DUBLIN (Reuters) - Irish Prime Minister Brian Cowen’s call for an early election paves the way for a new coalition expected to push for changes to the massive bailout that sent the government’s popularity to record lows.
The March 11 poll will speed the creation of a coalition government of the center-right Fine Gael party and center-left Labour party and place the focus on how the 85 billion euro ($114 billion) EU/IMF rescue gets implemented.
“The overall theme of today was to remove uncertainty,” said Eoin Fahy, chief economist at Kleinwort Benson Investors. “Markets will be mildly happy about the decision to bring forward the election.”
From the moment it was agreed in late November, political uncertainty has weighed on the bailout package.
Cowen signed the deal already a dead man walking politically after his junior coalition partner, the Greens, forced him in November to agree to an early parliamentary election.
The former finance minister’s latest bid to buy time until early April was a hamfisted attempt to reshuffle his cabinet this week which proved the last straw.
Fine Gael, which will lead the coalition government, and the Labour party, which is expected to have a strong presence in the administration, are committed to the fiscal goals laid out in the EU/IMF deal.
Both parties have said they want to alter aspects of the agreement, particularly what they regard as a punishing interest rate, but in practice they have little room for maneuver.
“What matters now is the election taking place so we can get on with things post March 11. (The market) is looking forward to the new government coming into place, their reaction to the bailout and whether they can renegotiate a lower interest rate, said Brian Devine, chief economist with NCB Stockbrokers.
Another proposal by Fine Gael and Labour, to force losses onto unguaranteed senior bank bondholders, looks unachievable with Fine Gael acknowledging recently that the European Central Bank would oppose such a step as it fears contagion risk.
Before they dissolve parliament, Cowen’s government has committed to passing the Finance Bill, which will complete the passage of the toughest budget on record, locking in 6 billion euros in tax hikes and spending cuts this year.
In addition to the fiscal goals, Dublin has pledged to overhaul its banking system under the bailout package.
Most of the work due to be completed by the end of this quarter, including carrying out liquidity and capital stress tests and the injection of more funds into banks can be completed despite an election campaign, which is expected to last a minimum of three weeks.
Widely criticized for failing to halt a disastrous property boom that precipitated Ireland’s crisis, Cowen and Fianna Fail are set for a record rout in the poll.
Already the most unpopular leader in modern Irish history, Cowen’s attempt to force a pre-election cabinet reshuffle backfired spectacularly and will most likely further hurt the party’s ratings, already at a record 14 percent low.
“It’s very damaging but they have had a whole series of damaging episodes so you can just notch it up to the list,” said David Farrell, professor of politics at University College Dublin.
The next opinion poll is expected in about 10 days, and some analysts say support for Fianna Fail could fall below 10 percent.
A poll result at that level would strip them of well over half their current 74 seat presence in the 166-seat parliament.
The Green party, meanwhile, has likely signed its own death warrant by forcing an early poll. Its core, middle class voters are infuriated that it didn’t do more to regulate the banks and property developers and are angry that they stayed in government this long.
“They’re staring at the abyss, they were in a lose-lose situation for quite a long time now so it’s hard to see The Greens having anyone left after this,” said Farrell.
Additional reporting by Yara Bayoumy; Editing by Jason Neely