WRAPUP 1-Irish govt faces election backlash after fiscal pain

* Govt expected to lose Donegal election; result on Friday

* Investors sceptical about Dublin’s four-year plan

* Talks with EU/IMF over bailout continue

By Carmel Crimmins

DUBLIN, Nov 25 (BestGrowthStock) – Ireland’s government will face
the first real backlash from a vicious set of austerity measures
when voters head to the polls in the northwestern county of
Donegal on Thursday.

Prime Minister Brian Cowen’s four-year plan for tackling the
worst budget deficit in Europe has failed to impress investors
or calm fears that Ireland’s woes will tip other euro zone
nations into crisis.

The 15 billion euros ($20 billion) in spending cuts and tax
increases unveiled on Wednesday will form the basis for an
IMF/EU rescue package worth about 85 billion euros.

But the measures, including cuts to the minimum wage and
thousands of job losses, are likely to seal defeat for Cowen’s
Fianna Fail party in the poll for a vacant parliamentary seat in
Donegal and result in Cowen’s majority shrinking to just two.

Ruling Fianna Fail held the seat in Donegal South West but
is expected to lose it to smaller Sinn Fein in the by-election.

With Cowen’s coalition imploding amid public disgust at
having to go cap in hand to the IMF and the EU, the Donegal vote
raises the risk that the 2011 budget, the first step in the
four-year plan, may not make it through parliament on Dec. 7.

Failure to get next year’s budget passed would turbo-charge
the crisis in Ireland and Europe and analysts have said the main
opposition parties may abstain from voting to allow the budget
through if it looks like Cowen cannot get the numbers.

Centre-right Fine Gael and left-wing Labour have not said
they will abstain and their refusal to countenance a national
consensus on the budget has pitted Ireland’s fiscal path with
uncertainty.

Cowen’s government is not expected to last beyond the first
quarter of 2011 and Fine Gael and Labour are likely to form a
coalition government with new ideas about how the budget can be
brought under control by a deadline of 2014.

Even excluding the political uncertainty surrounding the
2011 plan, investors are sceptical the fiscal targets can be
achieved with rating agency Standard & Poor’s dismissing the
growth assumptions underlining the strategy as too optimistic.

PORTUGAL, SPAIN

Euro zone policymakers are hoping that Spain and Portugal
can stave off an Irish- or Greek-style debt meltdown.

A Reuters poll this week showed that 34 out of 50 analysts
surveyed believe Portugal will be forced to follow Ireland and
ask for help. In a separate survey only four out of 50
economists thought Spain would seek external aid.

Unlike Ireland and Portugal, Spain has its 2011 budget in
the bag and its debt as a percentage of gross domestic product
is estimated at 60 percent this year compared with Ireland’s 100
percent and Greece’s 145 percent.

But German proposals for private investors to take a hit in
future euro zone debt crises have markets spooked, ramping up
borrowing costs for Madrid.

Highlighting the fault-lines across Europe, Spain’s Economy
Minister urged Germany on Wednesday to stop pushing its idea of
a permanent euro crisis mechanism.

In Dublin, officials from the IMF and the EU will continue
talks on a package of loans to cover Irish sovereign funding
costs and an injection of fresh capital into its banks that will
see Dublin left with effective control of the top three banks.

Billions of euros could be used immediately to recapitalise
the banks but most will be kept as a backstop in case they need
more in future and to ease funding strains.

Bailout package negotiations may be finalised over the
weekend, sources said.
(Editing by Louise Ireland)

WRAPUP 1-Irish govt faces election backlash after fiscal pain