Infighting threatens bailout in Ireland

Fianna Fail rebels seek to oust leader

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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, Mr. 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 Mr. Cowen.

At stake is the future course of the potentially $125 billion European Union and International Monetary Fund (IMF) 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 $125 billion — double the government’s current forecast — because of defaults looming down the road, particularly in residential mortgages.

Sinn Fein hold a protest outside government buildings, Dublin, Ireland, Monday, Nov. 22, 2010 during a demonstration calling for the Irish Prime Minister to resign. Ireland's banks will be pruned down, merged or sold as part of a massive EU-IMF bailout, the government says as a shellshocked nation comes to grips with its failure to protect its financial institutions.  (AP Photo/Peter Morrison)

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Sinn Fein hold a protest outside government buildings, Dublin, Ireland, Monday, Nov. ... more >

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 Mr. 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 $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 $8.2 billion from its 2011 deficit.

“We don’t have the luxury of time in relation to this,” Mr. 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 [Mr. Cowen] immediately,” Fianna Fail lawmaker John McGuinness said.

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

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