Wages, welfare to suffer for loan of up to €90bn

DEEP cuts to the minimum wage and welfare benefits loom as part of the price the country pays for its huge emergency bailout loan as Brian Cowen insisted he was “not the bogeyman” who had led Ireland to financial crisis.

After a week of denial, the cabinet formally applied for EU/IMF rescue aid in the region of €80bn-€90bn as Finance Minister Brian Lenihan admitted the country had lost control of the banking crisis.

The Government’s shambolic performance in the lead-up to the bailout heightened speculation Mr Cowen would face a heave as Fianna Fáil slipped to an all-time low of 17% in a Red C opinion poll.

After being asked if he felt ashamed at leading the country to the point where it had to ask foreign governments for a rescue package, Mr Cowen said: “I don’t accept... that I am the bogeyman you are looking for.”

Mr Lenihan admitted that much of the money, to be given over three years at a lower interest rate than Ireland could get on the markets, would be used for the day-to-day running of the state as the country looks likely to be shut out of the bond markets for up to three years. This means EU/IMF chiefs will hold sway over Irish financial policy.

It was also reported that Britain had offered a bilateral loan of more than €8bn on top of the EU/IMF money.

Mr Lenihan said the Croke Park deal would stand, but he could only guarantee that for one year. He signalled the minimum wage would be cut as he readied to reveal the Government’s four-year economic blueprint on Wednesday.

That package is likely to see the welfare budget cut by 5%, a flat rate property tax introduced, student fees pushed up to €2,200 per year, 20,000 public sector jobs cut and further pension levies imposed. On the minimum wage, Mr Lenihan said it had increased “far beyond” the rate of inflation and “may well have to be reviewed”.

SIPTU president Jack O’Connor warned any such cut would amount to the “crucifixion of the poor to redeem the profligacy of the rich”.

Asked if the EU/IMF had the power to overrule the cabinet, Mr Lenihan said: “I don’t anticipate they will seek that power.”

Mr Lenihan said the rescue loan, which will take weeks to hammer out, would be used to give the Government “a powerful demonstration of firepower behind the banks” as he indicated major restructuring of the banks was now on the cards. Ireland’s corporation tax was not expected to be affected, but Mr Cowen said income tax levels would return to those of 2006.

Mr Lenihan admitted for the first time: “The banks were too big a problem for the country.”

European finance ministers held an emergency conference call to approve the bailout. IMF managing director Dominique Strauss-Kahn said: “An IMF team, currently in Ireland for technical talks, will now begin to hold swift discussions on an economic programme with the Irish authorities, the European Commission, and the European Central Bank.”

The Government’s fiscal blueprint is expected to see the €15bn restructuring to be split 2/1 between cuts and tax hikes.

Green Party leader John Gormley admitted the country “felt misled” after the Government’s repeated denial that bailout talks were under way.

Meanwhile, a protester was taken to hospital last night after being in collision with a minsterial car as ministers were driven out of Government buildings.