Irish workers were tonight bracing themselves for painful tax hikes after reckless bankers left a €40bn hole in the public purse.
Taoiseach Brian Cowen gave his strongest indication that extra levies would be included in December’s widely-feared slash-and-burn Budget.
With the final bill for Anglo Irish Bank reaching up to €34bn, the Government is preparing to chop “significantly” more than €3bn from public services, such as health, education and social welfare.
In a stark warning to taxpayers, Mr Cowen said the draconian cuts alone would not be enough to plug the massive gap in the State finances.
“Obviously there will have to be revenue raising as a contribution to closing that gap – it cannot all be done on the expenditure side,” he said.
In a further signal of the severity of the crisis, Mr Cowen signalled the very sovereignty of the country was at stake.
“This is not going to be easy but it has to be done,” he said.
“Why does it have to be done? Because we as a country want to control our own affairs.”
The Central Bank has estimated Anglo Irish Bank will saddle taxpayers with debts of €29.3bn or up €34.3bn in a worst case scenario.
Mr Lenihan defended his policy not to let investors, known as senior bond holders who gamble on debt securities, take a hit for the bank going bust.
“We’re not telling the bank manager that we are going to default prior to asking for money,” he said.
The relatively small Irish Nationwide, which has also been brought under public control, will cost the public €5.4bn.
Governor Patrick Honohan admitted that €40bn of the bailouts were “essentially lost money”.
Honohan insisted billions pumped into Allied Irish Bank (AIB) – which would now be effectively state-owned after requesting another €3bn - was an investment that could be recouped.
AIB would remain fully commercial and nursed back to its former greatness, the minister added.
While the scale of the recapitalisation was “colossal” and would inflict severe pain, Mr Honohan was adamant it was manageable.
The total bill for the bailout – running to €50bn – was expected to bring Ireland’s deficit to a massive 32% of the value of the economy, or Gross Domestic Product, this year.
But Finance Minister Brian Lenihan insisted this was a one-off spike and that the country remained fully committed to cutting the figure to just 3% by 2014 - the EU limit.
A four-year budgetary plan is to be published in early November to set out a pathway towards this target.
Mr Lenihan warned taxpayers that further significant measures would be needed next year – over and above already announced cuts – to reduce the country’s borrowing.
Stark plans to slash at least €3bn from public spending in the December Budget would now be worse than expected to fund the clean-up of Anglo Irish Bank.
The previous cost-cutting target would have to be “upped” significantly while a new four-year road-to-recovery plan for the country would be drawn up in the coming weeks, he said.
Mr Lenihan said he did not expect hospitals or schools would be shut down under the savage cuts but warned of a fundamental value-for-money overhaul of the public sector.
Offering cold comfort to taxpayers left paying for the fall-out for at least the next 10 years, he insisted the banking crisis was coming to an end.
“This particular nightmare the Government has had to live with, the Irish people have had to live with, and I have had to live with since September 2008,” he said.
“We are now bringing closure to that.”
Mr Honohan agreed that €3bn in cuts were not enough to bring the deficit down to 3% within four years.
“The economy has drifted so weak that this will not do it – they have to do more,” he said.
The Opposition and opponents of the Government’s banking policy dubbed the series of announcements Black Thursday.
Fine Gael Finance Spokesman Michael Noonan warned that the Anglo bailout bill was bigger than the annual tax take.
“With this latest €16bn bailout of the banking sector, Fianna Fáil is behaving like a desperate gambler who stakes everything on one last race,” Mr Noonan said.
“The problem is that the very future of the country has been used as the stake.”
Joan Burton, Labour’s Finance Spokeswoman, said: “We’ve had a two-year effort to shore up Anglo and sort it out, and that has failed. It’s a gamble that failed, and Irish people have to pay the price for the gamble.”
She added: “The minister has made a disastrous series of connected blunders in relation to his handling of the roll-out of the Anglo crisis which has brought the rest of the banking system, those elements of it which were saveable, to the brink of destruction.”