DUBLIN — Ireland unveiled the harshest budget measures in its history Wednesday, a four-year plan to slash deficits by $20 billion so it can receive a massive bailout from the European Union and the International Monetary Fund.
The austerity plan axes thousands of state jobs, trims welfare benefits and pensions, and imposes new taxes on property and water. In all, it seeks to cut $13.3 billion from spending and raise $6.7 billion in extra taxes from 2011 to 2014. Even Prime Minister Brian Cowen conceded the plan would hurt the living standard of everyone in the nation.
Yet analysts still expressed doubts that the EU-IMF rescue loan, which Cowen said would be about $115 billion, would be big enough to save Ireland from an eventual default. And bank shares plummeted for a third straight day on the Irish Stock Exchange, reflecting growing expectations that investors will be wiped out if the government is forced to seize majority control of the country's two dominant banks, Allied Irish and Bank of Ireland.
"The government is completely in denial about the amount of money they'll have to borrow," said Constantin Gurdgiev, a finance lecturer at Trinity College Dublin and an economics adviser to IBM in Europe.
Ireland is still negotiating the terms of the bailout with European Central Bank and IMF experts. The government hopes its tough budgetary medicine will permit the country's 2014 deficit to fall to 3 percent of gross domestic product, the limit for the 16 nations that use the euro currency. While most eurozone members are exceeding that rule, Ireland's deficit this year is forecast to reach 32 percent of GDP, a modern European record, fueled by exceptional costs from its bank-bailout effort.
"Today is about Ireland putting its best foot forward, Ireland saying: Yes, here is what we're prepared to do as a government and a people to put right what has to be put right, and to give ourselves prospects and prosperity again," said Cowen, who is widely expected to resign or be forced from office within weeks.
Business leaders welcomed the package as brutal but unavoidable given that Ireland is all but frozen out of normal lending markets and its banks are low on cash.
The EU's financial affairs commissioner, Olli Rehn, said the package "strikes a good balance … to protecting the least well off." He said Ireland's determination to narrow its deficits quickly provided "a sound basis" for the bailout talks. But outside the guarded iron gates of Cowen's office, about 100 activists denounced the government and the IMF.
"This is a road map back to the Stone Age," said Jack O'Connor, president of Ireland's largest union, SIPTU.