Cracking jokes with his new deputy Nick Clegg, leader of the third-placed, Cameron hailed a "historic and seismic shift" in British politics as he sought to bury their old rivalry.
With World War Two, the new coalition must find a way to cut a budget deficit running at more than 11 percent of GDP.emerging from its worst recession since
"No government in modern times has ever been left with such a terrible economic inheritance," Cameron told reporters in the garden of 10 Downing Street, the prime minister's official residence. "We know there will be difficult decisions ahead.
(The coalition) can be an historic and seismic shift in our political landscape."
At an open-air news conference, Cameron and Clegg stood side-by-side and forgot the animosity and insults of the close-fought election campaign, laughing at each others' jokes and using first names.
Hailing a new era of British politics, Clegg said: "We need to rebuild not only the public finances but we also need to rebuild the British economy on new sustainable foundations out of the rubble of the old economy."
The two sides agreed earlier Wednesday to form a coalition after an inconclusive election last Thursday ended 13 years of rule by the center-left Labor Party under and his successor Gordon Brown.
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NEW POLICY PROGRAMME
Despite big differences on policies as varied as tax, immigration and nuclear weapons, the parties said they had agreed a policy program that will be stable and lasting.
The coalition's plans include:
- Introduction of a banking levy;
- Commission to investigate the possibility of separating retail and;
- Plans to give Bank of England a direct role in measures to tackle long-term threats to financial stability and a watching brief over day-to-day bank supervision
- Raising non-business capital gains tax to bring it close to income tax levels;
- Cap on non-EU immigration.
The coalition adopted Conservative plans to cut 6 billion pounds ($8.96 billion) of spending this financial year, earlier than the Liberal Democrats wanted.
"There is going to be a significant acceleration in the reduction of the structural budget deficit," new finance minister George Osborne told reporters.
Britain's financial markets had mixed fortunes as relief about the coalition deal was tempered by concerns about the harsh austerity measures that lie ahead.
The coalition has yet to convince skeptics that it will have the strength and longevity to overhaul the economy.
"I still don't think it will last," said David Lea, western Europe analyst at Control Risks, a consultancy. "The differences between the parties are just too great."
Former Conservative deputy leader William Hague is the new foreign secretary and ex-finance minister Ken Clarke will run the justice department. Lib Dem , a former economist, is the new business secretary.
Cameron, a 43-year-old former public relations executive, took over as prime minister after Brown admitted defeat in efforts to broker a deal with the Lib Dems. He is Britain'sin almost 200 years.
Legislation will be introduced to give parliaments five-year fixed terms. However, parliament could still be dissolved if 55 percent or more of the House votes in favor.