Ireland to finalise crisis plan as bailout looms nearer

Ireland moved yesterday towards finalising its four-year crisis plan for cutting its budget deficit, which could pave the way for a multi-billion euro bailout.

As concerns grow about European economies feeling the knock-on effects of Ireland’s plight, Prime Minister Brian Cowen’s cabinet was set to gather for an emergency meeting to put the finishing touches on its austerity plan.

“A cabinet meeting is likely on Sunday afternoon,” Cowen’s spokesman said.

The four-year plan is aimed at sorting out Ireland’s budget deficit. The government has pumped some €50 billion into its stricken banks, pushing its public deficit to 32 per cent of output – more than 10 times the EU limit.

The new austerity drive is looking to save €15 billion between now and 2014.

The cabinet is expected to finalise the new budget measures, which should be announced by Tuesday.

Agreeing on the austerity plan could unlock tense negotiations with the EU, the European Central Bank (ECB) and the International Monetary Fund (IMF) on a bailout for the Irish economy, as the talks ran into a third day.

Irish Agriculture Minister Brendan Smith said intense work had been ongoing on the plan and the cabinet would be meeting again today to consider it.

“It will be published in the early part of the coming week,” he told RTE state radio.

“Over the last week or so, relevant officials from the Department (of Finance) and from the relevant state agencies have been involved in technical discussions with representatives from EU organisations.

“Those discussions are ongoing. My understanding is that those discussions are going fine.”

The international mission is subjecting Ireland’s books to forensic analysis, looking at the reasons for the collapse of the one-time ‘Celtic Tiger’ economy.

Ireland’s public finances were ravaged by costly banking sector rescues, a property market meltdown and the global recession. The bailout package could be worth between €40 billion and 100 billion. The money could be used by the Irish government to prop up the republic’s banks, whose huge debt levels have triggered fears of a repeat of the Greek crisis.

Ireland’s financial sector is still fragile despite the recapitalisation.

The government is determined that any deal will not require compromise on Ireland’s long-cherished 12.5-per cent rate of corporate tax, believed to be key in attracting foreign investment.

The tax has helped to encourage companies to re-locate to the republic but EU heavyweights such as Germany claim the low tax rate gives Ireland an unfair advantage and are expected to demand the rate be raised as part of any deal.

French President Nicolas Sarkozy hailed the “unprecedented effort” being made by Ireland to sort out its budget but said he could not imagine that Dublin would not raise tax rates.

“What the Irish government is doing is courageous and justified,” he said.

“Faced with a situation like this, there are two levers they can pull: spending and receipts. I cannot imagine that our Irish friends... would not use this because they have more room for manoeuvre than others, their taxes being lower than all the others.”