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Sweden set to help Ireland dig out from its economic woes

By the CNN Wire Staff
Sweden's PM says he believes a loan to Ireland would carry little risk to Swedish taxpayers.
Sweden's PM says he believes a loan to Ireland would carry little risk to Swedish taxpayers.
  • Swedish PM Reinfeldt says $1.5 billion offer is not wholly altruistic
  • Sweden's economy is expected to grow by nearly 5 percent this year

(CNN) -- The prime minister of Sweden said Thursday his country's offer to loan Ireland $1.5 billion to help it through a tight financial spot is not wholly altruistic.

"We think, if we don't create a solution to this, we will also see the effect of the problems coming to us," Fredrik Reinfeldt told CNN.

Reinfeldt said he believes a loan to Ireland would carry little risk to Swedish taxpayers. "It's a strong country, they will bounce back, and we think it's a safe way of helping them, but also getting our money back."

He noted that Sweden has a keen interest in helping members of the Euro Zone stay healthy economically. Germany is Sweden's biggest trading partner, accounting for 11 percent of Sweden's exports and 18 percent of its imports in 2008.

Unlike some other members of the European Union, Sweden avoided the worldwide recession. Its economy is expected to grow almost 5 percent this year.

Swedish PM on Ireland

Reinfeldt implied that any terms Sweden might impose on Ireland would not be onerous. "I think we should deal with Ireland the way we would like to see ourselves be dealt with in a similar situation," he said. "I don't think we should intervene from the outside to tell them what to do."

But Sweden's generosity is not bottomless. Asked whether his country would be prepared to make a similar offer to Portugal, should its economy weaken further, Reinfeldt said, "I don't think I want to speculate on any country that would follow."

The prime minister attributed his country's economic strength to a number of measures: "We started with a surplus where many others had deficits in their public finances," he said. "We did not give money to banks or to failing industries; we gave it to the people in tax cuts."

Reinfeldt's comments came a day after the Irish government Wednesday unveiled its four-year plan to cut public spending and increase taxes -- part of the painful measures the country must take to reduce its national debt.

The plan achieves savings through welfare cuts worth 10 billion euros ($13.4 billion) and higher taxes, expected to bring in 5 billion ($6.7 billion), according to the 138-page green book titled "National Recovery Plan 2011-2014."

The hourly minimum wage will be reduced by 1 euro ($1.34) to 7.65 euros ($10.25) and public-sector pay will be reduced by a total of 1.2 billion euros ($1.6 billion) over the four years.

"We are a smart, resilient, proud people and we are going to come through this challenge because we love our country," Irish Prime Minister Brian Cowen said in announcing the plan.

The cuts followed Ireland's announcement Sunday that it was seeking international financial help to deal with its budget problems. The rescue package, from the International Monetary Fund and European Union, is estimated at tens of billions of dollars. Britain is putting together a $11.5 billion package.

Other measures included in the austerity plan are the introduction of water meters by 2014 and increasing the value-added tax on goods and services from 21 to 23 percent by 2014.

Cowen said he also wants to boost the amount students must pay for higher education, though he didn't say by how much. A similar move in Britain, designed to reduce its own deficit, has sparked protests by students in recent weeks.

The plan revealed that 45 percent of Irish taxpayers paid no income tax this year, something it said was "not sustainable."

The plan calls for keeping the corporate tax rate at 12.5 percent, to encourage businesses not to leave the country.