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Europe

Ireland announces drastic budget cuts as EU bailout is officially approved

European Union finance ministers formally approved the 85-billion-euro rescue loan for crisis-stricken Ireland on Tuesday as the country announced the toughest domestic budget in its history.

An Irish euro coin

Ireland will be saving every last euro

Tuesday's final approval of an 85-billion-euro rescue loan for Ireland from the European Union was more of a formality as EU finance ministers had already agreed last Sunday to bail out the country.

In Brussels on Tuesday, EU Monetary Affairs Commissioner Olli Rehn expressed confidence that this money would not be lost.

"I'm confident that Ireland, with its smart, competent, and stubborn people - and its prospects of recovering [from] this situation - will overcome the current challenges."

Tough budget

While the final stamp of approval for the bailout loan was being given in Brussels, the Irish government in Dublin announced deep cuts in its 2011 budget. Tax hikes and spending cuts are expected to save the country around 6 billion euros ($8 billion).

Brian Lenihan

Lenihan unveiled a tough budget on Tuesday

"As outlined in the plan, six billion euros of the overall adjustment is made in today's budget. The scale of this adjustment is demanding but it demonstrates the seriousness of our intent," said Finance Minister Brian Lenihan in an address to Ireland's lower house of parliament.

The budget cuts were necessary to secure the bailout from the EU and the International Monetary Fund.

Tapping the reserves

Ireland's bailout comes from the 750 billion euro crisis fund established earlier this year after Greece required similar aid. Now, the question is still being asked: will Ireland be the only country to access the fund, or will Portugal, Spain or even Italy need support soon? And if so, will 750 billion euros be enough?

For Spanish Finance Minister Elena Salgado, the problem simply does not exist.

“The volume of the crisis mechanism seems reasonable to us,” she said.

But from her, these words seem logical; Spain is trying to soothe the markets. Belgian finance minister Didier Reynders, who chaired the talks, is more cautious, saying debates on the size of the bailout mechanism will likely continue.

Author: Christoph Hasselbach, Matt Zuvela (AFP, Reuters)
Editor: Susan Houlton

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