Irish premier won't quit over Ireland debt crisis

DUBLIN – Irish Prime Minister Brian Cowen faced a fight for political survival Sunday as he rebuffed pressure to resign and a senior Cabinet colleague announced he would challenge him for the party leadership.

Foreign Minister Micheal Martin said he had "reluctantly concluded" that Cowen would have to be forced from office since he refused to go voluntarily. The two face a showdown Tuesday when lawmakers of the long-ruling Fianna Fail party gather to vote whether to keep Cowen or promote Martin.

At stake is the course of Ireland's fightback from a European-record deficit amid a euro67.5 billion ($90 billion) international bailout. The leadership tussle within Fianna Fail — "Soldiers of Destiny" in Gaelic — raised new doubt over whether lawmakers would be able to pass a deficit-slashing bill without a national election first.

For the second time in four days, Cowen defied expectations and refused to quit in the face of mounting opposition within Fianna Fail to his leadership.

Instead, Cowen announced he would ask his party's legislators to take a vote of confidence in him Tuesday. Cowen said he was assured of winning the secret-ballot vote and lead Fianna Fail to a seventh straight election victory.

Hours later Martin — one of three Cabinet ministers who have signaled their desire to succeed Cowen — became the first to declare a challenge. Martin said he had tendered his resignation as foreign minister because he no longer supported Cowen and would ask lawmakers to back him instead Tuesday.

Many lawmakers want Cowen to quit immediately in hopes that their party might fare better with a new leader in place for an election expected to take place sometime this spring. Cowen, who was finance minister before gaining the top post in 2008, is closely associated with the property-pushing tax policies that have brought Ireland to financial ruin.

Fianna Fail has governed Ireland almost continuously since 1987, but has plummeted to historic lows in recent opinion polls.

Opposition leaders, meanwhile, still intend to pursue their own no-confidence motion in parliament against Cowen — and pleaded for Fianna Fail to declare an election date. Fianna Fail has sought to delay that vote as long as possible.

"The longer (the Irish government) stays in power, the greater the damage that is being done to the economy and to our international reputation. This government should go," said Gerry Adams, leader of the Irish nationalist Sinn Fein party.

Cowen rose to power as Ireland's 13-year Celtic Tiger economic boom was giving way to a property-market implosion and banking crisis. He has faced rising accusations in recent weeks of making decisions that benefited corrupt bankers far more than taxpayers, who have been burdened with a bank-rescue bill expected to top euro50 billion ($65 billion).

The pressure for Cowen's removal flared last week when a new book revealed that Cowen held dinners and social events, including a daylong golf outing, with top bankers in the weeks before his government decided in September 2008 to insure all of the borrowings of Dublin banks.

That blanket guarantee failed to prevent most of those banks from facing collapse as their loan books — heavily exposed to runaway property markets in Ireland, Britain and the United States — began to suffer massive defaults.

Ireland has nationalized four of the six Irish-owned banks and repaid tens of billions to foreign bondholders, who normally would be expected to suffer losses when a bank fails.

Ireland spent two years trying to fund the bank bailouts itself, but the cost drove Ireland's 2010 deficit to 32 percent of gross domestic product, a postwar European record. Even excluding the exceptional bank-bailout costs, Ireland spent more than euro50 billion last year but collected just euro31 billion as unemployment soared and taxes from property sales slowed to a trickle.

In November, as the state-owned banks found themselves unable to borrow on open markets, the European Central Bank and International Monetary Fund stepped in to insist that Ireland negotiate a multiyear loan deal. Under terms of the deal, Ireland must slash euro15 billion ($20 billion) from its deficit spending over the coming four years and is imposing the harshest cuts this year.

The parliament has already approved bills that will slash welfare benefits and the minimum wage, raise school fees and cut the salaries of Cabinet ministers. But the toughest measures — to increase income taxes across the 2 million-strong work force, raising effective tax levels to 41 percent or more — have yet to be approved in the 2011 Finance Bill.