By Carmel Crimmins
DUBLIN (Reuters) - Ireland's prime minister expressed confidence Tuesday that he would see off a motion of no-confidence in his government despite a rout in local and European elections and investor jitters about the economy.
Brian Cowen, whose parliamentary majority was cut to just north of 50 percent over the weekend, is expected to survive Wednesday's vote but questions remain over the stability of his administration following the poll results.
"There's no question of this government not having a mandate," Cowen told a debate on the motion. "This house will have the opportunity this week to decide whether the majority have confidence in this government or not."
Cowen reiterated his commitment to turning around the fortunes of the worst performing economy in western Europe but investors are nervous political turbulence will shake his commitment to unpopular spending cuts to squeeze the deficit.
Investors are already concerned about the level of debt Dublin will have to raise to bail out its banking sector and fund its deficit following a property crash.
The chairman of nationalised lender Anglo Irish Bank, symbol of the property lending that marked the "Celtic Tiger" economy, said Tuesday that its stabilisation would be difficult, helping fuel a spike in Irish borrowing costs.
Concerns about further bailouts for Anglo, which is set to receive a 4 billion euros state injection, contributed Monday to Ireland's second sovereign rating downgrade in three months.
IRISH SEEN AS NEGATIVE
"Anything with Irish in it is now seen as a negative," said Marc Ostwald, a bond analyst at Monument Securities in London.
The yield premium investors demand to hold 10-year Irish government bonds jumped to 210 basis points versus benchmark German Bunds, its widest spread since late April, according to Reuters charts.
Moody's, which still rates Ireland AAA, told Reuters on Tuesday it will conclude its review of the ranking after a visit to Dublin in coming weeks.
Moody's senior analyst Dietmar Hornung said the drubbing suffered by Cowen's party in local and European elections over the weekend would not influence its decision.
"We don't decide on politics. Policy matters but not politics," Hornung said.
Newspapers said Tuesday Cowen would reshuffle his cabinet in the autumn. Defence Minister Willie O'Dea has said a cabinet shake-up would be normal around mid-way through its term.
Investors are wary of the possibility Cowen will not lead the government till the end of its term of office in 2012 after junior coalition party the Greens warned another austerity budget in December could make their partnership difficult.
The Green's leader John Gormley said he would consult party members in the next few weeks on the election defeats.
"Now is a time for reflection. We will listen to what our candidates and our members have to say," he said.
(Additional reporting by Andras Gergely and George Matlock in London; Editing by Angus MacSwan)
