Veteran Irish politician Enda Kenny yesterday assumed both the mantle of Prime Minister and primary responsibility for his country's mountainous set of economic problems.

On a day when the mood in Irish politics was a mixture of the celebratory and the sombre, he was elected Taoiseach at the head of a Government combining his conservative Fine Gael party with the leftist Irish Labour party.

In his acceptance speech he acknowledged the depth of the financial troubles. "I believe this crisis is the darkest hour before the dawn," he said, adding his Government faced "a task of rescuing our economy, of resuscitating our reputation and of restoring our society".

The incoming administration inherits the worst economic situation in independent Ireland's history, after the country was obliged to accept an €85 billion ($160 billion) bailout from the European Union and International Monetary Fund last year.

The new Government has limited room for movement financially, since the bailout came with a detailed programme of austerity and belt-tightening budgets which will mean further deep cuts and increased taxation.

During the election campaign Kenny described the bailout as "a bad deal for Ireland and a bad deal for Europe", a view to which his new Labour partners also subscribe. His administration's first major challenge will be to test whether the international financial institutions are prepared to show some flexibility, particularly in terms of timetables and interest rates. Signals coming from Europe have not been negative but nor has it been indicated concessions will readily be forthcoming. A spokesman for the European Commission said it welcomed the new Government's "strong commitment to the key economic policy goals, in particular as it concerns the fiscal consolidation path."

Kenny, as part of his lobbying campaign, is to hold important meetings in the next few days.

They are a reminder that, while Ireland's two biggest parties yesterday formed a partnership, there are in effect three elements in the marriage, the parties and the international institutions.

The Fine Gael-Labour deal is grounded in an agreement they will follow the conditions imposed under the bailout for two years and then review its progress. The coalition has a huge majority in the Irish Parliament, as was reflected when Kenny became Taoiseach by 117 votes to 27.

Although the Labour party voted overwhelmingly to go into coalition, its leader Eamon Gilmore acknowledged it will be helping to govern in tough times. His party would be going to meetings, he warned, "through a forest of placards."