By Padraic Halpin and Kate Holton
DUBLIN (Reuters) - Ireland's main opposition party claimed a historic election victory on Saturday and looked set to form a coalition government after voters, incensed at a financial collapse and bailout, routed the government.
Early results showed Fianna Fail was facing the biggest collapse in support for any Irish party since independence from Britain in 1921, and its defeat would make it the first euro zone government to be brought down by the debt crisis.
"Good riddance to them," said Simon McGrath, a 23-year-old student. "I don't think they'll be missed."
Having to go cap in hand to the European Union and the International Monetary Fund last year was the killer blow for the ruling party and will make for uncomfortable reading in Lisbon, seen as next in line for a bailout.
Kenny said he expected to form the next government, but his celebrations were understated as he vowed to fulfil an election pledge to renegotiate the terms of the 85 billion euro (73 billion euro) bailout.
"We don't have any time to lose. The country can't borrow money, the banks can't borrow money, we are up to our necks here," he told national broadcaster RTE.
A host of high-profile independents -- ranging from a shaggy-haired builder to a tailored former stockbroker -- swept out parties and candidates who had ruled for generations.
Despite squabbling in the election campaign, Fine Gael and Labour have a history of working well together and with a sizeable majority should bring some stability back to Irish politics after the chaos of Fianna Fail's last days in office.
But the presence of Labour may harden the government's determination to renegotiate the terms of the bailout and however strong the mandate, the government will come under pressure if economic growth falters leading to further cuts.
The 85 billion-euro (73 billion pound) bailout, which includes 45 billion euros in loans from Europe, covers Ireland's borrowing costs for the next three years. The interest rate is estimated at around 5.7 percent, but Kenny has not said how much of a reduction he is targeting.
Fianna Fail, a former giant of Irish politics, looked set to lose more than 50 seats and be left with only around 20 lawmakers to share the opposition benches with a colourful mix of anti-bailout independents and Sinn Fein, best known as the political wing of the now-dormant Irish Republican Army.
In Dublin, Fianna Fail was expected to retain just one seat out of a possible 47, that of former finance minister Brian Lenihan, whose affable personality and fight with cancer outweighed his austerity budgets and the ignominy of the bailout. Deputy leader Mary Coughlan lost her seat in Donegal.
"I saw some headline which said 'kick them in the ballots' and certainly Fianna Fail got that kick today," said Batt O'Keeffe, a former minister, who retired ahead of the poll.
The make-up of a new parliament will not be confirmed until manual counting finishes on Sunday but a senior member of the main opposition party Fine Gael told Reuters it would most probably form a coalition with the centre-left Labour party.
"Fine Gael and Labour formed a joint platform in 2007 so you expect it should be possible even in difficult times to negotiate a deal," said Richard Bruton, Fine Gael's spokesman for enterprise and a likely future minister.
Labour leader Eamon Gilmore agreed that it was the most likely outcome and bookmakers paid out on bets on a coalition.
An exit poll from state broadcaster RTE put the centre-right Fine Gael on 36 percent of first preference votes under the system of proportional representation, its best result since 1982 but short of expectations for an outright victory.
Around 36 percent of first preferences would translate into around 72 seats in the 166-seat parliament, but Fine Gael officials said they were still hopeful of securing 80 seats.
The exit poll put Labour on 20.5 percent of the vote, possibly giving it a record 35 seats.
MERKEL SHOWDOWN
As likely prime minister, the former primary school teacher Kenny will face immediate pressure to fulfil an election pledge to renegotiate the 85-billion-euro EU/IMF bailout and ease some of the burden on an electorate struggling to make ends meet.
Fine Gael, like Fianna Fail a pro-business and low-tax party, has pledged to stick to the overall austerity targets laid down by the EU, but Labour wants an extra year to get the deficit under control and has taken a tougher line on renegotiating the interest rate charged by Brussels.
"There could be some kind of showdown but I suspect in a one-on-one between Enda Kenny and Angela Merkel, that Angela Merkel will win every time," said Eoin O'Malley, a politics lecturer at Dublin City University.
Ireland has avoided the kind of public protests seen in fellow euro zone struggler Greece but disaffection with mainstream politics is growing.
The hard-left Sinn Fein party is set to possibly treble its presence in parliament to around 15 seats and its leader Gerry Adams, who was officially banned from speaking on Irish media until 1993, topped the poll in the border county of Louth.
(Writing by Carmel Crimmins and Conor Humphries; editing by Jon Boyle)
