Ireland aims to woo Europe with fiscal obedience

Ireland's new government will stick to the budget targets laid down in an 85 billion euro ($119 billion) EU/IMF rescue package as it seeks to win European partners round to giving it easier terms on the loans.

Ireland's prime minister in-waiting Enda Kenny is under huge pressure to persuade Europe's paymaster Germany to cut the interest rate Brussels is charging and give Dublin more time to restructure its banks before a Europe-wide deal on the debt crisis is hammered out at summit on March 24-25.

The coalition agreement between Kenny's center-right Fine Gael party and the center-left Labour party, clinched shortly after midnight, seems designed to curry favor with the fiscally conservative Germans and draws a veil over some of the anti-EU rhetoric deployed in the election campaign.

"We have to repair broken bridges across our European partner to build up an understanding of our position," Brendan Howlin, one of the chief negotiators for the Labour party, told state broadcaster RTE.

"It is in everybody's interest, not only the national interest of Ireland, but in Europe's interest and in the interests of the maintenance of the euro that we have a path that is sustainable out of the economic hole that we find ourselves now in."

Fine Gael, which will lead the new government, has persuaded Labour to drop its demand that Ireland be given an extra year to get its budget deficit under control and is aiming for the bulk of the adjustment to be achieved through spending cuts.

The new government will aim to shrink the shortfall from nearly 12 percent of Gross Domestic Product (GDP) currently to below an EU limit of 3 percent by 2015, a deadline already okayed by Brussels last year amid concerns spluttering growth would prevent Dublin meeting an original target date of 2014.

There will be a new cabinet position to deal with public spending and public sector reform and the holder of this office, along with the finance minister and a minister from each of the two parties will sit on an newly-formed economic council.

"This is a new structure of cabinet ... economic policy will be determined by this council," said Howlin.

A source told Reuters that Fine Gael's finance spokesman, Michael Noonan, would be the administration's finance minister.

The source also said Labour's Pat Rabbitte would likely get the new ministerial post dealing with the public sector.

Analysts said investors would welcome Noonan's appointment given Fine Gael's pro-business, low-tax credentials and said the policy agreement was broadly expected.

"I wouldn't see anything there that would scare the markets, scare Europe, scare the IMF or change anything very substantially going forward," said Eoin Fahy, chief economist, Kleinwort Benson Investors.

"The fact that there will be a Fine Gael finance minister will be taken positively and should be because the ministry has a very large control over the small items, and not necessarily just the big picture macro stuff.