Tim Gosling in Prague -

The two parties in Poland's governing coalition finally reached an agreement on a plan to raise the country's retirement age on March 29, deflating the risk of a collapse over the issue.

Senior partner Civic Platform (PO) had to offer compromise to its partner in the government, the Polish Peoples' Party (PSL), on its plan to raise the retirement age to 67, but both will be happy to put the issue behind them after it threatened the coalition in mid-March.

Under the compromise, Poles will not be able to retire fully until 67, but women will have the option to start drawing partial retirement payments at 62, and men at 65, if they continue to work part-time. The catch is that once they reach full retirement at 67 their full pensions will be lower, reports AP.

Prime Minister Donald Tusk denied that the deal waters down his reaction to Poland's chronic need for swift pension reform - a situation he said would prove "catastrophic" unless it is dealt with earlier this year. "Increasing the retirement age to 67 years remains the goal of the reform," Tusk said at a news conference alongside deputy Prime Minister and PSL leader Waldemar Pawlak.

The plan, which aims to raise the retirement age for men from 2020 and for women from 2040, is a central plank in PO's promise to introduce greater fiscal discipline by reducing the budget deficit and lowering state debt levels. However, it has been beset by opposition from unions and in parliament.

That has helped spark the first serious rift between PO and its coalition partner since the pair teamed up to form a government in 2007. PSL's support is concentrated amongst the older electorate and in rural areas, so its opposition is understandable.

However, PSL's approval ratings have dropped close to the 5% threshold for entering parliament, so it was always unlikely to push the issue so far as to provoke early elections. Similarly PO has seen its support fade since it launched an ambitious austerity drive following the government's re-election in October, so a government collapse was always unlikely despite the reports of simmering pressure.

However, the agreement with PSL is only PO's first hurdle. The government will now have to form a draft bill and put it before parliament, and it will face vigorous protest from trade unions and the opposition Law and Justice party. Piotr Duda, head of the Solidarity trade union, called the government's agreement a "fraud and a rotten compromise." He said 50,000 union members plan to rally on March 30 in front of parliament to call for a referendum on the plan.

The drawn out spat illustrates the pressures Central European governments are facing as they attempt to exert greater fiscal discipline and reform. Protests and coalition splits are also being seen in the Czech Republic, which is also pressing hard to rein in its deficit. By way of contrast, Hungary's government is provoking fury in Brussels as it refuses to implement reform, whilst the ruling Fidesz party's standing is enjoying some resurrection amongst the domestic audience.

The big question in the region is which way the new Slovak government - which will be led by left-leaning populist Robert Fico - will swing. Fico has promised to implement reform and fiscal discipline, but his track record worries analysts. At the same time his Smer party will have no coalition partner to clip its wings, and little in the way of opposition since corruption scandals have decimated the country's right wing parties.