Snap Analysis-Anglo Irish move first step in regaining mkt trust

DUBLIN (Reuters) - Ireland's government outlined a compromise solution for winding down troubled Anglo Irish Bank ANGIB.UL on Wednesday but failed to put either a price or a timeline on its plan.

Following is some analysis about what the measures mean for the Irish economy, its banks and its government.

ECONOMY

Finance Minister Brian Lenihan is hoping a gradual wind-down will provide certainty to investors and result in a lowering of Irish borrowing costs, which are unsustainable at current levels over the medium-term.

However any easing of pressure might only be temporary as Wednesday's decision failed to address concerns over the capital hole at Anglo and markets might have to wait until October to gain clarity on the amount of money the government's plan would cost the exchequer.

Analysts have also cautioned that Anglo Irish, while it has punched a massive hole in Irish finances, is ultimately a one-off cost whereas the country's budget deficit, currently the highest in the European Union, is a recurring problem.

Ireland is planning to squeeze the equivalent of 4.5 percent of GDP in fiscal savings over 2011-2014 to get it back under control but the International Monetary Fund (IMF) has said this is over-optimistic and they will instead need to making savings equivalent to 6.5 percent of GDP in that period.

Under pressure from unions, the government has pledged not to cut any more from public sector wages nor cut jobs, narrowing its fiscal choices ahead of its 2011 budget, to be unveiled on December 7.

BANKS

Some sort of clarity regarding Anglo should make life a little easier for other Irish banks whose shares have fallen over the past two weeks as the market sought certainty over the future of their former competitor.

However each of the country's main lenders face challenges of their own. Bank of Ireland (BKIR.I), fully recapitalised after raising around 3 billion euros earlier this year, plans to wean itself cautiously from state support and is likely to issue its first public bond after a six month-plus hiatus in the coming weeks.

Fellow minority state-owned lender Allied Irish Banks (ALBK.I) is up against the clock as it seeks to raise 7.4 billion euros in capital before the end of the year. Ireland's second biggest bank by market value is aiming to sell its overseas assets by the end of September and raise more capital in the fourth quarter but has yet to detail either.

GOVERNMENT

Prime Minister Brian Cowen's Fianna Fail party, which remained hugely unpopular throughout Ireland's deep recession, originally intended to keep part of Anglo open but that stuck in the gut of an electorate sickened at having to shell out 25 billion euros for its reckless property lending while facing yet another round of tax hikes and spending cuts.

While winding Anglo down will come as a relief to voters, it will do little to change analysts minds that parliamentary elections are likely to take place before the 2012 due date. Some say Ireland's shaky coalition, which has to rely on support from independents, could fall at any time.

Nor is it likely to turn the government's fortunes around. Fianna Fail fell into third place behind opposition Fine Gael and Labour in recent opinion polls while Cowen's popularity rating is on the floor. Those opposition parties have criticised the government for doing a u-turn on Anglo, something that will hurt its credibility at home.

(Editing by Carmel Crimmins; Editing by Ron Askew)