Irish Finance Minister Brian Lenihan said the government needs to make a “very significant” effort to cut the 2011 budget deficit to restore investor confidence.
“The interest demanded on Irish debt has risen and is set to remain high unless further decisive and credible action is taken soon,” Lenihan told the parliament in Dublin today. “ We will not fool the markets for an instant if we seek to defer any longer what evidently needs to be done now.”
Lenihan yesterday unveiled 15 billion euros ($21 billion) of austerity measures over four years to cut the country’s deficit to 3 percent of gross domestic product by 2014 from around 32 percent of GDP this year. The program comes after Standard & Poor’s and Fitch Ratings cut their rating on Ireland and the premium on Irish debt over Germany’s rose to a record.
The government canceled its remaining debt auctions for this year after the yield on 10-year Irish bonds rose to a record 454 basis points above benchmark German bunds. The yield premium on Ireland’s 10-year debt was at 409 basis points today, up from 393 basis points yesterday.
Fitch on Oct. 6 lowered Ireland’s credit grade to the lowest of any of the major rating companies and said there’s a risk of a further reduction. The move came a day after Moody’s Investors Service said it may cut the country’s rating. S&P cut its Irish rating Aug. 24.
Lenihan said Ireland’s economic slump had a “drastic” impact on the state’s budget. Irish Prime Minister Brian Cowen said in parliament today that the country “cannot afford to increase borrowing further” or it would “run a very real risk of not being able to borrow at all.”
“There needs to be an element of frontloading in the 2011 budget, given the scale of the adjustment,” Lenihan said. “In order to underline the strength of our resolve, the budget 2011 will contain a very significant consolidation effort.”
Lenihan will announce details of the four-year budget plan next month, when he will also unveil a “strategy for underpinning and encouraging sustainable economic and employment growth over the medium term,” he said today.
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