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Irish election roundup

February 28, 2011

A couple of weeks ago we posted a preview of the elections to the Irish legislature, the Dail Eireann, pointing out that they were likely to result in an historic defeat for the long-ruling Fianna Fail (FF), due to voter discontent over the country’s economic crisis and subsequent bailout package. These expectations were largely met, as this election featured a number of historic firsts. Three parties achieved historically high results: Fine Gael (FG), the Labour Party, and Sinn Fein. It was the worst showing for FF in the party’s history. FF, which holds a plurality of 77 seats (out of 166) in the current Dail Eireann, will likely be reduced to fewer than 20 in the next one. The party was completely decimated in Dublin, a traditional bastion of support, winning only one seat in the capital. Furthermore, FF will have no women deputies in the next parliament. (Although it was a historically good election for women candidates overall.)

Fine Gael was the main beneficiary of Fianna Fail’s collapse and will send approximately 70 deputies to parliament, just short of a parliamentary majority. FG will likely turn to Labour to form a coalition. If coalition talks succeed, Labour will add a slight leftist tint to balance Fine Gael’s conservatism, although the new government will be limited in its economic autonomy by the austerity measures agreed to in the recently singed bailout package, more on which later. Sinn Fein expanded beyond its traditional base near the Northern Ireland border to pick up a few seats in Dublin and elsewhere, and will join Fianna Fail in the opposition benches. The Irish Times has comprehensive and up-to-date coverage here.

The most daunting task facing the next Taoiseach (Irish Prime Minister), FG leader Enda Kenny, will be implementing the economic measures that the outgoing government agreed to in the bailout package negotiated with the IMF and European Union. During the campaign, both Kenny and Labour leader Eamon Gilmore pledged to renegotiate some of the terms in that deal, particularly the nearly 6% interest rate that Ireland must pay on loans from the EU. This has prompted responses from various EU officials that no renegotiations will be forthcoming. However, recent comments from German Chancellor Angela Merkel that EU leaders might be willing to renegotiate the terms of Greece’s bailout might indicate some potential for flexibility for Ireland.

One point of concern for Irish leaders is recent discussion in EU circles of harmonization of fiscal and economic policies for Euro Zone countries. France and Germany, in particular, see such harmonization as a necessary prerequisite to the creation of a permanent bailout fund for indebted countries. The Irish are particularly concerned about calls for harmonizing corporate tax rates. Ireland has one of the lowest corporate tax rates in Europe, a policy Irish leaders have touted as necessary to boost their competitiveness and draw foreign direct investment. Angela Merkel, however, argued that this low rate was partially responsible for Ireland’s fiscal crisis, saying that it forced the Irish government to rely more heavily on property taxes for revenues. A Franco-German authored competitiveness pact presented earlier this month mentioned such corporate tax harmonization requirements. However, a new version currently being drafted by the European Commission omits such a requirement.

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