Sept. 15 (Bloomberg) -- Norwegian Labor Party leader Jens Stoltenberg has little experience in the sorts of compromises needed to form his party's first coalition government since World War II.

The party, which has held power for 41 of the past 60 years, has led minority governments, including the first Stoltenberg administration in 2001. While that produced compromises needed to push through legislation, Labor will now have to cooperate on a daily basis with two coalition partners and agree on a program.

``Finding the compromises will be very hard,'' said Anders Todal Jensen, an election researcher at the Norwegian University of Science and Technology in Trondheim, in an interview. ``They have invested so much in this that they have to deliver.''

Labor won a four-year term in the Sept. 12 election along with its two partners, the Socialist Left and Center parties. The three must now find common ground on issues such as North Sea oil exploration and school and welfare spending.

The three parties took 87 of the 169 seats in the parliamentary election, ousting the administration of Prime Minister Kjell Magne Bondevik, 58. Bondevik, who cut taxes during his four-year term, will present his last budget on Oct. 14, and Norwegian political tradition calls for the new government to take over after that announcement.

Stoltenberg, 46, said in an interview with broadcaster TV2 on the morning after the election that there are ``significant differences'' between the coalition partners, particularly on energy. Stoltenberg said during the campaign that a Labor-led government wouldn't hamper oil companies' plans to boost exploration. Norway is the world's third-largest oil exporter.

Exploration Freeze

Socialist Left party leader Kristin Halvorsen, 45, said before the election that drilling in the far north is ``gambling with our future.''

Both Statoil ASA and Norsk Hydro ASA, the country's two largest oil companies, have said that the oil and gas exploration in northern waters is important for their long-term growth.

The Left is also proposing to spend more money than the other parties from Norway's $188 billion fund from surplus oil revenue, seeking as much as 60 billion kroner ($9.4 billion) extra for projects such as free hot lunches in schools and a legal right to kindergarten place for all children.

`Internal Tensions'

``It won't be at all easy,'' said Elisabeth Holvik, an economist at SEB Merchant Banking in Oslo. ``There will be continued internal tensions on many issues.''

The Nordic country's parliament has limited spending from the oil fund to an average of 4 percent of the total each year. Labor, which devised the rule when Stoltenberg was previously in power, wants to keep to the limit, while the Socialist Left and Center parties oppose the restrictions. Bondevik's government has exceeded the 4 percent cap every year since he took power in 2001.

The increased spending may fuel inflation, prompting a more rapid rise in interest rates than currently anticipated by economists, Holvik said. Near-record low borrowing costs have boosted consumer spending and business investment, taking economic growth to a five-year high in 2005.

The central bank cut its interest rates 10 times to a record low 1.75 percent between December 2002 and March 2004. The bank kept the benchmark steady for more than a year before increasing it to 2 percent in June. Norges Bank says it may raise interest rates again in ``small, not too frequent steps.''

The bank is also forecasting that growth excluding oil and shipping in the so-called mainland economy will peak at 3.75 percent this year before slowing to 3 percent in 2006.

Cabinet Lineup

The three parties still have to decide how to divide up cabinet posts. Labor will dominate the coalition, after winning a total of 61 seats, an increase of 18 on the previous parliament. The Center Party gained 1 seat to 11, while the Socialist Left lost eight seats from four years ago, leaving it with 15.

The newspaper Dagbladet and other local media have reported that the post of finance minister could go to the Left, even though Stoltenberg could prefer to have a Labor politician to maintain control over spending, according to economists. Dagbladet also forecast that the Left's Halvorsen, who favors an end to the system of high-school grades and an overhaul of exams, may be named education minister.

Center Party leader Aaslaug Marie Haga, whose core voters are in rural areas and who is seeking to boost spending there, may become the minister for municipalities and regional development, according to the newspaper Aftenposten.

European Union

The three parties may also struggle to reconcile different views on foreign policy. Labor's leadership supports a renewed bid to join the European Union, a plan that's opposed by the other parties.

``The European Union is the only issue where we are completely inflexible,'' said Haga in an interview on NRK television two days ago. She said she's ``convinced we will manage to find a common platform for a government.''

Bondevik's administration resolved its differences on the EU with a clause in the coalition agreement saying the government would step down if entry became an issue. Norwegian voters have rejected EU membership twice in the past 33 years.

The three coalition parties disagree on NATO. The Socialist Left was formed in 1975 in opposition to Norwegian membership of the defense bloc, and its program continues to call for withdrawal and for Norway to pursue a more independent foreign policy. Labor, which brought Norway into NATO, doesn't agree.

One final dispute involves wild animals. The Center Party wants to shoot some of Norway's wolves and bears as they kill sheep owned by the farmers who support it. The Socialist Left, with its environmental stance, supports better protection for the predators.

To contact the reporter on this story: Trygve Meyer in Oslo at tmeyer2@bloomberg.net.

Last Updated: September 15, 2005 03:07 EDT