Precondition to releasing IMF/EU rescue fund

Ireland passes third budget bill

Ireland's parliament pushed through the third major vote underpinning its harsh 2011 budget, setting the stage for its expected approval next month and a general election shortly afterwards.

Ireland's toughest budget on record - which targets 6 billion euros in spending cuts and tax hikes - is a precondition to releasing IMF/EU rescue funds to shore up the country's stricken bank sector and fund its deficit.

Deputies in the lower chamber passed the financial emergency measures in the public interest bill, which covers cuts to public sector pensions and the minimum wage, with 79 votes for and 74 against.

Finance Minister Brian Lenihan told parliament that Ireland would start drawing down part of the 85 billion euros emergency funding early next year. A final vote on taxation measures will be taken early next year, paving the way for Prime Minister Brian Cowen to call an early election, which he is expected to lose to the opposition centre-right Fine Gael and centre-left Labour parties.

That means they will have to oversee the 2011 budget cuts. Both parties have said they will renegotiate the terms of the bailout package, although in practice they have little room for manoeuvre.

The 2011 budget is the toughest in a four-year austerity plan that aims to ultimately save 15 billion euros - about 10 percent of annual economic output - and get the worst deficit in the region back within EU limits by 2015 at the latest.

But that was not enough to prevent ratings agency Fitch from being the first among its peers to slash Ireland's sovereign rating by three notches to BBB+ - only one notch above junk status.

The ratings agency said it would be several years before Ireland would regain its 'A' rating, saying fiscal consolidation was going to take up to five years.

A burst property bubble has transformed Ireland from a 'Celtic Tiger' giant to a country that has been humbled into seeking a bailout to cover its borrowing costs.