Irish Republic announces record budget cuts

image captionThe Irish Republic faced one of the deepest recessions in the eurozone

The Irish government has outlined when it will make 15bn euros (£13.1bn; $21.3bn) of budget cuts designed to reduce the country's deficit.

In what it called "a significant frontloading", the government said it would cut 6bn euros in 2011 to try and reduce the deficit to 9.25%-9.5% GDP.

By 2014, the government wants to reduce the deficit to 3% of GDP.

It said savings would be made through spending cuts and tax rises and would impact the living standards of all.

Further details of these measures will be released in the government's Four-Year Plan, published later this month.

Finance Minister Brian Lenihan said the cuts underlined the "strength of our resolve to show that the country is serious about tackling our public finance difficulties.

"But our spending and revenues must be more closely aligned. This is the only way to ensure the future well being of our society."

Analysts said the announcement contained few surprises, and that markets were waiting for further details on the spending cuts and tax rises before passing judgement on whether the cuts were realistic.

"I think committing to front-load the cuts sends a good signal to the markets that Ireland is serious about fiscal consolidation," said Oliver Hogan at the Centre of Economics and Business Research.

"I think they're on the right track in terms of what has to be done but they may find it has more of a detrimental effect [on growth] than they're expecting."

A number of countries have announced measures to reduce budget deficits that rose dramatically during the economic downturn, most notably Greece and the UK.

Investor concerns

Earlier on Thursday, yields on Irish 10-year bonds reached a new high of 7.69%.

The move reflected increasing scepticism about the Republic's ability to tackle its problems without outside help.

The Irish Finance Ministry has released its budget early to try to soothe investor concerns as Irish borrowing costs have hit a new high every day so far this week.

The Irish deficit is predicted to be the equivalent of 32% of the country's economic output this year.

It has been pushed up by the cost of government bail-outs of Irish banks. At the end of September, Prime Minister Brian Cowen revealed that taxpayers' total bill for bailing out the banks could reach 50bn euros.

Mr Cowen has vowed to reduce the deficit to below 3% of gross domestic GDP by 2014.

'Huge amount'

European Central Bank (ECB) president Jean-Claude Trichet earlier said he thought the figure was a sensible target.

"The 15bn... are not in our view insufficient but of course you have to be alert permanently and stand ready to do all that is needed," Mr Trichet told a news conference, shortly after the ECB had announced it was holding interest rates in the eurozone at 1%.

"The market observers, savers, investors are looking with great, great attention to what the minister and the government will say in a few hours," Mr Trichet said.

Ken Wattrett, chief European economist at BNP Paribas, said the government faced a difficult dilemma.

"[15bn euros] is a huge amount - what we're talking about there is something in the region of 10% of GDP in addition to all the measures that have already been delivered," he told the BBC.

"The intention for 2011 is to frontload quite a lot of that adjustment, probably in the region of 4% of GDP.

"[The government] needs to deliver these cuts to stabilise its public finances and win its credibility back, but at the same time it will probably push its economy into a deeper recession."

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