Ireland's plan to slash £5.2bn 'will impact on everybody'

Ireland's government announced last night it wants to slash ?€6 billion (£5.2bn) from its 2011 deficit in an unprecedented bid to tame its debt crisis, even though it conceded the massive cuts and added taxes will mean lower growth.

Finance minister Brian Lenihan said the magnitude of the cuts - double the government's original estimates - were "deemed necessary and will underline the strength of our resolve and show the country is serious about tackling our public finance difficulties".

Mr Lenihan said: "Such measures will impact on everybody. But our spending and revenues must be more closely aligned. This is the only way to ensure the future economic wellbeing of our society."

Later this month, Mr Lenihan plans to publish a more detailed four-year plan for returning Ireland's deficit to 3 per cent of GDP in 2014. This year's deficit is set to reach an astronomical 32 per cent, chiefly because of exceptional bank-bailout costs of ?€31bn (27.05bn).

Mr Lenihan said he expects Ireland's GDP to grow by just 0.25 per cent this year and 1.75 per cent next year as the country's 4.5 million people endure ?€4.5bn (3.9bn) in cuts and €1.5bn (1.3bn) in extra taxes.

Opposition leaders and some economists warned Ireland risked pushing its economy back into negative territory. The country has endured two years of recession driven by a collapsed property market, declining retail prices and unemployment doubling to 13.6 per cent.

Michael Noonan, finance spokesman for the opposition Fine Gael party, said the government "don't get it. The country needs the confidence only a jobs-and-growth economic plan in parallel with the fiscal correction would deliver."

The government faces a battle to win parliamentary approval for the 2011 budget when it is published on 7 December.

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Ireland's woes come as a Europe-wide government debt crisis shows signs of flaring up again. Bond market turmoil was calmed earlier this year after the European Union and the International Monetary Fund provided €110bn (96bn) to keep Greece from defaulting on its debts, and eurozone countries established a €?750bn (654.2bn) backstop in preparation for the next crisis.

In recent weeks the zone's most debt-troubled members - Ireland, Spain, Portugal and Greece - have seen their borrowing costs rise amid renewed scepticism they can avoid defaulting on debts.

Such doubts have been fuelled by recent calls from German Chancellor Angela Merkel for new European Union debt-crisis rules that would include requirements for bondholders to share the burden when the EU next intervenes to restructure a eurozone member's debts.

Making bondholders more vulnerable to losses decreases investor appetite for bonds.