By Agency Reporter

Monday, 22 Nov 2010

DUBLIN: Ireland’s four-year plan to reduce its deficit will be published on Tuesday, ahead of any international financial aid package, the Irish Times newspaper reported on Saturday.

International Monetary Fund and European Commission officials are in Dublin to discuss a bail-out to help Ireland cope with its struggling banks after concerns about bank liabilities and plans to restructure eurozone debt sent borrowing costs rocketing.

Last month, Ireland doubled to ¤15bn ($21bn) the amount of money it reckoned was needed to bring its deficit under control by 2014, a move the finance minister said was to ensure the country would not need a bail-out.

But that failed to calm jittery markets.

According to a report by Reuters on Saturday, Ireland’s central bank chief acknowledged last week that the country needed a loan running into tens of billions of euros to shore up a banking sector that had grown dependent on ECB funds and seen an exodus of deposits over the past six months.

The Irish Times said the government, deeply unpopular and hanging on to a tiny parliamentary majority, had pushed forward the publication date for its four-year fiscal plan so it could be identified as a government-originated proposition rather than one driven by Europe or the IMF.

The newspaper said the plan would be published on Tuesday, citing unnamed senior Irish officials.

A government spokesman told Reuters on Saturday that the plan would be published early next week but did not specify a date.

An international aid package is expected to be announced shortly afterwards.

“The cabinet will meet tomorrow to sign off on the 160-page document, which charts how the state will reduce its outgoings,” the Irish Times said, adding that a separate plan for restructuring the bank sector was also expected to be finalised this weekend.

Sources have told Reuters that Ireland may need assistance of between ¤45bn and ¤90bn, depending on whether it needs help only for its banks or for public debt as well.

The top concern for European Union policymakers is that Ireland‘s problems will spread to other high-debt euro zone members such as Spain and Portugal, threatening a systemic crisis.

Markets calmed in recent days after it became clear Ireland was on track to receive aid, but remained jittery on Friday.

The euro briefly pushed up above $1.3720, only to fall back to $1.3660 in late European trading. The spreads of Irish 10-year bonds above German benchmarks drifted down toward 5.4 percentage points before pushing back up to 5.6 points, dragging Greek, Portuguese and Spanish debt alongside.

Aid talks could still drag out if Dublin and the EU are unable to agree on conditions attached to financial assistance.

Ireland‘s low 12.5 per cent corporation tax is shaping up as a major bone of contention. Euro zone neighbours want Ireland to raise it as part of any deal, while Dublin argues the low rate is crucial for foreign investment.

Finance Minister, Mr. Jyrki Katainen said Dublin should be prepared to raise its taxes in return for a deal.

According to him, ”We will require a serious package (in exchange for the loan) and it is possible that it will include raising corporate tax.

”Ireland is a country of low taxation and they could raise many taxes, for instance the VAT,” he added.

British Foreign Secretary William Hague reiterated that London was ready to provide assistance because of the strong economic links between Britain and Ireland.

”We do stand ready to assist in the case of Ireland, although let me stress, that no formal request has been made for that assistance,” Hague told BBC radio.

Funds for Ireland are likely to come from a safety net fund set up after the EU bailed out Greece earlier this year. But Britain, as a euro zone outsider, is not a contributor to that.

The Irish government, under severe pressure from the media and an emboldened opposition that reiterated its calls for the resignation of Prime Minister Brian Cowen this week, faces a by-election next week which threatens to cut its razor-thin parliamentary majority even further.

 

Source: Punch