KEY POINTS:
National Party leader John Key has effectively ruled out having New Zealand First leader and Foreign Minister Winston Peters as a minister in any government he leads and called on Helen Clark to stand him down from her Cabinet.
"That is what I would do if I were Prime Minister," he said. "Helen Clark has stood ministers from Labour down for much less."
Helen Clark is reserving judgment until the privileges committee report into the $100,000 donation Monaco-based billionaire Owen Glenn made towards Mr Peters' legal fees.
She acknowledges there is conflicting evidence but said she had a duty to be fair.
Mr Key's new stance means a National government might have to rely on United Future, the Maori Party or Act for numbers to govern if it didn't win more than half the vote.
His statement came on another dramatic day in Parliament during which:
* Mr Glenn told the privileges committee in a letter that Mr Peters had asked him for a donation and thanked him for it.
* Mr Peters said he would tell the committee about a "critical piece of information" from a conversation he had had with Mr Glenn - but refused to give any details.
* Act leader Rodney Hide tried to use parliamentary privilege to make further allegations against Mr Peters but was repeatedly blocked by the NZ First leader.
NATIONAL'S SURPRISE MOVE
In a press conference yesterday afternoon at Parliament, Mr Key said Mr Glenn's letter to the privileges committee contradicting Mr Peters was a direct challenge to the credibility of Mr Peters, who had denied any knowledge of a donation from Mr Glenn until last month.
Mr Key said governments and ministers had to enjoy the confidence of Parliament.
"It is no longer acceptable or credible for Helen Clark to assert a facade of confidence in her Foreign Affairs Minister and fail to ask the plain questions of him that she has a duty to the public to ask."
Mr Key has not entirely ruled out working with NZ First after the election - which must be held by November 15.
"Mr Peters will be unacceptable as a minister in a government led by me unless he can provide a credible explanation."
That meant not just saying Mr Glenn was wrong but proving he was wrong.
Mr Key believed the chances of that happening were "extremely low".
He cast doubts on Mr Peters' veracity himself, saying that Mr Glenn had no motive to lie but Mr Peters "on balance" did.
Referring to Mr Key's new stance, Mr Peters said in Parliament last night that the National Party leader was "behaving tough with a wriggle-out clause".
"It is not clever, it is not experienced, it is not smart and it is not wise."
National deputy leader Bill English added to the pressure on Labour by suggesting that Mr Glenn must have told Helen Clark that he had donated to NZ First.
That was because Mr Glenn had a private meeting with the PM in Auckland on February 21, the same day that there had been prominent speculation in the media that Mr Glenn had donated to the Peters party.
HELEN CLARK'S DILEMMA
Mr Peters' political crisis overshadowed what would otherwise have been a hugely important day - winning enough support to progress the Labour-led Government's emissions trading legislation.
Helen Clark has been relying on NZ First's support for that flagship policy, and any decision to stand Mr Peters down could have overturned that result.
There are several other large bills on which the Government is depending on NZ First's support, including the Real Estate Agents Bill and the legislation to abolish the Serious Fraud Office.
In Parliament, Helen Clark condemned Mr Key's attacks on Mr Peters, saying that in the interests of justice she had to wait until the privileges committee reported - expected next week or the following week.
"If the death penalty applied, Mr Key would be hanging people before the trial was finished," she said.
Asked earlier if she had sought an explanation from Mr Peters, she said: "Yes, and I have received an explanation, which is that he refutes the suggestions.
"I have a duty to be fair. We are in the middle of a parliamentary process."
THE OWEN GLENN LETTER
The privileges committee met yesterday morning and released Mr Glenn's letter and a counter-letter from Mr Peters.
Mr Glenn's letter contradicted evidence given by Mr Peters' lawyer, Brian Henry, last week that he had telephoned Mr Glenn at the suggestion of an unnamed client to seek financial help for Mr Peters' Tauranga electoral petition against National MP Bob Clarkson.
Mr Henry said he had told Mr Peters about it in July.
However, Mr Glenn's letter said the donation was at Mr Peters' request.
"Mr Peters sought help from me for this purpose in a personal conversation, some time after I had first met him in Sydney."
Mr Peters had thanked him for it at, he believed, the 2006 Karaka horse sales.
Regarding contact with Mr Henry, Mr Glenn says: "I do not recall that I, or my assistants, had any discussion or communication with Mr Henry other than to receive remittance details."
The NZ First MP on the committee, Dail Jones, questioned the authenticity of the letter because it was not signed and he questioned Mr Glenn's credibility.
In Parliament he said the evidence so far was on the basis of "an unsigned letter from Mr Glenn, a signed letter from Mr Peters, an actual physical appearance by Brian Henry barrister at law in New Zealand and a physical appearance before that committee of the Rt Hon Winston Peters."
Mr Glenn has appointed a Wellington lawyer, Dr Geoff Harley, to act for him and Dr Harley confirmed that the letter was genuine.
Mr Peters told Parliament that he and Mr Henry would appear again before the privileges committee. It meets again on Thursday next week.
