Ireland Votes for Continuity—With a New Face
Irish voters took their democratic vengeance last Friday on the government that had led Ireland through its big boom and then over the cliff into economic disaster and fiscal servitude to new European Union and International Monetary Fund overlords. And "kick the bums out" they certainly did, with the main governing Republican Party (Fianna Fail) suffering its worst result since the 1930s. It got only 17 percent of first preference votes1 (down from more than 40 percent in the last election), while its erstwhile coalition partner, the Green Party, was left without any representation in the next parliament2.
The big winner in the election was the center-right Fine Gael party, with more than 36 percent of first preference votes and by far the biggest representation in the new Dail, or Irish Parliament, followed by the center-left Labour Party, with 19 percent of first preference votes. Independent candidates similarly saw their representation in parliaments rise significantly. Sinn Fein, campaigning on an explicit promise to unilaterally tear up the EU/IMF agreement, also grew, but it still failed to garner more than 10 percent of first preference votes. Lastly, the far left Socialist Party and People Before Profit Alliance gained parliamentary representation, too.
Irish voters clearly punished the incumbent government and elected several populist parliamentarians, especially on the far left. That is hardly surprising given the colossal economic collapse experienced by Ireland and the explicit culpability in this process by the previous government and the Irish banking and construction sectors. Far more important, however, is the fact that voters overwhelmingly embraced the party—Fine Gael—whose broad economic platform actually looks most like that of the outgoing government3.
Despite the sporadic successes of populist candidates, this election result thus reflects continuity and "staying the course" on most economic subjects. The Fine Gail election manifesto has clearly stated, for instance, that it will not pursue a path of unilaterally imposing haircuts on senior Irish bank creditors, except possibly as part of a broader negotiated European framework. Fine Gael's economic positions also generally point towards implementing the EU-IMF program4. Financial markets will correspondingly not likely react one way or the other to this election result.
It looks unlikely that Fine Gael can govern alone or merely with the help of independents, so the most likely future governing coalition in Ireland will be between center-right Fine Gael and center-left Labour, the two biggest parties in the new parliament. Accordingly, the next Irish government will probably be a centrist "grand coalition" (similar to what Germany had before its last election), enjoying a massive majority. In many ways, such an arrangement is really good news for Ireland. A "grand coalition" would not be dissimilar to the kind of "national unity government" that is generally conducive to seeing a country through tough times. A Fine Gael-Labour coalition will have the popular legitimacy to sustain the difficult path ahead.
This Irish election result—with its rise by the populist fringe even as the legislature is anchored by a massive centrist governing coalition—appears to be part of a growing trend across the so-called European periphery. The financial and economic crisis of the last few years has forced traditional center-left parties in southern Europe (especially the Socialists, or PSOE, in Spain) to shift dramatically to the political center on fiscal and social policy issues, in many cases participating in large centrist and fiscally more conservative majorities. At the same time, populism has flourished on the political fringes. This development in many ways recalls what happened in northern Europe in the mid-1980s and early 1990s, when center-left social democratic parties swung to the center and established more market-oriented and fiscally conservative centrist majorities.
In Ireland, just as in many other parts of Europe, rising fringe populism goes hand in hand with the formation of large and more cohesive centrist majorities.
For Sinn Fein, the voting was in some ways disappointing, but it could suit that nationalist party quite well, installing it as the main left-of-center opposition party. From that status, Sinn Fein can continue to take populist political positions in the safety of knowing that it will never have to take any political responsibility by joining a governing coalition. With an Irish grand coalition and the demise of Fianna Fail (and with it much of Ireland's anachronistic civil war era party political heritage), Sinn Fein therefore gets a near perfect platform from which to exploit the tough economic times and continue its political expansion across Ireland as a more mainstream leftist political bloc.
The new Irish government's principal economic goal, as already indicated by the next Prime Minister, Eddy Kenny5, will be to "renegotiate" the EU/IMF bailout package, and try to obtain lower financial costs for Ireland on its loans. Obviously, given that the Irish financial system continues to receive massive liquidity support from the European Central Bank (and the Central Bank of Ireland ultimately backed by the ECB) totaling nearly 100 percent of Irish GDP, the Irish government has a weak negotiating hand and will not be in any position to present ultimatums to its EU/IMF partners. This hard reality is essentially what Fine Gael's election manifesto reflected.
On the other hand, Ireland's chances of getting a better deal are quite good, as part of a "comprehensive reform" of the eurozone European Financial Stabilization Fund (EFSF) lending framework at the coming EU Summit in March. Here it looks politically likely that the EFSF (and its permanent European Stabilization Mechanism, or ESM, replacement) will ultimately be able to lend to crisis-stricken eurozone members at lower interest rates/longer maturities than today. Otherwise, an outright debt restructuring—including haircuts on private sector bondholders in Greece—will be inevitable, and the "risk-free status" of eurozone sovereign bonds will be shattered with potentially devastating contagion effects to follow. Ireland (as well as Greece and probably Portugal) will therefore likely gain access to lower interest rates, as part of a deal at the EU Summit in March.
Such a development probably won't happen right away, to the disappointment of markets, but politically the "comprehensive reform" of the EFSF/ESM and the restructuring of Ireland's lending terms will need to be presented as two separate events, rather than as part of the same process, to politically shield AAA-rated country leaders (especially Chancellor Angela Merkel of Germany) from domestic unhappiness with "bailouts" of errant European countries. Like Greece, however, the new Irish government will find that if it stays the course and faithfully implements the EU/IMF program, it will eventually get a different and better deal as reward.
1. Ireland has a so-called proportional representation "single transferable voting system" with multi-seat constituencies. In this system, voters give their ranked voting preferences to each candidate that they like, "1" for their first choice, "2" for their second choice, etc. In order to minimize the risk that any individual vote is wasted, in the event that a voter's "first choice candidate" does not need this vote to be elected, the counting vote is transferred to the vote's "second choice candidate".
2. See election results here http://www.rte.ie/news/election2011/results/index.html.
3. See a quick comparison of party economic platforms here - http://ftalphaville.ft.com/blog/2011/02/25/498146/your-cut-and-paste-guide-to-the-irish-elections/