Irish government, after EU treaty success, faces new test
By Andras Gergely and Carmel Crimmins
DUBLIN (Reuters) – The future of Ireland’s centre-left government and its rescue plan for the country’s hobbled financial system hinge on around 700 members of the Green Party who vote this weekend on continuing in power.
Prime Minister Brian Cowen’s success in ratifying the European Union’s reform treaty last weekend has already faded into the background as he waits for his junior coalition partner to persuade members to agree to a new programme for government and his 54-billion-euro (49.7 billion pound) “bad bank” plan.
Most analysts expect the Greens, conscious of the government’s deep unpopularity, to give the thumbs up to a new programme for government and the bank plan, allowing the administration to continue.
But the Green party’s strong ideological streak, and a high two-thirds threshold needed for motions to be carried, means there is an outside chance the “No” vote will carry the day, triggering a snap election.
“You’d assume neither party wants a general election because both would be crucified,” said Alan McQuaid, senior economist with Bloxham Stockbrokers.
“You’d assume that on that basis alone that you’ll get a positive outcome on Saturday. But I wouldn’t be putting my house on it by any means.”
Five out of six economists polled by Reuters ruled out a general election before the next budget in December and the remaining one said it was unlikely.
But reflecting the sense of uncertainty, bookmakers Paddy Power bookmakers recently cut the odds on an election this year from 11/8 to 11/10.
A Green walkout could send 10-year Irish debt yield spreads jumping 20-35 basis points over the Germany bund, McQuaid said, and bank shares could slide 10-15 percent, according to traders.
Recent opinion polls suggest a coalition government of the centre-right Fine Gael party, the main opposition group, and the left-wing Labour party would emerge from a general election.
Such an outcome would see the “bad bank” plan binned and the possibility that lenders’ bondholders would have to take the hit for cleaning up their balance sheets. Nationalisation would be another option on the table.
Both Fine Gael and Labour are committed to cutting a gaping deficit but they may disagree over the means with Labour opposed to public sector pay cuts — seen as crucial by economists.
AN OUTSIDE CHANCE
The Greens, who entered government in 2007 for the first time, were all but wiped out in local elections in June amid public anger over the administration’s handling of a severe recession. The party is determined to extract significant concessions from Cowen in return for their support.
But Cowen, struggling to tackle the worst public finances in the euro zone, will be unable to meet all their demands, which range from a ban on hare coursing to a cap on further education cuts.
A motion on the government’s plans to create a National Asset Management Agency (NAMA) or “bad bank” has been worded in a way that boosts its chances of being passed but both motions needed to be approved to prevent a political earthquake.
Around 700 of the 1,600 members entitled to vote are expected to attend the meeting in Dublin’s leafy borough of Ballsbridge.
Activists have grown more pragmatic since the party was founded in 1981 but they are still more ideological than other parties and some members feel their principles have been compromised by sharing power with the Fianna Fail party.
“If they stick with government it’s entirely likely their support will decline even further,” said Theresa Reidy, a lecturer in government at University College Cork.
“(So) It’s too close to call. I really do think there is a chance that the government could fall at the weekend. It’s an outside chance but it certainly is there.”
(Writing by Carmel Crimmins; editing by Michael Roddy)
