Irish PM to dissolve parliament on Tuesday

Irish Prime Minister Brian Cowen will dissolve parliament on Tuesday and announce the date of a general election, state broadcaster RTE said on Friday, in which his ruling Fianna Fail party will likely suffer a heavy defeat.

Cowen's announcement will mark the end of his tumultuous time as premier, during which he was criticised for mishandling a financial crisis that sent shockwaves across the euro zone and forced the former "Celtic Tiger" economy to seek a bailout.

Cowen had promised to dissolve parliament once the finance bill, the last piece of legislation underpinning the 2011 budget, had passed through both houses of parliament, paving the way for an election probably on Feb. 25.

The lower house passed the finance bill on Thursday and it has now moved to the Senate, or upper house, for approval.

The bill's passage means Ireland will meet its goal, under the 85 billion euro EU/IMF deal agreed late last year, of delivering a record austerity budget targeting 6 billion euros in spending cuts and tax rises by the end of March.

This will incense voters, who already have years of austerity under their belts after a property bubble and reckless lending by the banking sector left the country with a massive debt and one of the worst budget deficits in Europe.

The new government is likely to be a coalition between the centre-right Fine Gael party and centre-left Labour, which will have to abide by fiscal commitments given to the EU and IMF, as well as impose austerity budgets for the next few years.

Opinion polls suggest Fianna Fail, which elected former foreign minister Micheal Martin party leader earlier this week to replace Cowen, could lose at least half its seats in the election.

In an interview with Reuters, Central Bank Governor Patrick Honohan said he did not expect a change of administration to affect Ireland's commitment to its targets, given that all the major parties have agreed to the overall commitments.

But Enda Kenny, Fine Gael's leader and likely future prime minister, is meeting European Commission President Jose Manuel Barroso in Brussels on Friday to discuss what he described as the "penal" interest rate on the bailout.

Investors remain sceptical about Ireland's ability to service its debt because of its low growth rate, even when a more stable government is in place after the election and with the tough budget taking effect.

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