DUBLIN A top European Union official told Ireland it shouldnt require a bailout if it makes smart plans for financial survival even as investors kept dumping Irish bonds in expectation that an EU rescue package is inevitable.
The economic and monetary affairs commissioner, Olli Rehn, told a reverentially silent crowd of politicians, business figures and economists in Dublin on Tuesday that the EU would help guide Ireland back from its debt crisis and the continents worst deficit.
You are smart and stubborn people. Time and again you have proved you can overcome adversity. And this time you do not face the challenges alone. Europe stands by you, Rehn said at the end of a two-day fact-finding visit to test how much austerity in the form of spending cuts and tax increases Ireland can tolerate.
Rehn endorsed Irelands ambitious plan to slash $8.5 billion from its 2011 deficit in a budget that will go to lawmakers in December. Beyond that, Ireland hopes to prune tens of billions of dollars more in coming years to get Irelands deficit currently running at a modern European record of 32 percent of GDP back to the euro zones limit of 3 percent by 2014.
Rehn said he believed Ireland was right to aim for this target and could achieve it through its own sacrifices.
In a later interview with Irish state broadcasters RTE, Rehn said a detailed four-year austerity plan, which Ireland has promised to publish this month, would convince both the people and the markets that the very deteriorating debt dynamics can be put under control.
While conceding that Ireland faced a very difficult dilemma to cut the deficit without strangling the economy, he said global investors would resume buying Irish bonds once credible deficit-cutting plans went from plans to reality.
Once they have been decided by the government, then I trust by the parliament, they will have a real effect, and then the market forces (will) believe that Ireland is ready and able to cope with the formidable fiscal challenges, he said.
The commissioner, a Finn who helped guide his homeland out of its own debt crisis in the early 1990s, stressed the need for all factions of political and business life to rally behind the goal.
But after he met opposition chiefs and labor-union leaders, both stressed they would keep opposing the governments plans. The two major opposition parties said they would vote against any budget in hopes of toppling the deeply unpopular Prime Minister Brian Cowen, who has a dwindling majority in parliament.
And delegates from the Irish Congress of Trade Unions which represents 700,000 workers in this country of 4.5 million and plans a day of protest later this month said the cuts being sought would hurl Ireland back into recession and prove self-defeating because tax collections would fall.
Paul Sweeney, the union umbrellas chief economist, said the government was planning saturation bombing of the economy.
There wont be green shoots for years, Sweeney said. After 6 billion euros more in cuts next year, Im sorry to say it, but things are going to be far worse.
Investors continued to sell off Irelands treasuries in favor of safer-bet debt elsewhere, particularly in German bunds.
The interest rate, or yield, on Irelands 10-year treasuries reached a new euro-era high of 7.94 percent in the minutes after Rehns speech.
Analysts agree that Ireland is running short of time to get its debt crisis under control before its left with no option but to seek an emergency loan from the European Financial Stability Facility, a $1.05 trillion backstop created by the 16 nations of the euro zone in May as they bailed out Greece.