Irish deficit cuts to total $8.5B US

Ireland's government said Thursday it plans to slash $8.5 billion US from its 2011 deficit.

Finance Minister Brian Lenihan announced the figures two weeks before he unveils a more detailed four-year plan for returning Ireland's deficit to three per cent of GDP in 2014.

Three per cent is the European Union's deficit limit for euro zone members.

Earlier in the day, investors again dumped Irish bonds on skepticism thatit can turn its budget deficit around without sliding furtherinto recession.

The interest-rate premium that buyers demand for Irish bonds has doubled in two months, reaching a new modern high Thursday by jumping to 7.7 per cent.

Ireland, with cash reserves due to run out in mid-2011, has suspended its new bond auctions until early 2011, when it hopes the yields on its bonds will have fallen back belowfive per cent.

This year's deficit is set to reach 32 per cent of GDP chiefly because of exceptional bank-bailout costs.

Lenihan said he expects Ireland's economy to grow just 0.25 per cent this year and 1.75 per cent next year as the Irish endure spending cuts andadditional taxes.

Ireland's woes come as a Europe-wide government debt crisis shows signs of flaring up again.

Borrowing costs rise

In recent weeks, the euro currency zone's most debt-troubled members Ireland, Spain, Portugal and Greecehave seen their borrowing costs rise as investor worries about defaults grow.

Those concerns have increased after recent calls from German Chancellor Angela Merkel for new EU debt-crisis rules that would require bondholders to share the burden when the EU next intervenes to restructure a euro-zone member's debts.

Making bondholders more vulnerable to losses decreases investor appetite for bonds.

Earlier this year, the EU and the International Monetary Fund provided nearly $40 billion to keep Greece from defaulting on its debts, and euro-zone countries established a $140-billion backstop in preparation for the next crisis.