DUBLIN — The Irish government stood on the brink of collapse Monday, a day after being forced to accept a massive bailout from the European Union and the International Monetary Fund.
Irish Prime Minister Brian Cowen said he would call an election for early next year, once Ireland passes an emergency budget and finalizes the bailout.
The admission represented a huge political blow to Cowen, who only days ago was denying even the need for a bailout to solve the problems brought on by Irish banks' reckless speculation in overpriced real estate.
His coalition partner, the Green Party, forced his hand, saying it would quit the government and then demand an election in January. Cowen resisted pressure to resign immediately, but soon even lawmakers in his own Fianna Fail party also called on him to go.
Cowen said he could not quit now because that would delay Ireland's deficit-slashing 2011 budget and the bailout negotiations — and jeopardize efforts to sustain the nation's cash-strapped banks. He insisted he would step down and face re-election only after Ireland's most brutal budget in history is passed and talks with the International Monetary Fund and the European Central Bank produce a bailout deal expected to approach $135 billion.
The EU's economic and monetary affairs minister said nothing should slow Ireland's passage of its budget and bailout negotiation. "It is essential now to stop the financial bushfire concerning Ireland before it becomes a Europeanwide forest fire," said Olli Rehn, the minister most closely involved in helping eurozone governments control their deficits and finance their debts.
Ireland's rescue is the European Union's latest attempt to win back market confidence and keep its 16-nation euro currency strong and stable. But the cost — both monetary and political — keeps rising by the day.
Amid rising disgust with Cowen's handling of the crisis, activists from the Irish nationalist Sinn Fein party stormed the entrance to Cowen's central Dublin office Monday and scuffled with police.
Finance Minister Brian Lenihan said the bailout was necessary because Ireland's banks have become wholly dependent on loans from the European Central Bank and, just like the government, are likely to be frozen out of normal credit markets for at least a year. He said Ireland's six banks, five of which are already nationalized or part-owned by the state, would be pruned, merged and possibly sold off. "Because of the huge risks they (Irish banks) took earlier this decade, they became a huge risk not only to this state but to the eurozone as a whole," he said.
Unions warned that overhauling the banks would mean thousands more jobs lost in Ireland, where unemployment is 13.6 percent, the second-highest rate in Europe after Spain.