Ireland’s budget has been released, but now the hard part comes, will the opposition and minor parties support it’s passing so the country can get the much needed cash from Europe and the IMF?
There’s no certainty that the budget, with cuts of 6 billion euros next year and 15 billion for the next four, will get approved, even if the staggering government sets the date for an election in January.
No budget would mean no money and while the country could stagger on into the New Year, its banks would probably go closer to collapse, especially if the European Central Bank moves to tighten up on the day to day support for the banks that is currently around 130 billion euros.
Under the proposed budget, Ireland will slash welfare spending and the minimum wage, raise income tax and introduce a levy on land and property owners.
The ultra low company tax rate of 12.5% won’t be changed, yet, which should please local companies such as James Hardie and Perpetual which have a presence in Ireland or major businesses there..
The government intends to save 15 billion euros ($US20 billion) between 2011 and 2014 – or about 4% of annual economic output – with 10 billion euros of spending cuts and 5 billion euros in new taxes and revenues.
The plan comes on top of nearly 15 billion euros of cuts in the last two and a half years as the collapse of the property boom and the gradual implosion of its banks pushed the country towards failure. But there remains no certainty the harsh measures will be adopted, or if they are, supported after by the new government after an election early next year.The budget will help the country get an 85 billion euro rescue package from the rest of the European Union and the International Monetary Fund, plus Britain and Sweden.
Irish Prime Minister, Brian Cowen has fought off an attempt to get rid him, refused to bring the budget forward but gave a commitment to Parliament to call an election in February when the Finance Bill has passed.
A move to hold a special meeting of his party failed and looks like being held in January.
Standard & Poor’s cut Ireland’s credit rating, a day after Moody’s put it on a negative outlook (which implies a cut of two or three levels).
Details emerged of a further bailout of the country’s broken banks that will see the sector effectively nationalised.
The banks must raise their capital ratios to 12% from the previous 8% level set only in March of this year when the government announced a major recapitalisation.
Money will be provided to the banks from the 85 billion euro bailout being negotiated, which will include a “contingency fund” the banks can draw on should they continue to lose money on loans.
The banks will have to draw on this to maintain their capital ratio at a minimum of 10.5%.
The upshot is that this latest bailout of the banks will see the Bank of Ireland, currently 36% State-owned, become majority Government control, and Allied Irish Banks to almost full nationalisation, with a State stake of 99.9%. Anglo Irish is already state owned and broke.
Standard & Poor’s cut Ireland’s long- and short-term sovereign ratings by two levels, citing concerns about government borrowing.
S&P cut Ireland’s long-term sovereign rating to A from AA- and the short-term grade to A-1 from A-1+.
That is at least a good quality investment grade rating, for the moment.
Ireland’s new rating is five levels above that of Greece, the first country to be bailed out.
And the outlook was left at negative, implying further cuts.
“The lower ratings reflect our view that the Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system,” S&P said.
“The Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system,” S&P said in a statement.
Putting the rating on “CreditWatch with negative implications” reflects risk of a further downgrade if talks on a European Union-led rescue fail to stanch capital flight, it said.
Moody’s Investors Service said two days ago a “multi- notch” downgrade in Ireland’s credit rating was “most likely” because of the expected increase in debt from the bailout.
