UPDATE 5-Ireland targets 6 bln euros debt cut in 2011

* Expects deficit to fall to 9.25-9.5 pct of GDP in 2011

* Despite fiscal pain sees economy growing 1.75 pct in 2011

* Irish credit spreads decline a touch off peaks

* Govt will

* Some investors still sceptical about grow forecasts

(Adds Fin Min, EU and analyst comments, more detail)

By Carmel Crimmins and Padraic Halpin

DUBLIN, Nov 4 (BestGrowthStock) – Ireland is planning to push
through spending cuts and tax hikes totalling 6 billion euros
next year, the toughest budget in the country’s history, in a
last-ditch effort to convince investors it is not on the verge
of financial meltdown.

With Irish borrowing costs breaching record highs every day
this week, Finance Minister Brian Lenihan is battling to turn
the tide of market opinion and avoid the risk of a Greek-style

“What I have to do here and now is to ensure that the
country gets the budget that’s essential for our economy and our
own self-respect in the world,” Lenihan said on Thursday.

The risk premium investors demand to hold Irish paper over
benchmark German bunds stayed at the latest record peak of 543
basis points despite Lenihan saying he was frontloading some 40
percent of the 15 billion euros in adjustments he is targeting
between now and 2014 to tackle the worst deficit in Europe.

With his parliamentary majority dwindling and many investors
still sceptical about growth prospects, Lenihan has a fight on
his hands to get borrowing costs down to more sustainable levels
by January, when Ireland plans to tap bond markets again.

If borrowing costs by then are still three times more
expensive then Germany’s, Lenihan may be forced to seek external

“I would describe this as one of the four or five hurdles
they have to get through … and it’s crossed but that doesn’t
mean we have reached the ‘Promised Land’,” said Eoin Fahy, chief
economist with Kleinwort Benson Investors.

“There are a lot of barriers ahead still so I am not
surprised that the market has not reacted strongly to this,”
said Fahy, adding that if the 2011 adjustment had been less than
6 billion euros, spreads would have widened further.

Lenihan doubled the amount of pain he estimated was needed
to get Ireland’s finances in order last week, citing higher
borrowing costs and weaker growth prospects.

He said on Thursday he now expected Ireland to grow 1.75
percent next year, largely due to the export performance of
Irish-based multinationals, from an original growth projection
of 3.3 percent.

Lenihan’s revised forecast is below the median forecast of 2
percent in the latest Reuters poll

But some investors were still sceptical about Lenihan’s
projections given spluttering global growth and the fiscal pain

“I think they’re on the right track in terms of what has to
be done but they may find it has more of a detrimental effect
(on growth) than they’re expecting,” said Oliver Hogan,
economist at CEBR said.

“We would be a bit dubious on the plausibility of achieving
the growth projections.

For a graphic comparing Irish and Greek bond spreads, click:
For a look at scenarios facing Ireland, click [ID:nLDE6A31NC]
For threat of political instability, click [ID:nLDE6A31NM]

Lenihan said he expected next year’s adjustment, which will
be weighed more on the spending side, would cut the deficit to
9.25-9.5 percent of GDP next year and to 2.75-3 percent of GDP
in 2014, the deadline he has agreed with Brussels to get the
shortfall under control.

The budget deficit is set to blow out to a jaw-dropping 32
percent of GDP this year due to the one-off inclusion of a
mammoth bill for bailing out Ireland’s banks. Excluding the bank
bill, the deficit will be nearly 12 percent of GDP this year.


Lenihan got a vote of confidence from European Central Bank
president Jean-Claude Trichet, who said Ireland’s plans should
be sufficient to solve its debt crunch.

“The 15 billion … are not in our view insufficient but of
course you have to be alert permanently and stand ready to do
all that is needed,” Trichet told a news conference in
Frankfurt. “But I have no negative appreciation of the 15.”

The EU, which is anxious to avoid a melt-down in Ireland
that could jeopardise the single currency, said the 6 billion
euros target was appropriate.

“This provides an important anchor for financial markets and
also underlines the Irish authorities’ commitment to putting
public debt on a sustainable downward path in the near future,”
the EU Economic and Monetary Affairs Commissioner Olli Rehn

Lenihan will flesh out the measures he will implement
between now and 2014 later this month and will try and push
through the first of the four austerity budgets on December 7.

The government’s ability to pass the budget has been dented
by a wafer-thin parliamentary majority, which is expected to
shrink to just two after a lower-house by-election on November
25. [ID:LDE6A21AG]

Analysts say the budget is still likely to be passed but the
risk of an early parliamentary election in the first half of
2011, when Ireland wants to tap debt markets, is now growing.

Ireland’s credit spread remains well below the levels of
between 800 and 1,000 bps experienced by Greece (DE10YT=TWEB: )
just before it sought an international rescue package in May,
but still suggested the market saw a significant chance Ireland
would eventually have to seek a bailout or restructure its debt.

(Editing by Mike Peacock, Ron Askew)

UPDATE 5-Ireland targets 6 bln euros debt cut in 2011