- Irish families each face 4,600 euro bailout bill
New fears have been raised about the future of the Belgian economy after market traders pushed the cost of insuring the country’s debt to record levels.
The rising cost of Belgium’s debt is now 100 per cent of annual national income, raising concerns the country could join Portugal, Spain and Italy on the growing list of countries that could be heading for a financial crisis.
Traders are also worried Belgium’s broken political system, which has left it without a government since April, is distracting it from tackling its worsening economic outlook.
The government of Yves Leterme collapsed in April after he failed to find a resolution to a three-year internal dispute between the country’s Flemings and Walloons.
His failure has provoked fears Herman van Rompuy, the Belgian President of the European Council, may have to step in to address difficulties with his own country’s worsening economic outlook.
The eurozone was been dealt a further blow yesterday after Portuguese and Spanish borrowing costs rose sharply as investors worried that their debt levels will prove unsustainable, putting them next in line for a European bailout.
As a major public sector strike in Portugal further undermined market confidence there, the interest rate on the government’s 10-year bonds broke through the 7 per cent barrier yesterday. The 10-year Spanish bonds rose to 5.08 per cent from 4.91 per cent at the start of trading.
While both countries are not at any immediate risk of bankruptcy, those rates are making their already heavy debt loads more expensive to finance. The higher cost to roll over debt is eating away at any progress the governments make in their public finances through austerity measures.
The yields have been moving higher since Ireland accepted an EU-IMF bailout this week because investors demand a higher return for lending to countries with shaky finances.
Despite the growing unease over the success of the Irish bailout and fears that Portugal or Spain might need help soon, a senior official said today the crisis will not lead to the breakup of the euro zone.
European Financial Stability Fund chief Klaus Regling said: ‘There is zero danger. It’s inconceivable that the euro would collapse.’
Mr Regling, who has overseen the eurozone’s 440 billion euro bailout fund since it was created last spring, said Ireland was not suffering from rampant speculation, but rather from a lack of buyers for its bonds.
‘We’re experiencing a buyer’s strike, not wild speculation’, Regling said. ‘And there’s some uncertainty around whether the crisis will spread to other countries.’
Yesterday Ireland embarked on one of most draconian austerity programmes of any developed economy since the Second World War.
Prime minister Brian Cowen unveiled plans to slash public spending by 20 per cent over the next four years to tackle the Republic’s soaring budget deficit.
The harsh medicine will include a 12 per cent cut in the minimum wage, nearly 25,000 civil service job losses and a punishing rise in the VAT and income tax rates.
Fianna Fail and the Greens launched a four-year, 15billion euro savings blueprint – equivalent to over 8,300 euro per household.
As Ireland battled to avoid national bankruptcy, estimates put the bailout bill for the average Irish family at 4,300 euros.
cuts: Ireland’s prime minister Brian Cowen, right, and finance minister Brian Lenihan announce the National Recovery Plan in Dublin today
Ireland’s prime minister Brian Cowen, who is resisting calls to resign over the financial crisis, yesterday warned ‘no one could be sheltered’ from the cuts.
He rejected claims he will stand down after the 2011 Budget is unveiled in December to allow a new leader to fight the imminent general election.
Mr Cowen likened the agreed bailout to an overdraft as negotiations on exactly how the money can be drawn out continue.
He said in the Dail: ‘We’re talking about here, an overdraft, if you like. It’s a contingency, it’s available to us as required.’
Measures being brought in include cutting social welfare by three billion euro (£2.5bn), reducing the public sector pay bill by 1.2 billion euro (£1bn) and increasing VAT by two per cent.
The credit ratings agency Standard & Poor’s has lowered its long-term rating on Ireland’s financial reliability by two notches to A from AA- and warned that there could be further downgrades
The four-year plan includes:
- The minimum wage being cut by one euro to 7.65 euro (£6.48);
- VAT increasing one per cent to 22 per cent in 2013 and to 23 per cent in 2014;
- Public sector workforce being cut by 24,750, bringing levels back to 2005 levels;
- An increase in student fees;
- Water metering brought in by 2014;
- Carbon tax charges doubling to 30 euro (£25) a tonne
However, the plan does not touch the country’s ultra-low corporate tax rate – which contributed heavily to the so-called ‘Celtic Tiger’ economic boom, by attracting companies to the country.
Despite pressure from Germany and France, Mr Cowen is retaining his country’s controversial 12.5 per cent rate of corporation tax, which has attracted a slew of U.S. multinationals to Ireland’s shores over recent years.
The severe cuts equate to more than ten per cent of Ireland’s national income, compared with Britain’s plan to reduce public spending by about five per cent of output.Ireland’s ‘day of reckoning’ came as talks continued between the International Monetary Fund and the EU over a £72 billion bailout.
Britain will contribute at least £7 billion to the rescue.The Irish government has had to go cap-in-hand to the EU after escalating concerns over its finances threatened to capsize its crippled banking system.
The country’s budget deficit is set to hit 32 per cent of national output this year after Dublin was forced to pump some £42billion into its stricken lenders.
Banking and economic experts across Ireland and Europe have raised concerns in the last 24 hours that it might not solve the problem.
There are also worries in some circles of a sustained bank-run by fearful customers.
Irish banks have already seen £19billion in deposits leave the country this year
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