Significance: The Green Party has pulled out of the governing coalition and the Irish prime minister has resigned as leader of the senior ruling Fianna Fáil party.

Implications: There is pressure for a new finance bill to be pushed through before an election, and it is possible that any delay to this legislation will result in a no-confidence vote from opposition parties.

Outlook: It is almost certain that a general election will be brought forward, although any new government will face a public backlash over painful austerity measures. Although a Fine Gael-Labour coalition is likely to be returned at polling day, differences between the two parties over economic policy may threaten Ireland's future political stability.

Following a week of political turmoil, Irish prime minister Brian Cowen has announced his resignation as leader of Fianna Fáil (FF) and the junior Green Party has pulled out of the government coalition. It is now likely that Ireland's general election will take place earlier than the scheduled date of 11 March 2011. Although Cowen took the decision at the weekend (22 January) to step down as FF leader, he signalled his intention to stay on as Taoiseach (prime minister). A few days earlier Cowen survived a confidence vote held by his party but six senior ministers later resigned and the Taoiseach subsequently called an election for 11 March. Announcing his resignation as FF leader, Cowen said that he had taken the decision based on the implications for his party after his attempts to replace senior ministerial positions failed last week.

Following Cowen's resignation, Green Party leader John Gormley said yesterday that patience with FF had finally reached an end and that his party had decided to join the opposition benches. As part of the party's withdrawal from government, the two Green senior ministers have quit their posts, leaving only seven ministers in the cabinet. Under Ireland's constitution, there have to be at least seven ministers in cabinet, although 15 is the standard amount (as had been the case until the eight resignations this past week). Gormley's Environment, Heritage and Local Government ministerial portfolio has been reassigned to Éamon Ó Cuív, while Éamon Ryan's Communications, Energy and Natural Resources portfolio has been given to Pat Carey. As a result of the Green Party's exit, the government's previous two-seat parliamentary majority has been wiped out and a fresh election is almost inevitable.

The Irish media have indicated that a parliamentary election is now likely to take place on 25 February, which would enable the main parties to agree on a timetable to pass important outstanding parliamentary bills. Today, negotiations will continue between the major parties over an agreement on the finance bill and an election date. Meanwhile, FF will choose a new leader, with a party vote scheduled to take place on Wednesday (26 January). Former foreign minister Micheál Martin, who resigned from the cabinet last week, is the current favourite to lead FF. Martin's bold stance against Cowen's leadership has drummed up considerable support from the party's grassroots members, many of whom are appalled by FF's grim public approval ratings despite the party having been in power for 22 of the past 24 years.

Passage of Crucial Finance Bill Under Pressure

The besieged government is now focused on pushing through a crucial finance bill, required as part of Ireland's budgetary responsibility surrounding its recent external bailout. In November 2010, the government was forced to accept an 85-billion-euro (US$115-billion) crisis package from the European Union (EU) and International Monetary Fund (IMF) as a result of a vast budget deficit and near collapse of the country's banking system . As a condition of the EU/IMF-sponsored bailout, the government has drawn up an austerity budget to slash public spending, including income tax rises, reduced social welfare spending, and energy tax increases. An ambitious fiscal consolidation target of some 15 billion euro in savings is planned for 2011–14, although the severe cutbacks are set to hit households hard.

Finance Minister Brian Lenihan has invited representatives of the Green Party and opposition groups to meet with him later today in order to discuss a way to enact the legislation before the upcoming election. The Irish Times reports that opposition parties Fine Gael (FG) and Labour are demanding a commitment from FF that the finance bill will be pushed through parliament by the end of this week, although Lenihan has suggested that this is unlikely to take place before 3 February. In fact, opposition parties have allegedly threatened no-confidence motions against the Taoiseach if there is not adequate progress on the finance bill and election timetable. Although FF had pressured the Green Party to remain in government in order to secure the passage of the bill, it appears that the Greens will now rally support from the opposition benches to push the legislation through. Yesterday, Gormley revealed that he had discussed opposition support for the finance bill with FG representatives before the Greens took the decision to quit the government. Gormley also said that he agreed with FF over the 3 February timeframe, although the Greens were now looking to support a "severely truncated" bill.

Outlook and Implications

The finance bill is set to dominate party debates over the next week, with any delay by the government in ensuring its passage likely to spark the wrath of the opposition. In fact, the main opposition parties want an assurance about the election date to be tied in with the passage of the finance bill. In view of the now minority government's fundamental weakness, notwithstanding Cowen's unpopularity within his own party, it is possible that a no-confidence vote will be instigated against the Taoiseach by opposition parties over the next 10 days. Although the main parties appear to recognise that Ireland's current political volatility is highly damaging for the markets, they are likely to want to capitalise on the government's disintegration and FF's fall from grace, in view of the party's long-standing domination of Irish politics.

According to recent opinion polls, public support for FF stands at only 13% and it is almost certain that Fine Gael and the Labour Party will be returned to power at polling day. The two parties have co-operated in government in the past, although they retain important economic differences. Given that any new government will need to implement painful austerity measures, such differences are likely to make the process of government formation and subsequent policy-making highly challenging. Moreover, the expected public backlash as a result of unpopular welfare spending cuts and income tax rises will serve to complicate the difficult business of overseeing Ireland's challenging road to economic recovery.