Noonan: deal won't mean any easing of savage Budget plans
Published 23/07/2011 | 05:00
Another savage Budget is still on the cards, the Government warned last night, as Ireland must stick to the bailout rules to avail of the new EU deal.
The latest eurozone agreement means there won't be a second bailout, the Coalition also claimed.
The Government will press ahead with a package of cuts and taxes worth at least €3.6bn this December in order to stick to the terms of Ireland's €85bn rescue package.
But the new eurozone deal will mean a 2pc cut in the bailout interest rate, up to 30 years to repay the bailout loans and funding beyond the bailout period, if needed.
The new bailout deal could be worth €1bn a year in savings on repayments, Finance Minister Michael Noonan said.
Mr Noonan said that he had "enough evidence to suggest that by next year the annual saving could be over a billion (euro)".
But these savings won't be passed on to the public in the short term in the shape of less taxes or backing off on spending cuts.
Instead, Mr Noonan argues, the changes to the package will assist the recovery of the economy in the longer term and help a return to borrowing on the international markets.
"We still have to face the music in December," he said.
The eurozone package also means a second bailout is "off the table", he said.
Tanaiste Eamon Gilmore was also adamant there would be a tough Budget to come for 2012.
"No, it is not going to mean that we are going to have a painless Budget.
"Of course not, because there is still a lot of work to be done to get down the deficit and to get people back to work," he said.
Mr Gilmore said the agreement would make a huge difference for Ireland. "By any standards yesterday's agreement was a major achievement for this country."
Mr Noonan also highlighted a section of the document that meant Ireland wouldn't have to go back to borrowing on the markets when the bailout period ended.
"There's a commitment that if countries continue to fulfil the conditions of their programme, the European authorities will continue to supply them with money, even when the programme concludes," he said.
"That takes the whole issue of a second bailout for Ireland off the table. If we're not back in the markets, the European authorities will give us money until we're back in the markets," he said.
After an initial positive reaction to the eurozone deal, jitters returned to European markets yesterday, wiping out earlier gains as confusion reigned among investors on how the technical detail of the EU deal would be implemented.
Market rallies early in the day petered out as investors digested the scant details of the deal and concluded that the eurozone still faced huge challenges.
Spanish 10-year yields rose to 5.7pc and Italian yields climbed to 5.3pc. Investors widely consider that Ireland is the best-positioned of the three bailed-out countries to benefit from the EU deal.
Irish yields fell back significantly to 11pc. Following a strong day, the euro weakened against the dollar, closing at $1.4361.
Investors also remained concerned over a lack of resolution of the US budget battle.
Gold, considered a safe haven at times of risk in the money markets, rose about 1pc nearing this week's record high of $1,800 (€1,250).
Yields on Greece's two-year bonds, however, experienced their biggest single-day fall since the country joined the euro in 2001, as investors shrugged off a warning by Fitch, the rating agency, that Greece risked becoming the first western nation to default. Irish shares rose as traders reacted positively to the deal.
By the close of trading, the ISEQ Overall Index had risen sharply to 2,927 -- a gain of 1.42pc, or 40.87 points.
That was the index's biggest one-day rise since early May.