Fine Gael, Labour Reach Agreement on Forming Ireland Coalition Government

Ireland’s Fine Gael and Labour parties have concluded negotiations on a draft program for government, Fine Gael said in an e-mailed statement today.

Both parties are scheduled to meet later today to approve the agreement, so a government is in place when the 166-seat parliament meets in Dublin on March 9.

“Negotiations between Fine Gael and the Labour Party on the formation of a government concluded early this morning,” the Fine Gael said. “A draft program for government will be discussed at a meeting of the Fine Gael Parliamentary Party today” in Dublin.

Fine Gael won 76 seats in a Feb. 25 national vote, and Labour won 37 seats. Neither party has been in power since 1997. The new coalition wants to cut Ireland’s budget deficit, renegotiate the aid package and said creating jobs is the main priority for the country.

Ireland’s economy has shrunk around 15 percent since 2008 and unemployment has almost trebled, helping push the budget deficit to around 12 percent of gross domestic product last year. Ireland accepted a European Union-led 85 billion euro ($119 billion) bailout in November after it was locked out of bond markets as concerns grew about the rising cost of its bank guarantee plan.

Fine Gael and Labour want to renegotiate the 5.8 percent interest rate on the EU and International Monetary Fund loan. Both parties want the interest rate lowered.

Fine Gael favours speeding up planned budget cuts to narrow the deficit while Labour prefers tax increases to trim the shortfall.

‘Finding Balance’

“The main challenge is to restore some sort of vitality to the economy and turn around the job market,” Austin Hughes, chief economist with Dublin-based KBC Bank Ireland, said. “Only by doing that you can make the public finances and bank-related debt more sustainable. It is a case of finding a balance between taking tough medicine and ensuring that you don’t kill the patient in the process, that is the difficulty.”

The general election inflicted the biggest defeat ever on Fianna Fail, which had been in power since 1997 and which has ruled Ireland for three out of every four years since 1932. Fianna Fail got 20 seats and will be the official opposition in the Dublin-based parliament, known as the Dail.

In November the parliament passed a budget which aims to reduce the deficit by 6 billion euros this year by raising taxes and cutting spending.

To contact the reporters on this story: Colm Heatley in Belfast at cheatley@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net