Ireland sets out record austerity budget
DUBLIN (Reuters) The Irish government detailed the toughest budget on record yesterday, targeting six billion euros in spending cuts and tax hikes, and warning passage was crucial to avert a deeper crisis and free up EU and IMF rescue funds.In a speech to parliament, Irish Finance Minister Brian Lenihan sketched out austerity measures for 2011 including cuts to child benefit and public sector pensions, but stuck with growth forecasts that some economists and even the European Commission believe are too optimistic.
Parliament passed the first in a series of votes on the budget yesterday evening, suggesting that enough of the budget is likely to pass to release bailout funds. The budget's success had looked in doubt when independent politicians, on whom the government depends for support, said they might vote against it.
If the initial resolutions pass this week, the IMF could seek approval from its board for its Irish loan as soon as Friday.
The risk premiums investors demand to hold Irish 10-year bonds instead of German benchmarks fell yesterday to their lowest levels in a month, in anticipation that the budget would be approved.
A burst property bubble has transformed Ireland from one of Europe's brightest economic stars to a country that has been forced to seek the 85 billion euro bailout from the IMF and the EU to cover its borrowing costs and shore up its banks.
The bailout, the second in the euro zone after Greece was rescued in May, has stirred outrage in the humbled former “Celtic Tiger”. Opposition parties slammed the government for mismanaging the economy and sacrificing Irish sovereignty.
“This budget is the budget of a puppet government who are doing what they have been told to do by the IMF, the EU Commission and the European Central Bank,” said Michael Noonan, finance spokesman for the centre-right Fine Gael party and a possible future finance minister.
Once all the resolutions underpinning the budget have passed early next year, Prime Minister Brian Cowen the most unpopular leader in recent Irish history has promised to call an election he is widely expected to lose.
That means a new government, most likely a coalition of Fine Gael and centre-left Labour, will have to oversee the budget cuts.
Both opposition parties have said they will re-negotiate the terms of the bailout package agreed late last month, although in practice they will have little room for manoeuvre, having agreed to the broad targets of the rescue plan.
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