Ireland’s Cabinet was to hold an emergency meeting yesterday to finalize a four-year deficit crisis plan seen as key to winning an international bailout and easing fears about the future of the euro.
The meeting came as Irish officials held a fourth day of tense talks with the EU, European Central Bank and IMF on financial assistance worth tens of billions of euros.
Concerns are growing that the huge deficit racked up by the one-time “Celtic Tiger” as it tried to save its banks could have a knock-on effect on other weak economies like Portugal, echoing the Greek crisis earlier this year.
A spokesman for the government of Irish Prime Minister Brian Cowen said the Irish Cabinet would meet “in the middle of the afternoon” to finalize its austerity measures, with reports saying an announcement was expected tomorrow.
The Cabinet would not discuss the international bailout “but the two [issues] are related,” the spokesman said.
The new austerity drive is looking to save 15 billion euros (US$20.5 billion) up to 2014.
Dublin has pumped 50 billion euros into the country’s stricken banks, pushing its public deficit to 32 percent of output — more than 10 times the EU limit.
Cowen said on Saturday that the four-year plan was “very well advanced,” adding that its outline had already won the approval of EU Commissioner for Economic and Financial Affairs Olli Rehn.
The international mission is subjecting Ireland’s books to forensic analysis, with Cowen’s government trying to deflect fears about a loss of sovereignty while defending a wafer-thin parliamentary majority.
The bailout package could be worth between 40 billion and 100 billion euros.
However, a key sticking point is Ireland’s refusal to compromise on its long-cherished 12.5 percent rate of corporate tax, believed to be key in attracting foreign investment.
French President Nicolas Sarkozy waded into the debate on Saturday, saying he could not imagine that Dublin would not raise tax rates.
“Faced with a situation like this, there are two levers they can pull: spending and receipts. I cannot imagine that our Irish friends ... would not use this because they have more room for maneuver than others, their taxes being lower than all the others,” Sarkozy said. “It’s not a demand, it’s an opinion.”
The tax has helped to encourage companies to relocate to the republic, but EU heavyweights such as Germany claim the low rate gives Ireland an unfair advantage that helped its economy boom over the past decade and a half.
In the past three years, Ireland’s public finances have been ravaged by the costly banking sector rescues, a property market meltdown and the global recession.
EU President Herman Van Rompuy has warned that the 27-nation bloc’s very future could be at stake amid the Irish debt crisis.
However, German Federal Minister for Economics and Technology Rainer Bruederle said on Saturday that Ireland’s problems had not put the eurozone in danger, adding that the 440 billion euro European Financial Stability Facility set up in May at the height of the Greek drama was an “effective instrument.”
Greece was forced to take a 110 billion euro rescue package from the EU.
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