Perilous Times
Political chaos engulfs Ireland, threatens bailout
By SHAWN POGATCHNIK
The Associated Press
Tuesday, November 23, 2010; 4:41 PM
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 survived a meeting of his Fianna Fail
party lawmakers without a direct challenge to his leadership - even
though several told Cowen to his face he should quit because he lied to
Ireland about secret bailout negotiations.
"I'm sick of it now. I'm sick of having to face people. I feel
humiliated, frustrated and betrayed myself," said one of the Fianna
Fail rebels, Noel O'Flynn.
A downcast Cowen told Dail Eireann, the parliament, he wouldn't call an
election until Ireland's emergency 2011 budget, to be unveiled Dec. 7,
is fully enacted in law. He said that process would require several
close votes running into February at least - which would mean no
election until March. That's too long a delay for many within his own
unraveling government.
But Cowen refused opposition calls to bring the budget forward a week,
to extend parliamentary sessions from their current leisurely three
days a week, and to fast-track votes on tax-raising legislation so that
the effort could be finished before Christmas - and before Ireland's
banks run out of money.
"This will bring some measure of certainty to a government that is out
of control," Enda Kenny, leader of the main opposition Fine Gael, told
Cowen during his vain appeal for an accelerated timetable.
Cowen countered that he couldn't even get Kenny and other opposition
chiefs to pledge to support the budget. If opposition lawmakers vote
against the budget rather than abstain, a single vote either way could
decide the outcome.
"It is a matter of personal responsibility for us all to decide if this
country is going to put forward the budget or not," Cowen told
lawmakers.
At stake is the fate of the reported euro85 billion ($115 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.
Irish state broadcaster RTE reported Tuesday that IMF experts want
Ireland's banks to boost their cash reserves dramatically using much of
the proposed euro85 billion for this purpose.
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, and instead have been relying on
short-term loans from the European Central Bank and Irish Central Bank
exceeding euro120 billion that they want back.
Analysts increasingly warn that Irish taxpayers' bank-bailout bill
could ultimately reach euro90 billion - double the government's current
forecast - because of defaults looming down the road, particularly in
residential mortgages.
"The problem here is not that the government is funded into next year.
It's that the banks are funded, probably, into next week. Do you hear
that sucking sound? It's the sound of the deposits leaving the banks,"
said David Roche, president of investment consultants Independent
Strategy.
He warned that, if Cowen were ousted now or the opposition shoots down
the 2011 budget next month, Ireland "won't have a banking system. So if
the opposition really thinks that's an intelligent exercise, somebody
has lobotomized them of their IQ."
The Irish political and economic crisis, and its uncertain solution,
also drove up borrowing costs Tuesday for Portugal, Spain, Greece and
Italy, all of whom face their own debt-financing struggles. The rising
interest rates on eurozone bonds reflect fears that a third member of
the 16-nation eurozone might soon join the bailout club alongside the
Greeks and Irish.
Cowen said his government on Wednesday would publish a four-year plan
spelling out how it intends to slash its deficit by 2014 to just 3
percent of GDP, the limit for eurozone members. The plan proposes to
slash euro15 billion ($20 billion) from the country's 2011-14 budget
deficits through a combination of cuts and tax hikes, and the biggest
correction of euro6 billion is set for next year.
Cowen, who rose to power in 2008 just as Ireland's vaunted Celtic Tiger
economy was unraveling, has conceded he must call an election next year
but is seeking to delay it as long as possible. His hand was forced
Monday when the junior party in his coalition, the Greens, said it
would withdraw support once the 2011 budget passed.
The Greens said they expect the country to hold an election by late
January, not the March timeline suggested by Cowen's more deliberate
schedule.
The Fianna Fail minister for tourism and the arts, Mary Hanafin,
accused the Greens of undermining Ireland at a critical moment.
"I'm very annoyed. ... I'm not sure they (the Greens) have shown they
have the best interests of the country at heart," Hanafin told RTE.
Hanafin added she wouldn't back any push to oust Cowen - but would put
her name forward if the leader's post became vacant.
At the European Parliament in Strasbourg, France, EU monetary and
financial affairs minister Olli Rehn gathered Ireland's 12 European
lawmakers for a confidential briefing - and stressed they must stop the
political infighting long enough to pass the 2011 budget.
"It is essential that Ireland pass the budget in the timeline foreseen,
and sooner rather than later, because every day that is lost increases
uncertainty," Rehn said.
Shares in Ireland's three remaining banks on the Irish Stock Exchange
tumbled for a second day Tuesday as investors foresaw increasing
bailouts and state control as inevitable.
Patrick Honohan, the Irish Central Bank governor, fueled those fears
with a speech Tuesday to Dublin accountants. He said Ireland's
bank-rescue efforts were right in theory but had failed to restore the
confidence of foreign investors, who have withdrawn tens of billions'
worth of deposits since the summer.
He said Irish banks must greatly increase their own reserves in
response and actively seek foreign buyers.
"They're all for sale as far as I'm concerned," he said of Ireland's
six banks, three of which have already been nationalized.
Bank of Ireland shares plummeted 33 percent to a new record low of
euro0.26 and closed at euro0.30. Allied Irish Banks fell 19 percent to
euro0.33. Insurance and mortgage specialist Irish Life & Permanent
- Ireland's only bank yet to receive a state bailout - shed 11 percent
to euro0.75, also a record low.
The government already owns 36 percent of Bank of Ireland and 18
percent of Allied Irish. The latter bank expects to hand more than 90
percent ownership to the government next month after it offers euro6.6
billion in new, overpriced shares for sale - and finds the government
is the only buyer.