Ireland's euro partners concerned by 'grave' slump

(PRAGUE) - Ireland's eurozone partners voiced concern on Friday about the "grave" recession engulfing what was once known as the Celtic Tiger whose budget deficit spirals ever higher.

"The Irish government is aware of the grave problem facing Ireland," Luxembourg Premier and Finance Minister Jean-Claude Juncker said after chairing a meeting with his eurozone counterparts in Prague.

Irish Finance Minister Brian Lenihan acknowledged concern among his eurozone colleagues about the situation in the country, where the budget deficit plunged into the red as the economy slumps ever deeper into a dire recession.

"Ireland was questioned on the grave position that exists in Ireland," Lenihan told a separate news conference on the sidelines of the meeting.

"I have pointed to the gravity of the position myself at home in Ireland and I'm very pleased at the positive response ... the efforts made by the government has received here at the European level."

Eurozone finance ministers refrained from demanding new efforts to rein in the country's swelling budget deficit after Lenihan assured that Dublin would map out plans for closing the hole in its finances.

Dublin is due next week to issue an emergency supplementary budget, which is likely to show the deficit soaring to more than the 9.5 percent of gross domestic product the government has so far estimated for this year.

The aim is to map out a plan to bring the budget shortfall down to an EU limit of three percent of GDP by 2013.

However, Lenihan insisted that "the issue is not figures, the issue is the broad approach the government takes -- clear decisive action to repair the public finances.

"I have to say there is huge goodwill for Ireland here because we have already demonstrated a determination to contain our public expenditure," he said.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia, who polices member country deficits, welcomed the Irish government's efforts to get its finances under control as necessary for planting the seeds of recovery.

"We are convinced that to restore confidence, to attract investors, to create conditions for a sustained recovery ... one of the necessary conditions is to start fiscal consolidation," Almunia said.

"We fully agree with the Irish government in this strategy, we are very happy how the Irish government has started to endorse this strategy," he added.

Irish exchequer figures for the first three months of the year show worsening government finances with tax revenue falling 2.6 billion euros (3.5 billion dollars) or 23 percent from a year earlier.

The Irish central bank said Friday that the recession-hit economy was set to shrink by about 7.0 percent this year, slashing its previous estimate amid a vicious global downturn that has hit the former Celtic Tiger particularly hard.

European Central Bank chief Jean-Claude Trichet insisted that Ireland was already receiving "considerable solidarity" from its EU partners, partly thanks to the ECB's refinancing of the country's struggling banks on easy terms.

"I would very much insist that belonging to the euro area represents for any country, and for Ireland in particular, formidable help which should not be underestimated," he said.

Welcoming Trichet's show of support for Ireland, Lenihan said: "We are very fortunate to be in the eurozone. Were we not in the eurozone, we would be in a far more difficult position."