Minister for Finance Brian Lenihan has indicated that the Government will have to bring in a harsher Budget in December than originally planned.
This follows the announcements this morning outlining how much extra money would be needed for AIB, Anglo Irish Bank and Irish Nationwide.
Read the Minister's statement in full here
The Government had said it needed to find savings of €3 billion in this year's Budget as part of a plan to reduce the deficit to below 3% of economic output by 2014 in line with EU rules.
Speaking at a press conference in Dublin today, the Minister said the €3 billion figure was 'an absolute minimum'.
Minister Lenihan said that in light of the emerging data, this figure of €3 billion would now have 'to be upped' and would require a significant adjustment this year.
Figures 'horrendous but manageable' - Lenihan
Earlier, the Minister said today's announcements by the Financial Regulator gave 'full clarity' to the costs and methods of recapitalising the banks. Speaking on RTÉ radio, he agreed that today's figures were 'horrendous', but he said they could be managed over a 10-year period.
The Minister said he had no plans to impose losses on holders of senior debt in Anglo Irish Bank or any other bank, but said the Government was working on legislation which would mean that subordinated bond holders in Anglo Irish and Irish Nationwide would share some of the costs.
The Minister reiterated the target of bringing the deficit into line with EU rules by 2014, and announced his intention to publish a four-year budgetary plan in early November.
The Finance Minister also said the National Treasury Management Agency would not be holding its remaining auctions of Government bonds scheduled for October and November, but would return to the bond market in the normal way in early 2011. He said the Exchequer was fully funded until June next year.
Mr Lenihan also said the Government, NAMA and the banks had agreed on new measures to end the speculation about how much the agency would pay each bank for loans. Anglo Irish Bank's remaining loans will be transferred by the end of October, while loans from all of the other banks will now be transferred in one single batch each by the end of the year.
In another move, the threshold for borrowers in AIB and Bank of Ireland who will be eligible to have their loans transferred to NAMA will be raised from €5m to €20m. This means 650 borrowers with property-related debts of between €5m and €20m will not be involved in NAMA. They account for €6.6 billion of the €80 billion of NAMA-eligible loans.
'This change will ensure that NAMA can operate to the highest level of efficiency and effectiveness in the management of its loan portfolio and allow for the completion of all NAMA transfers by end-year,' Mr Lenihan said.
Mr Lenihan told RTÉ radio the country could not default on deposits in the bank, and that EU and Irish law treated senior bond holders in the same way as depositors. He said bondholders from overseas were needed to fund the Irish state, as well as AIB and Bank of Ireland. As a result, he said, Ireland could not negotiate to make senior bondholders bear some of the costs.
NTMA advised against auctions
Mr Lenihan later told the press conference he did not accept that markets had disbelieved the measures and assurances given by Ireland in the past. Ireland had recovered a lot of its credibility through the measures previously announced and the Budget last year, he added.
Asked why the State had decided not to go ahead with bond auctions in October, November and December, Mr Lenihan said the NTMA had advised against the auctions because of the very high cost of borrowing.
He said the four-year budgetary framework would be published in November and the markets would need to time and space to digest those plans.
Asked whether the AIB chairman and managing director had chosen to stand down or had been asked to leave the institution, Mr Lenihan said discussions had been conducted with AIB on his behalf by the NTMA and agreement was reached. He said there has to be change at the bank because the existing board has been unable to attract sufficient capital.
Anglo costs painful for manageable - Honohan
Central Bank Governor Professor Patrick Honohan told RTE's News at One that paying the costs for Anglo Irish Bank was 'painful' but manageable. He also said he believed the policies being followed were right.
He also said €3 billion of cuts for next year would not now be enough to enable Ireland to reach its targets for cutting the country's deficit.
He said the NTMA's decision on cancelling this year's bond auctions would allow the markets to digest the announcements about the banks and the forthcoming Budget plans.
Professor Honohan said he hoped now that the banks were no longer in denial about the scale of their losses, they would start to re-focus on providing services to customers, in particularly lending.
Big Budget challenge ahead - Cowen
Taoiseach Brian Cowen has said the Government remains on target to reduce the Budget deficit to 3% of economic output by 2014. He told RTE revenue would have to be raised, but the Government did not want to unbalance its budgetary policy.
Speaking on News at One, he said he accepted political responsibility for the current situation, but added that lending decisions were taken by banks themselves. Mr Cowen said a four-year 'pathway' needed to be worked out before November and a serious challenge lay ahead.
Fine Gael's finance spokesman Michael Noonan said the Government's decision to cancel next month's bond auction was because Ireland's creditworthiness was gone. Deputy Noonan accused the Minister for Finance of putting the country at risk to save a failed financial institution.
The Labour Party finance spokesperson Joan Burton called on the Minister for Finance to publish the legal advice he had received informing him that debt negotiations with senior bond holders were not possible. Deputy Burton said today would go down as a day of infamy in Irish history and would become known as Brian Lenihan's Black Thursday.
Sinn Féin's Caoimghín Ó Caoláin said his party had tabled a motion of no confidence in the Minister for Finance, Brian Lenihan, and appealed to other opposition parties to support this motion.
