Ireland will need to make £6.2bn in cuts

Ireland's finance ministry has given the government options for cutting up to €7 billion (£6.2bn) from the budget deficit for 2011, officials said yesterday.

It issued its statement after Fine Gael's finance spokesman, Michael Noonan, said the Finance Department was seeking to slim down the budget due to be presented in December by around that amount.

"Given the current working macroeconomic forecast, indicative deficits were set out for consolidation packages of the order of €3bn, €4.5bn and €7bn," the ministry said in a statement, adding: "At no point was any specific target given."

Ireland said earlier it would not ask the European Commission to extend a four-year deadline to get its budget deficit under control despite a warning from a leading economic think-tank that its austerity zeal risked a "lost decade".

The government-funded Economic and Social Research Institute (ESRI) said the goal of getting the shortfall back to an EU limit of 3 per cent of gross domestic product (GDP) by 2014 was "worryingly ambitious" and would require savings of €15bn, twice the current official target. Ideally, the deadline should be pushed back by two years, it said, but acknowledged this was unlikely.

The Department of Finance moved swiftly to dismiss any hint of an extension: "It is not realistic to extend out the period of adjustment. This would result in a situation in which more and more of our revenue would be used to simply pay interest on our debt. We cannot allow this to happen."