DUBLIN (Reuters) - Ireland looks set to resist pressure from its international lenders and ease off on the pace of austerity after its finance minister said on Tuesday there was some flexibility on the severity of tax hikes and cuts due in next month's budget.
Ministers have been campaigning for months to use the slack afforded by a bank debt deal struck with the European Central Bank earlier this year to bring in a less stringent budget than the 3.1 billion euro ($4.2 billion) package originally planned.
But the International Monetary Fund, Ireland's central bank and, most recently, influential ECB Executive Board member Joerg Asmussen have all said the money should be held to cushion the weak Irish economy against any shocks ahead of an expected exit from the bailout later this year.
"We don't want to impose any hardship that isn't necessary," Finance Minister Michael Noonan told Newstalk radio.
"The Europeans are very insistent that we meet the targets but there is a little bit of flexibility and we will work in that space to bring forward the best budget possible."
The government has to make further cuts in social welfare, health and education spending and introduce some fresh tax increases in order to reduce a budget deficit that remains the highest in Europe.
The Labour party, the junior partner in the two-party coalition and which is suffering in opinion polls amid no let-up in five years of austerity, want Noonan, a member of the senior Fine Gael party, to do the absolute minimum required to meet the deficit reduction targets agreed with Europe for next year.
However with the economy set to barely grow this year and Noonan determined to follow bailed-out Greece in returning to a primary budget surplus next year, any reduction in cuts looks set to be modest and unlikely to upset investors.
"The markets at this stage are calm enough to look at the bigger picture and realize this will be a very small amendment and that there's a political necessity in it," said Owen Callan, a Dublin-based bond dealer at Danske Bank.
"The idea that Ireland will be running a primary surplus next year is a very important message to be able to communicate to the market and investors. It's a key hurdle to get over."
(Reporting by Padraic Halpin; Editing by Mike Collett-White and Susan Fenton)