Govt Confirms 6.5bn Euro Cuts As Bond Yields Soar To Record Levels

Finance Minister Brian Lenihan has confirmed cuts of €6.5 billion will be made in next month's budget.

The figure is more than double what was announced in last year's budget - itself considered a savage adjustment at the time.

The government is putting the finishing touches to a four-year plan to reduce Ireland's debt to 3% of GDP by 2014.

This year that ratio will be an eye-watering 32%, a figure which includes the cost of bailing out the banks.

Investors are worried that Ireland is facing a Greek-style bailout from the EU and IMF.

But Ireland has enough money to fund its public services into the middle of 2011, so it does not have to go to the money markets until early in the New Year.

However, Ireland's borrowings costs are at record highs - with yields on Irish bonds now at around 7.7%.

The government hopes that the savage €6.5bn cuts will send a signal to international investors that Ireland is getting its house in order, and will result in lower bond yield rates.

The four year plan currently being prepared will be presented to the European Union for approval.

On Friday, EU Commissioner for Internal Markets Michel Barnier visited Dublin, and said that while Ireland was on a "courageous and difficult" path, he believed the country would bounce back.

"My conviction is that Ireland has a lot of trump cards," said Mr Barnier, pointing to Ireland's ability to attract high tech companies, "I am personally a very strong believer in your country."

"Yes, it's a courageous and difficult path, but it is the right one. I can see a light."

The upcoming budget will contain €3 in cuts for every €1 in tax increases, and will affect almost everyone in society from welfare recipients, to college students to the health service.

But international investors still seem unconvinced that Ireland can solve its problems without an EU/IMF bailout.

Russia's Finance Ministry, for example, this week removed Ireland and Spain from a list of countries in which the country's $130bn sovereign wealth funds can be invested.