Ireland imposes further cuts; more to come

DUBLIN Mon Dec 5, 2011 11:07am EST

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DUBLIN (Reuters) - Ireland's government imposed further spending cuts on Monday with possibly more still to come as the European debt crisis throws up a disturbing cocktail of slowing growth and zealous austerity across the currency bloc.

Ireland is only half-way through an eight year cycle of singeing spending cuts and tax hikes as it seeks to get its budget deficit, currently the biggest in the industrialized world, under control as part of an EU-IMF bailout.

Held up as a role model for other indebted nations for its success in pushing through nearly 21 billion euros in austerity measures -- equivalent to around 13 percent of gross domestic product (GDP) -- without any social unrest, Dublin has nevertheless been forced to drive the knife even deeper.

"No government, whatever its numbers, wants to be the bearer of bad news. But our options are extremely limited," Minister for Public Expenditure and Reform Brendan Howlin told a packed lower chamber.

"There is no hiding from the fact that, as a government, we must take very difficult decisions."

Prime Minister Enda Kenny's coalition government, swept into power in March, is targeting some 12.4 billion euros in adjustments between now and 2015 and is relying on the 2012 plan to be the worst of his term of office.

But if the euro zone tips into recession as the financial crisis drags on Kenny may be forced to push through even harsher budgets in 2013 and beyond.

French President Nicolas Sarkozy and German Chancellor Angela Merkel met in Paris on Monday to align their positions on centralizing control of euro zone budgets, with Italy and Greece joining Ireland this week in tightening the fiscal screws.

With spending cuts accounting for nearly 60 percent of next year's 3.8 billion euros adjustment, Howlin, a member of junior coalition party Labour, detailed cuts to the social welfare budget, including dole payments, fuel and rent allowances and child benefits for larger families.

He plans to cut 6,000 jobs from the public sector next year but public sector pay, which has been reduced by an average of 15 percent since 2009, remains untouched.

Student grants will also be reduced and college fees raised.

Ireland recently raised its adjustment target for 2012 to 3.8 billion euros from 3.6 billion euros due to weaker growth, and Kenny made a televised address to the nation late on Sunday to prepare people for the bad news. It was the first such address by an Irish leader in 25 years.

Revelations in the local media on Monday that Kenny had sanctioned a 34,000 euros increase in the salary of one of his advisers ensured that Howlin's assertion that the government had cut the salaries of government ministers and advisers drew hoots of derision.

"You cut the fuel allowance for people over this cold winter to pay for your friends in high places," said Sean Fleming, the opposition Fianna Fail party's spokesman on public spending.

Despite being applauded by the EU and the IMF for so far meeting its fiscal targets, Ireland is expected to miss its medium-term fiscal goals due to the threat of a recession in Europe, a Reuters poll last week showed.

(Reporting by Conor Humphries; editing by Philippa Fletcher)

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