Cowen Relies on Sugar Daddy to Gain Support for Irish Budget: Euro Credit
Among his supporters in the southwest of Ireland, lawmaker Jackie Healy-Rae is known as the “Sugar Daddy” for championing his region. Now Irish Prime Minister Brian Cowen may depend on his former political ally to pass next year’s budget and keep international patrons sweet.
The government will lay out details tomorrow of 6 billion euros ($7.9 billion) of spending cuts and tax increases. Cowen’s Fianna Fail party has a minority of seats in parliament and may need the backing of independents such as Healy-Rae and Michael Lowry. They have yet to declare support for the budget.
The 67 billion-euro aid package Ireland sought from the European Union and International Monetary Fund depends on the passing of the budget. A collapse of the Irish rescue accord might reignite the euro region’s sovereign debt crisis and the contagion that swept across Europe last week, pushing the euro down to a 10-week low against the dollar and pummeling Italian, Belgian and Spanish government bonds.
“It is a real possibility that Ireland will not pass the proposed budget,” Mark Grant, managing director at Southwest Securities Inc. in Fort Lauderdale, Florida, said in a Nov. 30 e-mail. “Then another tailspin down for the euro and for European bank and sovereign debt is in the gun sights.”
The extra yield investors demand to hold Spain’s 10-year debt over German bunds climbed to a euro-era high on Nov. 30 before falling after European Central Bank President Jean-Claude Trichet said policy makers will extend their extraordinary stimulus measures.
The Spanish spread over German bonds of a similar maturity rose to 228 basis points today, up 9 points from Dec. 3. The premium investors charge to hold Irish debt over bunds, Europe’s benchmark, climbed by 8 basis points to 537 points. The premium reached a record 652 basis points on Nov. 11.
Surging yields forced Ireland’s government to ask for a bailout on Nov. 28, with the release of the first installments dependent on the budget passing.
“It would send the wrong signal if Ireland rejects the budget and puts pressure on other countries,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “There is a lot of huff and puff, but when push comes to shove, things are so fraught, it will go through.”
Cowen has the support of 82 lawmakers in the parliament, compared with 80 for the opposition, including independents. That leaves Cowen reliant upon Healy-Rae, introduced as “Sugar Daddy” before his victory speech after the 2007 election.
Healy-Rae was a saxophonist in Ireland in the 1960s before going on to run a pub. He split from Cowen’s Fianna Fail party in 1997 after the party’s leadership refused to nominate him as a candidate for the general election that year, according to his website. He didn’t return calls to his parliamentary office in Dublin seeking comment for this story.
The 79-year-old said he was “coming under desperate pressure in my constituency” to vote against the budget in this week’s initial vote, the Irish Times reported on Nov. 30. He told the newspaper he had an “open mind.”
The government is also relying on a second independent lawmaker, Lowry. Once a member of the biggest opposition party, Fine Gael, he left the party amid an investigation into the awarding of Ireland’s second mobile phone license while he was communications minister in the 1990s.
Lowry denies any wrongdoing. The Tipperary lawmaker said on Nov. 22 that he was unlikely to support the budget, though the Irish Times reported a week later he may back it. He didn’t return messages left at his office in Tipperary.
Cowen may have secured the support of both independent lawmakers, the Dublin-based Sunday Business Post reported yesterday without saying where it got the information.
“My instinct is that that the budget will pass on the night,” said Kevin Rafter, the author of a 2002 biography of a top Fianna Fail adviser and a history of Fine Gael published last year. “But it’s easy for something to go wrong in the later votes. The numbers are so tight.”
Irish bonds are the second-worst performers in Europe this year, having dropped 11 percent, compared with an 18 percent decline in Greek debt and a 5.1 percent slide for Portuguese bonds, according to data compiled by Bloomberg and the European Federation of Financial Analysts Societies.
Lawmakers vote on the budget in four separate ballots, and it must be passed within four months of Finance Minister Brian Lenihan presenting it to parliament on Dec. 7. Irish Transport Minister Noel Dempsey today told Dublin-based broadcaster RTE all votes on the budget will be “tricky.”
Cowen said this week he will hold national elections in early 2011 once he’s secured support for the budget.
Support for Cowen’s Fianna Fail plunged to 13 percent, the Irish Independent said on Dec. 3, citing a survey of 1,000 people carried out for the Sun newspaper. Fine Gael, the biggest opposition party, was at 32 percent. The Labour Party was at 24 percent and Sinn Fein stood at 16 percent, the paper said.
“You probably need a new government coming in with a firm mandate and sense that these guys are here to straighten things out,” said Austin Hughes, chief economist at KBC Ireland in Dublin. A change may lead to “less awful sentiment,” he said.
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