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Teetering Irish government sets out 4-year plan
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Teetering Irish government sets out 4-year plan
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By Peter Graff
DUBLIN (Reuters) - Ireland's deeply unpopular government will finally explain on Wednesday how it plans to save 15 billion euros over the next four years, inflicting more pain on voters to prove that it can tackle the country's...
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By Peter Graff
DUBLIN |
Tue Nov 23, 2010 10:16pm EST
DUBLIN (Reuters) - Ireland's deeply unpopular government will finally explain on Wednesday how it plans to save 15 billion euros over the next four years, inflicting more pain on voters to prove that it can tackle the country's debt.
An erosion of support from coalition partners this week means Prime Minister Brian Cowen is unlikely to survive in office much beyond the New Year to implement the proposals. But his successor will probably be stuck with the plans, since Ireland's financial crisis leaves little scope to revise them.
The four-year spending plan is the first step before Cowen can lay out his budget for next year on December 7, the fate of which could be in doubt. The IMF and EU offered a debt bailout this week, but say it depends on the budget being passed.
Wednesday's spending plan will add to pressure on the main opposition Fine Gael party, which has so far been coy, to say whether it will back the budget, oppose it or abstain.
If Fine Gael votes solidly against, it might be able to block the budget, scuppering the bailout. Leader Enda Kenny said on Tuesday the party would act in the "national interest."
Bond markets that forced Cowen to agree to the bailout in recent days will be checking the four-year plan's sums and could punish him further if they think they do not add up.
Traders could dump Irish debt if they feel the four-year plan relies on unrealistic predictions of future economic growth, said Economist Alan McQuaid of stockbrokers Bloxham.
"The markets may feel that some of the projections are overly optimistic, and if that's the case they may push up yields accordingly," he said.
The extra premium investors demand to hold Irish debt has lifted the cost of borrowing in other shaky euro-zone countries such as Portugal and Spain.
Standard & Poor's downgraded Ireland's credit ratings but the euro showed little reaction as the move was widely expected.
"The lower ratings reflect our view that the Irish government will have to shoulder additional costs associated with further capital injections into Ireland's troubled banking system," said Standard & Poor's credit analyst Frank Gill.
POLITICAL CRISIS
Economists expect few surprises in the main headlines of Wednesday's plan, which is likely to mix about 10 billion euros ($13.42 billion) in spending cuts with about 5 billion in tax increases by 2015.
That adds up to around 3,700 euros per person in higher taxes and reduced government spending.
The government's deal with the EU and IMF requires it to achieve the first 6 billion euros of cuts next year, expected to be outlined in the 2011 budget next month.
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