Indebted Irish take revenge in crisis poll

Irish voters are set to oust govt in polls dominated by economy collapse.

Updated: Feb 25, 2011, 21:33 PM IST

Dublin: Irish voters were expected to turn their political order upside down on Friday in the first European general election dominated by the debt crisis and the harsh path back to financial stability.

With the electorate in a vengeful mood over the country`s economic collapse, the ruling Fianna Fail party is set to be booted out of office and Enda Kenny`s center-right Fine Gael party propelled to power in the biggest political shake-up since Ireland won independence from Britain in 1921.

"This government have shamed us, the whole country is shamed by them," said Alan Pinder, a 49 year old plumber. "They need to be punished."

Ireland`s stunning transformation from economic pin-up to euro zone struggler propped up by the European Union and the International Monetary Fund has electrified and angered voters but overall their instincts remain conservative.

Like Fianna Fail, Fine Gael has a pro-business and low-tax ideology and it has pledged to stick to the overall austerity targets laid down by the EU and IMF as a condition of an 85 billion euros bailout package agreed in December.

Crucially, however, Fine Gael is less tainted by allegations of crony capitalism that scarred Fianna Fail`s last months in office. Polls show it could win nearly 80 seats, putting it within reach of forming a single-party administration for the first time.

But a minority Fine Gael government would need the support of a rag-bag of independents and for the sake of stability, most analysts expect Kenny will form a coalition with the center-left Labour party to navigate the EU/IMF program.

Afraid of Europe

Keen to mine public discontent over what is seen as a punishing bailout deal, both Fine Gael and Labour have campaigned for a mandate to renegotiate its terms.

But in trading rooms across the euro zone and on the streets of Dublin, people are skeptical about how far they will push European partners, given Ireland`s dependence on European Central Bank (ECB) support to keep its banking sector alive.

"They are afraid of what Europe will do," said Pinder.

While Ireland`s borrowing costs may be reduced as part of a wider EU agreement on resolving the debt crisis next month, Dublin is unlikely to receive a green light to impose losses on some senior bondholders in Irish banks due to ECB opposition.

Financial markets have already priced in that Fine Gael, led by former schoolteacher Kenny, will be swept into office, but they are watching to see how big a majority he will secure.

"You could see some relief rally if there is a clear majority for a new government and it`s formed quickly," said Anders Matzen, chief analyst at Nordea Markets in Copenhagen. "But a drawn-out debate with the EU and IMF over a renegotiation of the package could be detrimental to sentiment."

Voting ends at 5 pm EST and the first exit polls will be released early on Saturday. Manual counting is likely to continue into Sunday.

Irish bond yields remained steady at around 9.345 percent but such an elevated rate, compared with under two percent before the debt crisis struck, reflects investors` views that Dublin is still at risk of default unless the terms of the bailout are relaxed.

Underlining the wide impact of Ireland`s property bubble, British bank Lloyds booked a 4 billion-pound (USD 6.5 billion) hit from Irish bad debts on Thursday, while Irish losses at rival Royal Bank of Scotland almost doubled to 3.9 billion pounds.

No mass protests

Even with more relaxed borrowing terms, Ireland will still have to get the worst budget deficit in Europe under control by 2015 and if growth falters additional cuts may be needed, ensuring a brief honeymoon for the new government.

The biggest fault-line between Fine Gael and Labour is over the deadline to tackle the deficit. Labour wants an extra year, 2016, to get it under 3 percent of GDP, the EU limit, from nearly 12 percent of GDP, on an underlying basis, last year.

Despite the return of mass emigration, one in 10 unemployed, widespread negative equity and a rising suicide rate, Ireland has not experienced the kind of mass public protests seen in fellow euro zone struggler Greece.

Hard-left parties, including Sinn Fein, once the political wing of the now-dormant Irish Republican Army (IRA), have seen a surge in support on promises to rip up the bailout deal, but are expected to remain a small minority in parliament given voters` preference for low-tax parties.

Polls suggest Fianna Fail will only retain around 20 seats in the 166-seat chamber, ending the dominant position it has commanded since independence from Britain in the last century.

Such a slide from the 78 seats it held after the last election in 2007, would mark the sharpest collapse of support for any Irish party in history and a particular humiliation for a party which has run Ireland for 61 of the past 79 years.

For some voters, however, that isn`t enough.

"I look at the news from those foreign countries and how they protested," said Patricia Byrne, 73, a great-granny from the Liberties area of inner-city Dublin. "They got want they wanted. I think we should protest too but we are far too laid back."

Bureau Report