UPDATE 6-Voters hammer Irish govt, bailout talks in crunch

* Sinn Fein wins seat on wave of anti-government anger

* Broadcaster predicts interest on bailout over 6 percent

* Opposition says high bailout interest unacceptable

(Adds RTE report of bailout interest rate)

By Padraic Halpin

STRANOLAR, Ireland, Nov 26 (BestGrowthStock) – Ireland’s government
saw its parliamentary majority cut to two on Friday, as voters
in one of the ruling party’s heartlands punished it for seeking
an EU/IMF bailout and instead backed nationalists Sinn Fein.

State broadcaster RTE said it had learned that the bailout
expected to be finalised over the weekend would include loans at
an average interest rate of between 6 and 7 percent, far more
than most Irish citizens were expecting to pay.

The loss of a seat in the remote northwestern county of
Donegal complicates the country’s politics as the deeply
unpopular government enters the final days of bailout talks.

In the last day of trading before the terms of the bailout
are expected to be announced, the extra yield investors demand
to hold Irish debt reached a record high of nearly 7 percentage
points above German bunds. (IE10YT=TWEB: )

The ruling Fianna Fail party’s candidate lost a special
election for a vacant seat in remote northern Donegal county to
Sinn Fein, a nationalist left-wing party which has capitalised
on popular anger over the economic crisis.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For a graphic on Ireland's bailout challenge click on: http://r.reuters.com/cyb96q For stories on the Irish bailout, click on: [ID:nLDE68T0MG]

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Sinn Fein’s head Gerry Adams, best known internationally as
a leader of the nationalist movement during decades of violence
in British-ruled Northern Ireland, said the goal was to take
power in Dublin and end IMF-imposed austerity measures.

“We didn’t buy into the austerity. We’re not for the savage
cuts,” he told reporters.

The main opposition Fine Gael and Labour parties are
expected to form the next government, but Sinn Fein, which now
has a fringe role, could emerge as an opposition force, a sign
of how dramatically the country’s politics are being upended.

A nationwide election will take place soon because Fianna
Fail’s junior coalition partners, the Greens, said this week
they would pull out of government after the budget passes.

Sinn Fein’s Pearse Doherty defeated the Fianna Fail
candidate for the vacant seat by 39.9 percent to 21.3 percent
among voters’ first preferences. Last time, Fianna Fail won 51
percent in the area, a stronghold for generations.

Doherty told national broadcaster RTE voters had rejected
bigger parties that all favoured swingeing cuts: “Sinn Fein has
stood alone outside the consensus of Irish politics and the
people of Donegal southwest have overwhelmingly endorsed that.”
Out-of-work builder Tony Gillespie, 55, a long-time Fianna
Fail voter, cast his ballot for Sinn Fein despite having “a
problem with their past.” He wanted to “register a vote against
what’s going on to get some of the cronies out that have been in
there for the last number of years,” he said.

BAILOUT

The Irish public has followed the IMF negotiations closely,
and there could be a fresh political backlash if the government
is seen as accepting loans at too high an interest rate.

RTE said several sources had told it the average rate for
the IMF, EU and European Central Bank loans would be 6.7
percent, although it said some sources had said 6.4. Either rate
is more than Greece paid for a bailout earlier this year and far
more than Ireland pays on its existing debt.

The money would be loaned over nine years and would raise
Ireland’s interest payments to 8.5 billion euros a year, about
20 percent of state revenues, RTE said. It described the rate as
“much higher than people were expecting”.

The main opposition Fine Gael party, which has called for
bondholders in bailed-out banks to bear more of the cost, said
any rate over 6 percent would be unacceptable.

“If that is the rate, that is too high,” Fine Gael spokesman
Leo Varadkar told RTE. “It is higher than the IMF rate, it is
higher than the Greeks are paying.”

Cowen is expected to agree to an assistance package of about
85 billion euros from the IMF and the EU at the weekend, meant
to prevent trouble spreading in the euro zone. Portugal is under
pressure to follow Ireland and seek a bailout, and policy makers
fear debt problems could also hit Spain. [ID:nLDE6AP08Y]

Cowen needs to tackle the worst deficit in Europe as part of
the condition of a bailout. A failure to get his 2011 budget
passed next month would trigger the downfall of his government.

His majority now depends on two independent members of
parliament who have signalled they may vote the budget down.
Garret FitzGerald, a former leader of Fine Gael, said the
opposition party would probably not allow the budget to fail.

The measures, including a cut in the minimum wage and higher
income taxes, are needed to reassure the IMF and Europe, which
have been propping up Irish banks and stand ready to fund the
Irish state for years.

The bailout is expected to see the state pour billions of
euros into Allied Irish Banks (ALBK.I: ), Bank of Ireland
(BKIR.I: ), Anglo Irish Bank [ANGIB.UL] and other lenders, on top
of 46 billion euros already pledged, to reassure depositors.

The deal will see Dublin control its top three lenders, and
according to a report in The Irish Times senior bondholders in
the banks may also be compelled to pay some of the costs.
[ID:LDE6AP0BY]
(Additional reporting and writing by Peter Graff and Carmel
Crimmins in Dublin)

UPDATE 6-Voters hammer Irish govt, bailout talks in crunch