A pedestrian walks past a sign outside a cafe displaying a menu relating to the current economic climate, in Dublin November 23, 2010. The European Union urged Ireland on Tuesday to adopt an austerity budget on time to unlock promised EU/IMF funding, responding to a deepening political crisis that threatens to derail the financial rescue.Cathal McNaughton/Reuters
The pubs here, whose TVs are normally devoted entirely to rugby, soccer and horse racing, are now tuned to the news at night, and the families gathered around them grip their newspapers and talk worriedly of the International Monetary Fund, the structural-adjustment plan, and the bond yield spread.
"This is the only thing anyone cares about nowadays, and it'll be the only thing we'll be watching for the next two weeks," said Aileen Carroll, a regular at the Gweedore tavern in the country's beleaguered northwest. She, like many people here, has moved her retirement savings out of Ireland's banks in anticipation of further devastation.
There is a palpable sense of tension across Ireland this week in the wake of Sunday's announcement of a €85-billion bailout fund from the European Union and the IMF. Rather than putting an end to two years of instability, the announcement has created a gripping economic and political drama whose outcome has left viewers across Europe clinging to their seats.
Ireland's government has two weeks to decide whether it will pass an emergency four-year budget that imposes the brutal welfare cuts and tax hikes demanded by the European countries providing the bailout loans. But Ireland's government has been splintering and turning against itself all week, and it is now not at all certain that a budget will pass - or that the banks will survive long enough to be rescued.
The European Union issued a stern warning to Ireland Tuesday that Ireland could destroy the euro if its political feuds get in the way of slashing its government.
"It is essential that Ireland will pass the budget in the timeline foreseen and certainly sooner rather than later because every day that is lost increases uncertainty," Olli Rehn, the 27-nation bloc's top financial official, said after meeting with Irish parliamentarians in Strasbourg. "Let's adopt the budget, let's get it out of the way, and let's move on." He warned that the "brush fire" of the Irish crisis could turn into a "forest fire" that could take down the euro.
But Prime Minister Brian Cowen refused requests from within his own Fianna Fail party to pass the budget a week earlier; in response, several of his MPs tried to unseat him Tuesday night with a non-confidence motion at a party meeting; Mr. Cowen was able to rebuff it.
And the chance of the budget passing still lies in the balance, with both government and opposition MPs saying they cannot vote for it without losing their seats in elections that will occur early next year. Mr. Cowen had asked opposition parties to abstain in the budget vote, in an emergency show of national unity to avoid creating a market panic and a run on the Irish banks, but the largest parties have refused to do so.
That created a Europe-wide sense of alarm: If Ireland is unable or unwilling to satisfy those demands by Dec. 7, the result could be a cascade of investor panic that could bring turmoil to the far larger Spanish economy, requiring a bailout that would stretch the limits of the European Union and could force countries to abandon the euro.
"We're in an extraordinarily serious situation, as far as the situation of the euro is concerned," German Chancellor Angela Merkel said on Tuesday.
Behind the scenes, negotiations were reportedly proceeding well in Dublin between IMF and EU officials and the Irish Finance ministry. But the IMF made it clear yesterday that this is now purely a political matter - and the politics are far less stable than the numbers.
"Obviously, our work there is technical, not political. But ultimately decisions have to be made by governments, not by technicians," IMF second-in-command John Lipsky said.
It did not help that international investors began advising Irish consumers to abandon their own banks.
"What you advise your sister in Ireland now is that you'd say take your money out of an Irish bank and put it in another bank headquartered elsewhere," Mohamed El-Erian, head of the world's largest bond-investing firm, Pimco, said in a TV interview, to the considerable alarm of Irish leaders. "That's what happened in Argentina and in emerging economies. People worry about their savings."
Many Irish, including the customers at the pub here, have already followed that lead - and on Tuesday shareholders did as well, sending shares in Bank of Ireland and AIB, the two largest institutions, plunging by several percentage points, leading analysts to conclude that the banks will soon be entirely state-owned.
This is the opposite of what was meant to happen. Whether such calamities can be brought to an end will have to wait through two weeks of cutthroat, white-knuckle politics.