Political chaos engulfs Ireland, threatens bailout

By Shawn Pogatchnik

Associated Press

Published: Tuesday, Nov. 23 2010 9:21 a.m. MST

DUBLIN — Political infighting engulfed Ireland on Tuesday, threatening to trigger a quick election and delay a massive EU-IMF bailout. Rebels from Prime Minister Brian Cowen's own party pressed to oust him and opposition leaders demanded an election before Christmas.

Despite the discontent, Cowen's Cabinet colleagues in the Fianna Fail party said they were confident the rebels have too few votes to pursue a no-confidence motion against Cowen.

At stake is the future course of the potentially €100 billion ($135 billion) European Union and International Monetary Fund rescue of Ireland, a nation heading toward bankruptcy next year because the government cannot pay an ever-escalating bill to save its state-backed banks.

Ireland's deficit this year is 32 percent of GDP, the highest in Europe since World War II. Its banks are running short of cash because they can't borrow on open markets. Analysts increasingly warn that Ireland's bank-bailout bill could ultimately reach €90 billion ($125 billion) — double the government's current forecast — because of defaults looming down the road, particularly in residential mortgages.

The Irish political and economic crisis, and its uncertain solution, drove up borrowing costs Tuesday for Portugal, Spain, Greece and Italy, all of whom face their own mounting debt-financing struggles. The rising interest rates on eurozone bonds reflect fears that a third member of the 16-nation eurozone — after Greece and Ireland — might be backed into its own bailout corner soon.

The Irish Cabinet gathered at Cowen's office to complete a four-year plan for unprecedented budget cuts — a condition of Ireland's international bailout. The plan, which proposes to slash €15 billion ($20 billion) from the country's 2011-14 budget deficits through a combination of cuts and tax hikes, is to be published Wednesday. The 2011 budget will follow Dec. 7.

Transport Minister Noel Dempsey said the EU-IMF rescue aid couldn't flow until Ireland began slashing €6 billion ($8.2 billion) from its 2011 deficit.

"We don't have the luxury of time in relation to this," Dempsey said. "We asked for assistance. We were given that assistance on the basis that we were going to produce this four-year plan, that we were going to produce a budget, and that budget would pass. If we can't do that, then the assistance isn't there."

Two separate Fianna Fail meetings were scheduled for Tuesday — one led by party rebels, the second by the party's full 70-strong bloc in Dail Eireann, Ireland's parliament.

"There's serious discontent within the parliamentary party. I believe it's now up to those who've spoken out to take soundings amongst their colleagues to take action to remove that man (Cowen) immediately," Fianna Fail lawmaker John McGuinness said.

But Cowen loyalists said McGuinness and other rebels wouldn't be able to gather the 18 signatures required for a no-confidence vote to be scheduled.

Cowen conceded Monday night he must call an election next year but sought to delay it as long as possible. His hand was forced when the junior party in his coalition, the Greens, said it would withdraw support once the 2011 budget passed.

The Greens said they expected the country to hold an election by late January, but Fianna Fail officials say the budget will require multiple votes on different tax increases, which could drag the process into February.

The Fianna Fail minister for tourism and the arts, Mary Hanafin, accused the Greens of undermining Ireland at a critical moment.

"I'm not sure they (the Greens) have shown they have the best interests of the country at heart," Hanafin told Irish state radio RTE.

Hanafin said she wouldn't back any push to oust Cowen — but would put her name forward if the leader's post became vacant.

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