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Irish PM is forced to agree to dissolve government Add to ...

First came the real-estate collapse, which caused the banks to tumble. That in turn led the economy to teeter and the national budget to plummet toward insolvency, requiring a huge foreign bailout on the weekend. So it is almost inevitable that, at the end of it all, the Irish government is about to fall.

In a sharp indication of the political consequences of the euro crisis, Ireland's cascade of bad fortune has just reached the highest office in the land.

Amid calls for his immediate resignation from at least two MPs in his own Fianna Fail party and the withdrawal of support from coalition partners the Green Party, Prime Minister Brian Cowen was forced on Monday to announce the pending dissolution of his government.

"There will be a time for political accountability to the electorate," Mr. Cowen said in a terse address Monday night in which he pleaded with MPs to keep his government afloat until the austerity budget passes in exchange for an election in January.

The turmoil and political uncertainty following a bailout that was meant to bring stability has done little to calm markets; despite hopes the package would ease Ireland's debt crisis, borrowing costs barely budged and the euro declined in the markets Monday. This has heightened concerns among European leaders that the rescue has failed and that further bailouts may be needed to prevent a run on Portuguese and Spanish banks and bond markets.

Hours after the European Union and the Washington-based International Monetary Fund negotiated an €85-billion bailout-loan package on Sunday, the Green Party, which holds the balance of seats that allows Mr. Cowen's Fianna Fail to govern, delivered a poison-pill announcement: it will pass the brutal austerity measures required as part of the bailout, but at the cost of killing the government.

Green Leader John Gormley, expressing the views of increasingly furious Irish citizens, said he would allow the government to pass a four-year program to slash a further €15-billion from government spending through tax hikes and service cuts in the Dec. 7 budget bill. But he demanded a national election in January in return, a move that will almost certainly end the career of Mr. Cowen and possibly eviscerate his party.

It offers a stark lesson for the leaders of other troubled European nations, including Portugal and Spain: Voters will revolt against a fiscal capitulation, and a decisive financial rescue can spread political contagion that will destroy a leader or a government faster than the crisis itself.

This may provoke other leaders to act less boldly than Mr. Cowen, and to put off international rescue as long as possible in order to save their political hide.

The allies of the Prime Minister, or Taoiseach, wasted little time in delivering the long knives on Monday, distancing themselves from a leader who has infuriated voters by insisting for weeks that Ireland's sovereignty would be kept intact - and by keeping Ireland's low 12.5-per-cent corporate tax in place while raising taxes and slashing welfare.

"The past week has been a traumatic one for the Irish electorate. People feel misled and betrayed," Mr. Gormley said. "But 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, 2011."

Mr. Cowen immediately agreed to these terms - but they might not be enough to keep his government in office until January. A by-election on Thursday will almost certainly reduce his coalition's majority to two seats, and dissentions within his own party mean he may not have enough votes to pass the Dec. 7 budget. If so, his government will fall.

There is a worry, in Ireland and elsewhere, that the political turmoil will lead to extremism. Small but noisy protests, including an attempt to break through the gates of the Prime Minister's office in Dublin, were organized yesterday by the nationalist party Sinn Fein, a party whose extreme economic views have kept it on the fringes but whose members appear poised to gain in elections, including Thursday's by-election in Donegal.

So far, the euro crisis has not unseated a government or produced a significant shift toward extremism in any of the afflicted countries. In fact, the degree of political harmony and co-operation has been a striking contrast to the chaotic path of devastation wreaked by debt markets.

But the political backlash in Ireland, and the resulting sense of instability it has instilled in those markets, may foretell a less harmonious period.

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