WRAPUP 4-Ireland passes bailout package despite opposition

* Fin Minister says reneging on senior debt not an option

* Irish borrowing costs ease a touch after parliament vote

* Latest opinion poll shows govt support at record low

(Adds banking law vote paragraph 23, opinion poll 11-12)

By Carmel Crimmins

DUBLIN, Dec 15 (BestGrowthStock) – Ireland’s parliament approved a
multi-billion euro EU/IMF bailout package on Wednesday in the
face of opposition threats to renegotiate the deal to force
losses on some senior bondholders in Irish banks.

Finance Minister Brian Lenihan pushed through the 85 billion
euro package with the support of independent MPs and told the
centre-right Fine Gael party that its proposals to lean on
senior bondholders would fail because of opposition from the
European Central Bank.

“Those who think we can unilaterally renege on senior
bondholders against the wishes of the ECB are living in fantasy
land,” he said.
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Under the EU/IMF deal, Irish people face years of cutbacks
and tax increases in return for fresh capital to shore up the
banks, preserving full repayment of their senior bonds — those
first in line to be repaid in the event of any default.

But Fine Gael, which will likely lead a coalition government
after an election next year, said investors who hold bank senior
debt not covered by a government guarantee, amounting to around
15 billion euros, should take a share of losses, so lessening
the amount that Ireland had to borrow.

“You have the obscene situation now where the poorest of the
poor in Ireland, through their taxes and welfare cuts, are being
asked to guarantee the speculation of investors in hedge funds,”
said Michael Noonan, Fine Gael’s finance spokesman, and a
possible future finance minister.

“Ireland has no moral or legal obligation to cover this
debt. That’s why it’s a bad deal, that’s one of the principal
reasons we’re going to vote against it, and that’s why it has to
be renegotiated.”

LOWEST RATINGS SINCE 1982

The government, the most unpopular in recent history, got
the bailout approved by a margin of six votes, prompting an
easing in spreads and paving the way for the IMF to approve its
22.5 billion euro portion of the bailout on Thursday.

The premium that investors demand to hold Irish 10-year debt
over benchmark German bunds dropped to 538 basis points,
reversing an earlier increase and 3 points narrower on the day.

Despite the bailout’s easy passage in parliament, the
humiliation of having to go cap in hand for funds is likely to
ensure a record drubbing for the governing Fianna Fail party in
an election, possibly in March.

A new Irish Times/Ipsos MRBI poll showed on Wednesday that
support for Cowen was 14 percent and satisfaction with the way
the government is doing its job stood at just 8 percent.

The Irish Times said these were the lowest ratings achieved
by a government or its prime minister since it began the poll in
1982. By contrast, support for Fine Gael was up six points to 30
percent, making it the most popular party in the country.

Britain’s announcement on Wednesday that it would earn 440
million pounds in fees and interest from its loan to Ireland,
its former colony, is particularly awkward. [nLAH006826]

The prospect of a change of administration is some comfort
for disgruntled voters but the uncertainty unnerves investors.

“The longer it drags on, the more of a negative it becomes,”
said Ken Darmody of Goodbody Stockbrokers.

“Investors would prefer to have a new government in place
because at the moment you don’t know what the policies really
are of the two (parties) that are possibly going into power.”

Noonan’s warnings about unguaranteed bank senior debt nudged
the price of the debt slightly lower on the secondary market.

Opinion polls indicate Fine Gael will form a coalition
government with centre-left Labour after the next election.

Both parties are campaigning to renegotiate the bailout but,
given Ireland’s dependence on the rescue package to shore up its
banks and finance its deficit, and having signed up to its tough
fiscal targets, their room for manoeuvre may be limited.

SPANISH DOWNGRADE?

Concerns about the euro zone’s debt crisis escalated on
Wednesday after the ratings agency Moody’s said it had put Spain
on review for a possible downgrade. [nL3E6NF0D8]

Ireland’s bailout is designed to end a two-year banking
crisis that has brought the Irish economy to its knees and sent
shock waves through the euro zone.

In return for 50 billion euros in sovereign funding and 35
billion euros in capital top-ups for its banks, Ireland has
promised to shrink and radically restructure its lenders and
tackle the worst deficit in Europe by 2015 at the latest.

Parliament approved on Wednesday night a new banking law
which will give the government extensive powers to restructure
the sector, including the power to impose losses on subordinated
bondholders. [nLDE6BD1LA] The bill passed in the lower house by
78 votes to 71.

Dublin will squeeze 15 billion euros from its deficit over
four years, starting with the 2011 budget’s record package of 6
billion euros in spending cuts and tax rises.

Some economists have warned that such aggressive austerity
measures will tip the domestic economy into a prolonged
downturn, jeopardising its ability to meet its deficit targets
and deal with the debt crisis.
(Additional reporting by Yara Bayoumy; editing by Tim Pearce)

WRAPUP 4-Ireland passes bailout package despite opposition