Ireland's four-year economic plan is a "cornerstone" of the bailout package under discussion with the EU and the IMF, according to the European Commission.
Reportedly, many of the measures in the €15 billion plan will be embraced in the EU-IMF rescue package, but the bailout agreements are for three years only and conditional on the execution of strict policy guidelines.
The four-year plan must still be "validated" by the Commission and the European Central Bank (ECB), said EU Economic Affairs Commissioner Olli Rehn's spokesman.
Who will implement austerity measures?
Meanwhile, an erosion of support from coalition partners this week means Prime Minister Brian Cowen is unlikely to survive in office much beyond the New Year to implement the proposals. But his successor will probably be stuck with the plans, since Ireland's financial crisis leaves little scope to revise them.
The four-year spending plan is the first step before Cowen can lay out his budget for next year on 7 December, the fate of which could be in doubt. The IMF and EU offered a debt bailout this week, but say it depends on the budget being passed.
Today's announcement on the spending plan will add pressure on the main opposition Fine Gael party, which has so far been coy, to say whether it will back the budget, oppose it or abstain.
If Fine Gael votes solidly against, it might be able to block the budget, scuppering the bailout. Leader Enda Kenny said yesterday that the party would act in the "national interest".
Markets watch
Bond markets that forced Cowen to agree to the bailout in recent days will be checking the four-year plan's sums and could punish him further if they think they do not add up.
Traders could dump Irish debt if they feel the four-year plan relies on unrealistic predictions of future economic growth, said Economist Alan McQuaid of stockbrokers Bloxham.
"The markets may feel that some of the projections are overly optimistic, and if that's the case they may push up yields accordingly," he said.
The extra premium investors demand to hold Irish debt has lifted the cost of borrowing in other troubled eurozone countries such as Portugal and Spain.
Political crisis
Economists expect few surprises from today's plan, which is likely to mix about 10 billion euros ($13.42 billion) in spending cuts with about five billion in tax increases by 2015.
That adds up to around 3,700 euros per person in higher taxes and reduced government spending.
The government's deal with the EU and IMF requires it to achieve the first six billion euros of cuts next year, expected to be outlined in the 2011 budget next month.
Welfare benefits will be cut, state payrolls will shrink further and public sector wages will fall.
Irish homeowners are likely to face a property tax for the first time, and many of the half of Irish workers who pay no income tax will be brought into the tax net. The government is certain not to touch its 12.5% corporate tax rate, one of Europe's lowest, which it calls a key to future economic growth.
Ireland's financial crisis turned into a political crisis this week when Cowen's junior coalition partners, the Greens, said they would withdraw support for the government after the budget is passed, effectively dooming Cowen.
Cowen said he will call an election after the budget is fully enacted, which he says should take until February. His Fianna Fail party is almost certain to lose.
He rejected an opposition call yesterday to move the budget proposal forward to next week, which the opposition said would allow an election before the year's end.
Voters in the former 'Celtic Tiger' have already endured two years of steep cuts in government spending, a collapse in house prices, a record-setting recession and a relentless surge in unemployment to 14% from around 4%.
Years of economic growth led to a property bubble and when it burst the government guaranteed the debt run up by banks, foisting much of the burden onto taxpayers. Shares in Ireland's main banks plummetted yesterday after the head of the Irish central bank said he wanted the banks sold off.
(EurActiv with Reuters.)
