Ireland 'needs rethink on budget cuts'

Ireland will need to rethink its plan for cutting a bloated budget deficit due to weak economic growth and higher borrowing costs, though the price of its bank bailout will not be as high as some fear, the central bank said.
By The Newsroom
Published 21st Sep 2010, 12:41 BST
Updated 21st Sep 2010, 12:41 BST

Touted last year as a role model for cutting spending aggressively after a property market crash, the rising cost of rescuing its banks has made investors nervous about a full-blown debt crisis, sending Irish borrowing costs soaring to levels that are unsustainable over the long-term.

The head of the central bank signalled yesterday the government needed to take even tougher fiscal action in the next few years to win back investor confidence and get borrowing costs down.

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"I think these kinds of budgetary programmes do need to be reprogrammed in the light of circumstances," Patrick Honohan said.

"My overarching goal is to ensure the government's funding costs are not damaged by a market perception that the government might not be going to deliver what it is going to deliver."

Despite three austerity budgets in two years, the cost of propping up nationalised Anglo Irish Bank could push Dublin's 2010 budget deficit to around 25 per cent of gross domestic product (GDP), far above an EU limit of 3 per cent.

Ireland has vowed to return its finances to the EU target by 2014 and Mr Honohan said the shortfall could come close to that if the economy stays on an originally envisaged course.

Related topics:IrelandGDP