Irish economy 'to shrink by 8%'

Ireland's Finance Minister has said the former Celtic Tiger's recession is so severe that its economy will shrink by a record 8 per cent this year.

Delivering the third emergency budget in nine months, the Irish Government has announced tax rises and spending cuts of 3.25 billion euro (£3bn) in a bid to rescue the country.

In a 40-minute speech, Brian Lenihan said Ireland would get its deficit under European Union limits by 2013 and much of the fiscal pain would be felt in 2010 and 2011, with the bulk of savings to be squeezed from spending.

Mr Lenihan said levies on income will be doubled to 2 per cent, 4 per cent and 6 per cent to yield an extra 1.3 million euro (£1.1m) in 2009.

He said: "We must stabilise our public finances. Until we show that we can put our own house in order, we cannot expect those who have invested here and who might invest here in the future to have confidence in us."

Mr Lenihan hopes the cuts will leave Ireland with a budget deficit of 10.75 per cent of Gross Domestic Product (GDP) in 2009 - far above an original goal of 9.5 per cent and still the worst in Europe.

Without the measures, Dublin had said the shortfall would hit 12.75 per cent of GDP.

Ireland will also set up a "bad bank" to take on up to 90 billion euro (£81bn) in toxic property debts in an attempt to restore stability to the economy.

Former Bank of England deputy governor Sir Andrew Large has been called in to help find a new financial regulation chief within a reformed Central Bank of Ireland.

© Independent Television News Limited 2009. All rights reserved.

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