Ireland will cut €6 billion from its budget in 2011 under an austerity drive to save the debt-ridden eurozone nation €15 billion over four years, the government said last Thursday.
“The government has agreed on an adjustment of €6 billion for 2011,” Minister for Finance Brian Lenihan said in a statement.
He added that the initial savings would slash the government deficit to between about 9.25 and 9.5 per cent of GDP next year, from 32 per cent currently caused by the cost of massive bank bailouts.
“Taking account of the €15 billion consolidation package, my department now expects annual average real GDP growth to be 2.75 per cent over the 2011 to 2014 period,” Lenihan added.
Dublin, looking to make the bulk of savings via cost-cutting measures rather than tax hikes, is due to present its 2011 budget on December 7 and plans to unveil further details of its austerity package later this month.
The coalition government said last Thursday it expects savings of €3-4 billion in 2012, €3-3.5 billion in 2013 and €2-2.5 billion in 2014 as it tries to cut the deficit to 3 perccent of GDP – the EU ceiling.
The announcements came as Irish borrowing rates on the financial markets soared to historic highs, with pressure mounting on the struggling country to put its public finances in order.
The yield – the return paid to investors – on Ireland’s 10-year bond was at 7.516 per cent last Thursday, up sharply from 7.299 per cent last Wednesday.
European Central Bank chief Jean-Claude Trichet, speaking ahead of Ireland’s statement, said Ireland’s target savings of €15 billion should not be deemed “insufficient.
“I have no reason myself to think at the present moment that the observers will be disappointed,” he added.
The International Monetary Fund meanwhile warned member nations, including Ireland, against tightening budgets to rein in public deficits given the prevailing risk in a weak economic recovery from global recession.
Ireland’s economic crisis is heaping pressure on Prime Minister Brian Cowen, who this week again rejected calls for an early general election.
Cowen won some relief last Wednesday when official data showed Ireland’s unemployment rate fell last month, although it still stands at a lofty 13.6 per cent.
Michael Noonan, finance spokesman for the main Fine Gael opposition party, said after a briefing from Lenihan on the budget plans that the coalition government “don’t get it.
“The country needs hope, optimism and the confidence that only a jobs and growth economic plan in parallel with the fiscal correction would deliver,” Noonan said.
Ireland became the first eurozone member country to plunge into recession, in the first half of 2008, slammed by the global financial crisis, a banking crisis, a domestic property market meltdown and soaring unemployment.
The property market collapse, that has seen prices plummet by more than 50 per cent, has meanwhile blitzed the balance sheets of the country’s banks.
The new chairman of Allied Irish Banks, David Hodgkinson, last week apologised to shareholders, whose investment has been virtually wiped out by property lending losses at the state-rescued lender.
The crisis-hit bank, which is 19 per cent owned by the Irish state after a massive bailout, has been ordered by the government to raise a total of €10.4 billion in fresh cash.