Irish Government may now face defeat on Budget.

The West’s democracies have a weak grasp on power….just when it needs to be strong.

In a recent client circular, JP Morgan said pressure on Ireland’s bond yields ‘reflects concerns about the fiscal cost of bailing out the banks and the likelihood that more fiscal adjustment will be needed over time, and that it may need to be more front-loaded.’ The spread between the yields on 10-year government bonds issued by the German and Irish governments widened to a fresh high of 4.5 percentage points Tuesday, indicating that investors believe there is an increasing risk that Ireland will be unable to repay its debts.

Things seem to be going from bad to worse in Ireland. But political instability also lies ahead.

While struggling to retain the confidence of bond investors, the government faces another battle: to maintain its majority in the Dail, the nation’s parliament. It seems increasingly likely that the government will lose its majority in the early months of next year, and that voters will have to choose a new administration.

Finance Minister Brian Lenihan’s forthcoming budget is proving increasingly unpalatable to some members of his own party. Last weekend, Mattie McGrath—now an “independent” Fianna Fail politician after voting against the government in a bill to ban stag hunting—threatened to withdraw his support for the coalition unless planned health cuts in his constituency were reversed. Independent Noel Grealish made a similar threat last week regarding hospital services in his constituency. If he and Mr. McGrath refused to support the government in future votes, it could reduce the government’s parliamentary majority to 82-80.
The opposition will in turn call for by-elections in three empty parliamentary seats, and given its historically low popularity in recent polls, they could easily lose them….producing a minority Government.

The opposition Fine Gael leader Enda Kenny senses blood.

“We’re nearing the end game in the lifetime of this government,” he said. Fine Gael, which like Fianna Fail is right-of-center, this week decided to limit a “pairing” arrangement where an opposition party member abstains from voting if a government backbencher or minister is ill or away. It will only offer it for Council of Europe and north-south Irish political meetings.

One intriguing thing most Western governments now have in common is a relatively weak hold on power. The Irish situation also pertains to a greater or lesser extent in France, the UK, America, Portugal and Germany. What weak governments tend to do is court popularity rather than tackle core problems. Not exactly what one needs when trying to persuade the markets about one’s determination to cuts costs, repay, and get the economy back on its feet again.

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