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Ireland Can Cut Deficit, Avoid Bailout, Lenihan Says

Brian Lenihan, Ireland's finance minister
Brian Lenihan, Ireland's finance minister. Photographer: Crispin Rodwell/Bloomberg

Irish Finance Minister Brian Lenihan said he’s “absolutely” sure the country will avoid a bailout as he weighs cutting welfare payments and pensions to narrow the euro region’s biggest budget deficit.

Lenihan will next month lay out his plan to narrow the deficit to 3 percent of gross domestic product by the end of 2014. The shortfall will be around 32 percent of GDP in 2010, due to a one-time “spike” from bank bailout costs, the government has said.

“We’ve looked at our welfare bill, our pension bill,” Lenihan said in an interview in New York on Bloomberg Television’s “InBusiness” with Margaret Brennan today. “All these areas have to be looked at.”

Ireland may need to pay 50 billion euros ($69.5 billion) to rescue lenders including Anglo Irish Bank Corp., stoking concerns that it may need to tap the 750 billion-euro rescue fund set up in May by the European Union and the International Monetary Fund. The economy will probably fail to grow this year after shrinking about 10 percent in 2009, Lenihan said.

“We had a big property bubble and that had a big impact on the economy,” Lenihan said.

‘Fully Funded’

Ireland has pumped 22.9 billion euros into Dublin-based Anglo Irish since the property market crashed. The lender may need an extra 6.4 billion euros of capital, plus another 5 billion euros in a “stress case” scenario, the finance ministry has forecast.

The government canceled a debt auction scheduled for next week and another in November after the yield on 10-year Irish bonds rose to a record 454 basis points above benchmark German bunds. Lenihan has said the country is “fully funded” through the middle of 2011.

The yield premium on Ireland’s 10-year debt rather than German bunds fell to 417 basis points today from 422 basis points on Oct. 8.

The finance minister also said that tax “will have to play some part” in narrowing the deficit. Nevertheless, the government won’t raise corporation tax from its current level of 12.5 percent, a rate that has helped lure foreign companies from Intel Corp. to Google Inc.

“We want to encourage investment not discourage it,” Lenihan said. “Exports have retained a lot of their strength.”

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