DUBLIN — The Irish government faced imminent collapse on Monday, only a day after it signed off on a $100 billion bailout, setting the stage for a new election early next year and injecting the threat of political instability into a European financial crisis that already has markets on edge.
Enda Doran/European Pressphoto Agency
John Gormley, leader of the Green Party, which is leaving Ireland's government once fiscal packages and budgets are passed.
Confronted with high-level defections from his governing coalition, Prime Minister Brian Cowen said he would dissolve the government after passage of the country’s crucial 2011 budget early in December.
His announcement capped a grim day for Ireland, as protesters tried to storm the Parliament building in Dublin.
In agreeing to new elections, Mr. Cowen seemed sure to become the first political casualty of the debt crisis in the 16-member euro zone.
The developments sent a chill through financial markets and political circles in the euro zone, where the severe austerity measures imposed to keep the currency union from fracturing have yet to be tested in general elections.
The impending collapse of the Irish government after an expensive bailout seemed only to reconfirm fears that the financial crisis was far from contained.
Analysts warned that deeply indebted countries like Portugal and Spain that are pushing through unpopular budget cuts may soon face an uncomfortable choice: punishment by financial markets that will hammer any laxity in deficit-cutting with exorbitant interest rates, or by an angry electorate annoyed by prolonged economic hardship.
“It will be the same story with all these countries — Ireland is just ahead of the game,” said Desmond Lachman, a former policy executive from the International Monetary Fund who is now with the American Enterprise Institute in Washington. “They all have a fixed exchange rate and have to make these massive adjustments, so people are asking whether they are on the right path.”
Mr. Cowen’s political skills helped keep him in office as he presided over three consecutive years of a shrinking economy, the biggest bank collapse outside of Iceland and a humiliating bailout. But his hand was forced by a coalition partner, the Green Party, which announced that it would pull out of the government once a series of fiscal packages and budgets were in place next month, and by backbenchers in his own party, Fianna Fail.
“There are occasions when the imperative of serving the national interest transcends other concerns, including party political and personal concerns,” Mr. Cowen said in a statement. “This is one such occasion.”
In his statement, Mr. Cowen said his government would present a four-year plan to reduce the deficit to 3 percent of gross domestic product by 2014, from 32 percent, and preside over the 2011 budget to be voted on Dec. 7.
Passage of the budget, which will call for $8.2 billion in savings, will be the first major hurdle the government faces to ensure receipt of the $100 billion it desperately needs to remain solvent. The Green Party defection came as a shock even to Mr. Cowen, who huddled with its leaders for five hours on Sunday and had no idea they were on the verge of calling for a new election.
Whatever the case, it is now almost certain that a general election will be held early next year.
“The mood in the country is for an election, and the people want a new mandate — that much is clear,” said Joan Burton, deputy leader for the opposition Labour Party.
Ms. Burton, who is also the financial spokeswoman for Labour, said that party leaders would need to see more details on the budget proposed by Mr. Cowen, and that until they did, they were not inclined to recommend it.
But the leader of the Green Party, John Gormley, made clear in a statement that he would not jeopardize the country’s financial bailout by challenging the budget, even though it is likely to call for such harsh measures as a sharp decrease in the minimum wage (currently one of the highest in Europe) and reductions to universal child benefits — payments the country makes to parents with children regardless of their income level.
In capitulating to a chorus of calls for new elections and his resignation, Mr. Cowen said, “The interests of the electorate, of all our people, will not be served by delaying, or worse still casting into doubt, the steps which are necessary to secure our economy and financial stability.”
For Mr. Cowen and his Fianna Fail party, which has been in power since 1997, this represents a stunningly rapid fall from grace — but one that arguably might have occurred sooner. Mr. Cowen, before he became party leader in 2008, was finance minister as the seeds of the Irish real estate boom were being sowed in the early part of this decade.
That he has lasted this long is a testament to his undisputed skills as a cagey political infighter.
But the time for backroom dealing is done in Ireland — as it may well be in other European countries, facing the growing strains of high unemployment and stagnating growth (Portugal and Spain are expected to have no growth this year, while Ireland is hoping for just over 1 percent).
The intervention of the European Union and the International Monetary Fund, while expected, has come as a shock to Irish citizens who are deeply disturbed by the prospect that the fund will force even deeper cuts on a populace battered by recession.
Over the past four days the International Monetary Fund team has been holed up in a luxury hotel in Dublin, trailed by photographers whenever they take the short taxi ride to the Central Bank or the Finance Ministry.
The chief of the team,
Ajai Chopra, is referred to in the tabloids as “Ajai the Chopper,” and the hottest-selling clothing item in Dublin is a T-shirt that says, “The I.M.F. took me coat.”
This article has been revised to reflect the following correction:
Correction: November 25, 2010
An article on Tuesday about the imminent collapse of Ireland’s government because of the country’s debt crisis misstated the history of the Fianna Fail party’s dominance of Irish politics since 1987. It ran the country from 1987 to 1994 and from 1997 to the present. It has not “been in power since 1987.”
This article has been revised to reflect the following correction:
Correction: November 29, 2010
An article on Tuesday about the Irish government’s facing imminent collapse only a day after it had signed off on a $100 billion bailout misstated the position of Moody’s Investors Service regarding Irish debt. Moody’s is considering Ireland’s rating; it has not lowered it.
A version of this article appeared in print on November 23, 2010, on page A1 of the New York edition..
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