Ireland on knife-edge amid bailout fury

Ireland's government was on a knife-edge on Tuesday with damaged Prime Minister Brian Cowen challenging the opposition to let an austerity budget pass and trigger an EU/IMF bailout before early elections.

Amid public fury over the way he handled the rescue, Irish media said Cowen may face calls to resign immediately or turn over leadership of his Fianna Fail party before the next election at a meeting of party lawmakers later on Tuesday.

The prime minister defied calls to quit on Monday, saying the national interest required that he press on to unveil a promised four-year austerity package on Wednesday, and a 2011 budget on December 7 before calling an early election.

A delay in adopting the budget would almost certainly prevent the release of the first bailout loans under IMF rules.

But anger at Cowen's management of Ireland's economic and banking crisis has ballooned since he announced the bailout, and his chances of passing the budget fell dramatically when two independent lawmakers said they were likely to withhold support.

Leftist Sinn Fein activists scuffled with police outside parliament on Monday in a possible foretaste of social unrest over harsh wage and spending cuts to be announced this week.

Greece, the first country to be bailed out by the euro zone and the International Monetary Fund earlier this year and which endured months of social unrest, earned a vote of confidence from EU and IMF watchdogs on Tuesday after promising extra measures to shore up its ailing finances.

"The program is broadly on track and policies are being implemented as agreed," IMF mission chief Poul Thomsen told Reuters after talks with the Greek government.

The thumbs-up means Athens is likely to receive a third tranche of its 110-billion-euro aid package despite problems with tax collection and health spending.

The Irish government is expected to announce it will cut the minimum wage, social welfare spending and the number of public employees and add a new property tax and higher income taxes in a package intended to shave 6 billion euros off next year's budget, and 15 billion off the annual budget by 2014.

Trade unions have warned that the austerity plan could provoke civil unrest: a student demonstration over planned fee increases turned violent this month, and unions have organized a march to protest at the planned measures on Saturday in Dublin. Tens of thousands are expected to turn up.

"Duty To Back Budget"

European partners and the International Monetary Fund agreed in principle on Sunday to rescue Ireland with an expected 80 to 90 billion euros in loans to try to stop its crisis continuing to undermine the value of Ireland's traded debt and that of countries with similar problems -- notably Portugal and Spain.

Financial markets slid on Tuesday, partly because of the mounting political uncertainty in Ireland and fears of contagion to other weak euro zone countries.

Irish shares were down as much as 1.9 percent, the cost of insuring Irish and Portuguese debt against default rose and the risk premium investors charge to hold Irish government bonds edged up further.

Ireland's central bank governor, Patrick Honohan, said all the countries' banks were up for sale, adding he expected the EU and the IMF to attach many conditions to a financial rescue.

"They are for sale as far as I am concerned," Honohan told a meeting of accountants. "I've been an advocate for a number of years for small countries to have foreign owners for their banks."

Cowan told a news conference after emergency talks with his cabinet on Monday evening: "We have entered into discussions with European partners on the basis that we are going to implement a budget that will have a 6 billion euro adjustment.

"We believe that there's a clear duty on all members of Dail Eireann (parliament) to facilitate the passage of these measures in the uniquely serious circumstances in which we find ourselves."

With EU and IMF negotiators thrashing out details of the rescue package, Theresa Reidy, politics lecturer at University College Cork, said Cowen's Fianna Fail party seemed to be planning to cajole the opposition into abstaining on the budget.

"What we will see in the next fortnight is growing pressure on the opposition parties for the sake of political stability to abstain on the major votes," she said.

Both the main opposition parties, Fine Gael and Labour, who are likely to come to power in a coalition after next year's election, had demanded that an election take place before the budget but have not said their final word.

The Irish Times reported on Tuesday that Cowen had called Fine Gael leader Enda Kenny and Labour leader Eamon Gilmore late on Monday night to offer to make the financial advice underpinning the budget available to them.

The Times said it understood that both opposition leaders reiterated their demand for immediate parliamentary dissolution.

Analysts say most Irish people, who have endured two years of austerity and recession and now face four more years of cuts on foreign lenders' terms, would prefer an immediate election.

But some take a more pragmatic view.

"I don't think they should call an election before the budget because the whole basis of the IMF coming in would be undermined," said 39-year-old Dublin teacher Gerald Murphy.

Moody's Investors Service said a "multi-notch" downgrade of Ireland's credit rating, still leaving it in the investment grade category, was now the most likely outcome.

[Source: By Jodie Ginsberg and Carmel Crimmins, Reuters, Dublin, 23Nov10]

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