right parties to pass its budgets.

Prime Minister Stefan Lofven had promised the two centre-right parties that if the unions and employers fail to agree new practices, the government would ease first-in-last-out rules, which critics say hamper companies’ ability to adapt to changing conditions.

Left Party leader Jonas Sjostedt said he would try to bring down the coalition if that plan now goes ahead.

“Stefan Lofven cannot remain as Prime Minister if he plans to put forward the proposals ... which would tear up employment security for all the wage-earners in Sweden,” Left Party leader Jonas Sjostedt wrote on Twitter.

The Left Party would need the backing of the opposition Moderates and the Sweden Democrats to pass a vote of no-confidence in the government, support it would be likely, though not certain, to get.

The complex situation stems from an indecisive election in 2018, when neither the centre-left nor centre-right blocs gained enough seats in parliament to form a majority government.

In order to get a second term as prime minister, Social Democrat Lofven was forced to do a deal with the Centre Party and the Liberals which included a raft of business-friendly reforms, including looser labour market rules.

In June, a commission proposed changes to labour rules which the government agreed it would implement if the unions and employers did not come up with their own plan by the start of this month.

“Negotiations were tough, but constructive between the two sides, but unfortunately we did not get all the way this time,” Susanna Gideonsson, head of umbrella union organisation LO, said after the talks broke down.

Failure to implement the changes proposed by the commission could see the Centre and Liberals jump ship, while adopting them would alienate the Left Party and the unions - the Social Democrats traditional backers.

Reporting by Simon Johnson; editing by Philippa Fletcher