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Bitter Irish pill for bailout fund
By Shawn Pogatchnik |
November 26, 2010, Friday
|
Print Edition
Print Edition
IRELAND has unveiled the harshest budget measures in its history, a four-year plan to slash deficits by 15 billion euros (US$20 billion) so it can receive a massive bailout from the European Union and the International Monetary Fund.
The austerity plan axes thousands of state jobs, trims welfare benefits and pensions, and imposes new taxes on property and water. In all, it seeks to cut 10 billion euros from spending and raise 5 billion euros in extra taxes from 2011 to 2014.
Even Prime Minister Brian Cowen conceded on Wednesday the plan would hurt the living standard of everyone in the nation.
Yet analysts still expressed doubts that the EU-IMF rescue loan, which Cowen said would be about 85 billion euros, would be big enough to save Ireland from an eventual default.
And bank shares plummeted for a third straight day on the Irish Stock Exchange, reflecting growing expectations that investors will be wiped out if the government is forced to seize majority control of the country's two dominant banks, Allied Irish and Bank of Ireland.
"The government is completely in denial about the amount of money they'll have to borrow," said Constantin Gurdgiev, a finance lecturer at Trinity College Dublin and an economics adviser to IBM in Europe.
Ireland is still negotiating the terms of the bailout with European Central Bank and IMF experts. The government hopes its tough budgetary medicine will permit the country's 2014 deficit to fall to 3 percent of gross domestic product, the maximum for the 16 nations that use the euro currency.
While most eurozone members are exceeding that rule, Ireland's deficit this year is forecast to reach 32 percent of GDP, a modern European record, sparked by exceptional costs from its unfathomable bank-bailout effort.
"Today is about Ireland putting its best foot forward, Ireland saying: Yes, here is what we're prepared to do as a government and a people to put right what has to be put right, and to give ourselves prospects and prosperity again," said Cowen, who is widely expected to resign or be forced from office within weeks.
Business leaders welcomed the package as brutal but unavoidable given that Ireland is all but frozen out of normal lending markets and its banks are running out of cash.
The austerity plan axes thousands of state jobs, trims welfare benefits and pensions, and imposes new taxes on property and water. In all, it seeks to cut 10 billion euros from spending and raise 5 billion euros in extra taxes from 2011 to 2014.
Even Prime Minister Brian Cowen conceded on Wednesday the plan would hurt the living standard of everyone in the nation.
Yet analysts still expressed doubts that the EU-IMF rescue loan, which Cowen said would be about 85 billion euros, would be big enough to save Ireland from an eventual default.
And bank shares plummeted for a third straight day on the Irish Stock Exchange, reflecting growing expectations that investors will be wiped out if the government is forced to seize majority control of the country's two dominant banks, Allied Irish and Bank of Ireland.
"The government is completely in denial about the amount of money they'll have to borrow," said Constantin Gurdgiev, a finance lecturer at Trinity College Dublin and an economics adviser to IBM in Europe.
Ireland is still negotiating the terms of the bailout with European Central Bank and IMF experts. The government hopes its tough budgetary medicine will permit the country's 2014 deficit to fall to 3 percent of gross domestic product, the maximum for the 16 nations that use the euro currency.
While most eurozone members are exceeding that rule, Ireland's deficit this year is forecast to reach 32 percent of GDP, a modern European record, sparked by exceptional costs from its unfathomable bank-bailout effort.
"Today is about Ireland putting its best foot forward, Ireland saying: Yes, here is what we're prepared to do as a government and a people to put right what has to be put right, and to give ourselves prospects and prosperity again," said Cowen, who is widely expected to resign or be forced from office within weeks.
Business leaders welcomed the package as brutal but unavoidable given that Ireland is all but frozen out of normal lending markets and its banks are running out of cash.
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