Ireland to unveil austerity plan

| Friday November 26, 2010 00:00

The four-year plan targets total cuts of 15bn euros ($20bn; £13bn), or 11 percent of the Irish economy's annual output. Meanwhile, Taoiseach Brian Cowen confirmed he was negotiating a bail-out package with the EU and IMF, to be worth about 85bn euros.On the markets, the euro continued to fall against the dollar, and yields on Irish government debt rose sharply.

At a heated session of the Irish Parliament, Cowan said that bail-out negotiations were ongoing, and that no final figure had been agreed. He described the package as an 'overdraft', which would continue to be available and could be drawn upon as required, and stressed that the government would have had to borrow the money from international investors in any case.

Leader of the opposition Labour Party Eamon Gilmore called the package 'one hell of an overdraft', before accusing Cowan of  Despite continued questioning, Cowan would not give any indication on how much of the bail-out funds would be used to recapitalise Irish banks. To give such market sensitive information would be 'irresponsible', he said.

The BBC's business editor Robert Peston said about 35bn euros would be used to prop up the banks, with 50bn euros going to fill the state's funding gap.Later on Wednesday, the government will later provide more details of spending cuts and tax rises, including a hefty 6bn euros expected for next year, with the aim of bringing the government's budget deficit down to a target of 3 percent of GDP by 2014. The measures to be introduced are expected to include the introduction of domestic water charges, a new property tax, a reduction in the minimum wage and social welfare cuts.The government could also widen the tax net to take in some low-paid workers who currently pay no tax, and cut about 20,000 civil service jobs.

According to local media, the property tax could be phased in from 2012, with homeowners expected to pay an average of about 300 euros over the next two years. The austerity plan will also outline how Dublin intends to reform its banking sector, in which it has needed to inject 45bn euros.According to a report from state broadcaster RTE, the government will inject money into the banks, increasing their capital - the cushion against future losses - to 12 percent of assets from 8 percent currently. The move would probably involve the government all but nationalising Allied Irish Bank and Bank of Ireland.

Also on Tuesday, ratings agency Standard & Poor's downgraded its long-term rating on the Republic, from AA- to A, due to the large sums involved in the rescue package from the EU and IMF. The downgrade reflects the agency's view that 'the Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland's troubled banking system'. (BBC)