DUBLIN – A defiant Irish Prime Minister Brian Cowen vowed Wednesday to push through Europe's toughest slash-and-tax budget in the face of voter fury, then defy the odds to win re-election despite a debt disaster that has shaken the entire eurozone.
Cowen mounted a vigorous defense of his embattled leadership a day after lawmakers narrowly backed a 2011 budget containing euro6 billion ($8 billion) in cuts and tax hikes that will take an estimated euro3,000 ($4,000) per year out of average Irish households.
The unprecedented scale of the budget-tightening was a key condition for Ireland's recent agreement of a euro67.5 billion ($90 billion) EU-IMF rescue fund to help Ireland cover its European-leading deficit and revive its debt-struck banks. The Irish were forced to take aid after its two-year struggle to prevent the collapse of Dublin banks proved impossible to finance on their own.
Cowen — whose public approval ratings have recently fallen to a record-low 8 percent — insisted he wouldn't resign, as many lawmakers have expected, and instead would lead his party into an early spring election. All recent polls suggest Cowen's long-ruling Fianna Fail party faces decimation in any national test.
Tuesday night's initial passage of the Irish budget package offered temporary relief for the 16-nation eurozone, where Portugal, Spain and Italy have faced mounting questions about their own capacity to keep financing their own debt mountains. European and IMF chiefs sought a bailout for Dublin, in part, to stem investor fears of a debt-default domino effect.
Wednesday's yields on 10-year bonds were little changed for the eurozone members rated most at risk of an eventual default, particularly Greece, which in May became the first eurozone member to be saved from bankruptcy.
The most significant mover was Germany, whose benchmark bonds suffered a moderate selloff, driving their 10-year yields above 3 percent for the first time since May's Greek crisis. Traders said the selling reflected investors' increased appetite for higher-risk bonds versus the Germans' top-rated and consequently low-yielding debt securities.
The euro common currency also held its ground, rebounding from a day low of $1.3189 to rest at $1.3250 in late trade.
In Geneva, the International Monetary Fund's managing director Dominique Strauss-Kahn said the euro would not break up but that its rules and governance need improvement.
"I don't think there's any threat to the euro. But I think that if the euro zone doesn't work hard to recover soon, it's going to have a slow, difficult process of recovery which it could avoid, as long as it improves its governance," he told diplomats gathered at the U.N.'s European headquarters.
Ireland's budget faces a series of parliamentary tests this week through February. Losing any single vote would force Cowen from office and Ireland into a snap election. Cowen won Tuesday's initial votes with the premier's two-vote majority solid.
Cowen stressed he was confident of winning all the upcoming votes and would call the election only once the brutal budget was passed in full, possibly not until March. He insisted he wasn't trying to delay the end of his government, but was serious about going to the voters on a platform of defending the latest austerity plans.
"It's not about me trying to get a month or two in office, it's about giving legislative effect to the budget decisions we've made. Then people will know we're serious about our intent and purpose," Cowen said in an interview on state broadcaster RTE.
The premier dismissed speculation that lawmakers within his Fianna Fail party could try to oust him in hopes of boosting the party's weak electoral prospects. Cowen said he expects to lead Fianna Fail — pronounced "FEEN-uh fall" and meaning Soldiers of Destiny in Gaelic — to an improbable seventh straight election win dating back to 1987.
Cowen said he was confident that, as the election day neared, voters would not be convinced by opposition leaders' claims they could reduce Ireland's deficit — currently at a post-war European record of 32 percent of GDP, targeted for a reduction to just 3 percent by 2015 — without enacting the same brutal cuts and tax rises as the government.
"You cannot credibly, honestly say to the people that we can get out of this problem by not raising income tax or cutting welfare," he said.
But grassroots anger over Fianna Fail's mismanagement of the economy was evident as Cowen's finance minister, Brian Lenihan, fielded live telephone calls from citizens on RTE.
"Will you struggle to pay your mortgage? Will you struggle to take care of your family?" asked one caller, who identified himself only as a Dublin hospital worker named Brian who expected to lose euro2,000 from his net household pay next year because of higher taxes.
"I don't object to paying my pay, but I do object that you refuse to pay your way. You do not live in the real world," Brian told the finance chief. "Will any (lawmaker) be struggling to put food on the table in January?"
Lenihan — who has battled cancer while overseeing a string of emergency budgets and bank-bailout efforts — said he had "spent 2 1/2 years in my office working day and night because of the crisis we're in."
And he told the caller how two years of salary cuts to top politicians, with more cuts to be approved in a parliamentary vote Friday, had disproportionately slashed the take-home pay of Cowen, himself and other Cabinet ministers.
He said Cowen's gross salary two years ago was euro285,000 ($375,000) and euro174,000 net, reflecting deductions of 39 percent. But the latest cuts and tax hikes would leave the prime minister with euro214,000 gross and just euro102,000 ($135,000) net — reflecting a new effective income-tax rate on higher earners of 52 percent.
"Everyone in this country has to contribute something in the present crisis," Lenihan told the caller. "We did come to a position where our standard of living was one of the highest in the world — and our wealth didn't justify it. We have to face up to that."