REUTERS - Ireland's Greens pulled the plug on the deeply unpopular coalition government on Monday by calling for a national election in January after an EU/IMF bailout package is in place.
The Greens, junior partner in the coalition, withdrew their support a day after the European Union and International Monetary Fund agreed to rescue Ireland with loans to tackle its banking and budget crisis, which have provoked public fury.
Two independent members of parliament on whom the government relies for its parliamentary majority said they could not commit to supporting the administration over its 2011 budget, putting its passage in doubt.
European and IMF officials began thrashing out details of the rescue package -- expected to total 80 to 90 billion euros -- on Monday, while the government put finishing touches to a drastic 15 billion euros ($20.5 billion) austerity plan.
A top euro zone official said the first loans could flow in January but European shares and the euro reversed early gains over fears the package would not be enough to prevent contagion to other peripheral euro zone members.
Ireland's coalition government of Fianna Fail, the Greens and independent politicians has a three-seat majority in parliament, which will be more than wiped out if the six Green lawmakers withdraw their support.
"We have now reached a point where the Irish people need political certainty to take them beyond the coming two months. So, we believe it is time to fix a date for a general election in the second half of January," the Greens said in a statement.
"I regret very much that the country is in the hands of the IMF and I and my colleagues are deeply upset by what has happened, but we believe that we had to stay in government at all times to act in the national interest," Green Party leader John Gormley told a news conference. His party is expected to be all but wiped out at the next election.
Economists doubted whether the second euro zone rescue in six months, after Greece, would stop markets targeting fellow straggler Portugal, or prevent heavily indebted European states defaulting in the longer run.
But euro zone policymakers expressed optimism.
"We guess that the first money shipment could be realised in the course of January," chairman of euro zone finance ministers Jean-Claude Juncker told reporters.
"I don't think any immediate contagion effect could be the case," he said. "The fact that we settled the Irish case indicates that we are taking financial stability and cohesion of the euro area very seriously."
Moody's Investors Service said a "multi-notch" downgrade of Ireland's credit rating, still leaving it in the investment grade category, was now the most likely outcome.
No change to debt plan
While the international rescue package is expected to be less than the 110 billion euros provided for Greece in May, it will be larger as a proportion of national wealth and in per capita terms.
Prime Minister Brian Cowen said the government's four-year economic plan, to be announced on Wednesday, would involve 10 billion euros in public spending cuts and 5 billion euros in tax rises, on top of two years of harsh austerity and recession already endured.
The government is expected to cut the minimum wage, slash social welfare spending, reduce the number of public employees and add a new property tax and higher income taxes.
Unions have warned this could spark civil unrest: a student demonstration over planned fee increases turned violent earlier this month, and unions have organised a march to protest at the planned austerity measures on Nov. 27 in Dublin.
Socialist party Sinn Fein organised a demonstration outside parliament on Monday. About 50 people gathered outside parliament buildings shouting "Cowen, Cowen, Cowen. Out, out, out!"
Blog sites quipped that Ireland was 'Brian-damaged.'
Economists said the Irish bailout might bring short-term relief but voiced doubts about whether it would prevent Portugal from being forced to seek assistance eventually.
Portugal, next in capital markets' crosshairs, rushed out a statement saying Sunday's agreement by EU finance ministers to grant Ireland assistance should restore investors' confidence in the 16-nation single currency area.
"I think it means Portugal is next (to request help). I don't know if it will happen before the end of the year or after, but it's almost inevitable now," said Filipe Garcia at Informacao de Mercados Financeiros in Porto.
But German Finance Minister Wolfgang Schaeuble played down the risk of market problems spreading to other high-deficit countries. "If we now find the right answer to the Irish problem, then the chances are great that there will be no contagion effects," he told ZDF television.
Before the call for an early election, the cost of insuring Irish debt against default fell to 484 basis points from 507 at Friday's New York close, according to CMA data. This reflects a 33.8 percent implied probability of a default within five years compared with 35.2 percent on Friday.
A plan to restructure Ireland's banks, which had to be rescued by the state after a property boom fuelled by reckless lending collapsed, will be a central plank of the broader international aid package.
Lenihan said Ireland's banks would be shrunk to focus on domestic business and consumer lending under the EU-IMF scheme, which could enable Dublin to return to bond markets quickly.
A top financier saw more nationalisations ahead.
"It seems to me that there is at least as strong a case for saying that we need to take massive and decisive action quickly to produce at least two viable ongoing banks for the Irish system," Alan Dukes told a meeting in Dublin.
Britain, which is not part of the euro zone, said it would offer Dublin bilateral assistance on top of its share in EU and IMF aid. Finance minister George Osborne said London's contribution could be about 7 billion pounds ($11.19 billion).
British and German banks are the biggest creditors of Ireland's stricken banks, according to official data.
Non-euro Sweden said it would offer up to 1.5 billion euros.