UPDATE 3-Irish government confident budget will pass

* Govt expected to lose by-election; result on Friday

* Cost of insuring against Irish default rises

* Clearing house ups margin requirement on Irish bonds again

* Opposition says it will renegotiate budget strategy

(Adds independent MP, Fine Gael comment, quote)

By Padraic Halpin

DONEGAL, Ireland, Nov 25 (BestGrowthStock) – Ireland’s government
said it was confident it would be able to pass the toughest
budget in the country’s history next month despite its expected
defeat in a by-election on Thursday.

Dublin’s efforts to cut the worst deficit in Europe will
form the basis of an 85 billion euro bailout from the IMF and
the EU. Failure to pass the 2011 budget would deepen the
country’s crisis and destabilise the euro zone.

“I am quite satisfied from my discussions both with the
parties in government and the various public representatives in
Dail Eireann (parliament) that there is a majority for this
budget and that it will pass,” Finance Minister Brian Lenihan
said in a speech to the American Chamber of Commerce in Dublin.

Prime Minister Brian Cowen’s parliamentary majority is set
to shrink to just two when votes in the by-election in the
northern county of Donegal are counted on Friday.

Lenihan’s comments suggest the government may have won over
two independent MPs who signalled earlier this week that they
might not support the 2011 plan, the first in a series of
austerity budgets.

But one of the two MPs told Reuters he had not changed his
mind: “I’ve said that I’m unlikely to support the budget and
that position remains,” Michael Lowry told Reuters in a
telephone interview.

“But obviously I can’t be definitive about it until I’ve
actually seen the details of the budget.”

Opposition Fine Gael reiterated its stance that it would not
commit itself to supporting the budget — or to abstaining from
voting to allow it to pass. “We’re not going to agree to pass a
budget that we haven’t seen,” a spokesman told Reuters.

DONEGAL VOTE

The government’s four-year plan, unveiled on Wednesday, has
failed to impress investors and its harsh measures, including a
cut in the minimum wage, have fuelled complaints that taxpayers
are being punished to bail out bankers and property developers.

Cowen’s Fianna Fail party is set for a record drubbing in
the next general election, likely early in 2011. In Donegal,
many voters were exacting an early revenge.

Opinion polls suggest Pearse Doherty, the candidate for Sinn
Fein — the small, pro-labour opposition party that wants to
unite the Irish republic with British-ruled Northern Ireland —
will win the seat in Donegal South West.

“It’s hard when you’ve voted one way your entire life but
most around here think it’s time they were voted out,” said
Seamus Nally, 73, a retired publican, over a pint of Guinness in
the pub An Seomrog — translated as ‘shamrock’ — in the Donegal
town of Ballybofey.

“I don’t know if I could vote for anyone else, mind, so I
might just stay here a while out from that rough night,” he said
as sleet and hail fell outside.

Centre-right Fine Gael, which is likely to lead the next
government, said it would not be bound by the terms of the
four-year plan and would not cut the wages of the lowest paid.

Fine Gael also said it would be prepared to make senior
bondholders in banks bear some of the cost of purging the sector
of years of reckless lending.

“We have to take the view that people who invested and
invested unwisely have the consequences under capitalism of
losing some or all of their investment,” said Richard Bruton,
Fine Gael’s spokesman on enterprise.

Despite government assurances to the contrary, rumours
persist that Irish senior bank debt may be restructured as part
of negotiations with the IMF and the EU for a bailout package
for Ireland and its banks, totalling around 85 billion euros.
[nIFR1JGv5X]

A European Commission spokesman said on Thursday that those
talks, which are taking place in Dublin, would be wrapped up by
the beginning of December.

Concern over the terms of any bailout and scepticism that
the four-year plan can achieve its goals sent the cost of
insuring Irish debt against default up 19 basis points on
Thursday to 600 bps. [nLDE6AO0ME]

Irish borrowing costs remain high, with the yield on 10-year
paper over 9 percent, well over three times the rate on German
paper.

Adding to the negative sentiment, European clearing house
LCH.Clearnet increased the margin requirement on Irish
government bonds for the third time in two weeks. [nLDE6A01NZ]

Despite the prospect of years of cutbacks, there has been
little sign of social unrest in Ireland and some people in
Dublin were taking a philosophical view.

“A lot of people are affected, and it puts pressure on them,”
said Mark O’Carroll, a 20-year-old student. “But the best things
in life are free, I enjoy the outdoors and you can’t tax that.”
(Writing by Carmel Crimmins; additional reporting by Lorraine
Turner and Jodie Ginsberg; editing by Tim Pearce)

UPDATE 3-Irish government confident budget will pass