Ireland is bracing itself for the most feared budget in the state’s history today (Tuesday) as the Government put the final touches to the six billion euro cost-cutting plan.

Finance Minister Brian Lenihan is widely expected to wield the axe on social welfare, including jobseekers and child benefit, in a bid to cut public spending by 4.5 billion euro.

Speculation has mounted that public sector wages will be capped and Ministers’ salaries cut as the Government takes on a four-year battle to restore the state’s crippled finances.

Taoiseach Brian Cowen’s shaky coalition will try to impose the cuts with only a two-seat majority.

But the embattled Government has received a boost after an independent TD, whose support is crucial, said he would back the cuts.

Michael Lowry, Tipperary North TD, said he would put the country first despite a potential backlash from his constituents.

“This has been a difficult decision for me,” he said.

“This budget for the first time in 15 years is about not the distribution of surpluses, not the distribution of good news, this is about the distribution of pain.

“This budget is going to be harsh, it’s going to be extremely difficult, people will be angry and people will be annoyed that they have to pay the price for the recklessness in particular of our banking institutions.”

Mr Lowry said that if the country was to survive tough decisions would have to be made.

He said that after talks with the Government he was satisfied that the old-age pension would be protected, with free travel and electricity for the elderly.

The veteran TD said he also highlighted the potential impact of hiking third-level fees.

Mr Lowry said his fellow backbench independent, Kerry`s Jackie Healy-Rae, is also expected to back the budget, due to be unveiled in the Dail by Mr Lenihan tonight Australian-time.

The potentially savage package comes just over a week after the Government revealed it was taking an 85 billion euro bailout from the International Monetary Fund/Europe.

Mr Cowen’s crippled coalition Government has suffered widespread criticism for the move by a public angry at the perceived surrender of the state’s hard-won economic sovereignty.

The 6 billion euro package, containing 1.5 billion euro in new taxes and 4.5 billion euro in public spending cuts, is the first phase of a four-year budgetary roadmap to raise 15 billion euro and plug the gap in the beleaguered economy.

Opposition party Sinn Fein accused Mr Lowry and Mr Healy-Rae of engaging in the worst kind of parochial politics.

Pearse Doherty, the party`s finance spokesman, said: “At a time of national crisis this behaviour is ridiculously irresponsible.

“Some of the consequences of this budget, if it is passed, are that more children will go to school hungry, more families will have their homes repossessed and our sick and elderly will have less chance of survival.”

Potential excise and duty changes, including in the price of petrol and alcohol will come into force from midnight tomorrow and will have to be voted on in the Dail after the budget is unveiled.

The Social Welfare Bill, which gives legal effect to any budget changes in the dole or child benefit, is expected to be voted on by the end of the week while the finer details of the plan will be debated in the Finance Bill in the new year.

The Budget will be the fourth time since October 2008 that the Fianna Fail/Green Party coalition government has been forced to introduce harsh measures to tackle the black hole in the public finances.

Lobby groups made a last ditch plea to Mr Lenihan to either save or make specific cuts, with the Irish Heart Foundation calling for a hike in the price of cigarettes.

Michael O’Shea, IHF Chief Executive, said: “Ahead of the toughest budget in history, this is our final plea to Government to increase the price of tobacco products and not to be misled by the vested interest of the tobacco lobby.”

But businesses said any price jump would lead to a corresponding increase in smuggling and damage retailers.

Ireland will have a general election in the new year but only after a new austerity package is finalised, the Taoiseach has said.

Fianna Fáil leader Brian Cowen has refused calls to stand down, saying that he wanted to stay in power to pass the crucial €6bn savings in next month’s budget.

Despite Opposition demands for a snap election, he declared the drastic cuts were in the national interest.

“We believe that there is a clear duty on all members of Dail Eireann to facilitate these measures in the uniquely serious circumstances in which we find ourselves,” the Taoiseach said.

“The political and financial stability of the State requires no less.”

The Taoiseach was dumped into a political crisis to match the country’s economic chaos less than 24 hours after the Cabinet signed off on a multi-billion bailout – unaware his two colleagues in the Green Party, leader John Gormley and Eamon Ryan, spent Saturday plotting an exit strategy.

Mr Cowen denied he felt betrayed.

After an emergency meeting with Fianna Fail Cabinet members in Government Buildings, the Taoiseach dismissed talk of a heave against him or that he had been pushed by the Greens into agreeing to go to the polls.

He said all colleagues had given him full support, including Mr Gormley.

Mr Cowen called for solidarity on a €15bn four-year roadmap to recovery due tomorrow (Wednesdsay) and the estimated €90bn bailout loan from the International Monetary Fund and Europe.

He said that passing Budget 2011 on December 7 would be the greatest statement of confidence Ireland could give the world.

“I believe that in relation to this issue at this time for this country, this country’s interests at the moment go well beyond any personal considerations of me as Taoiseach, or anyone else in the party or anyone else in any other party,” he said.

“It is always been my intention to ensure that we get the job of national importance done in the interests of the country and then to see what positions will be taken thereafter.”

Junior coalition partners the Greens had earlier stunned the Taoiseach by issuing a new year deadline for a general election.

Mr Gormley signed the Government’s death notice on day one of delicate negotiations with the IMF and Europe demanding an election date be set for the second half of January.

Mr Cowen said he planned to dissolve the Dail (parliament) in the new year.

The Greens also claimed a confusing spin machine was operating behind the senior coalition partner Fianna Fail. Mr Gormley accused strategists of last week ordering his party to toe an official line on how dire the Irish economic crisis had become.

“We were given an official line … which was essentially a mixed message,” he said.

Alongside eight members of the Green Party, including TD Paul Gogarty and his young daughter Daisy, Mr Gormley said the past week was traumatic for the Irish people, claiming they felt misled and betrayed.

Relations in the coalition had degenerated so far the Taoiseach was only issued with the ultimatum minutes before the Greens made it public in Leinster House, Dublin.

But the Taoiseach said he later spoke to Mr Gormley who had pledged his support for the Government.

About 50 protesters, some from Sinn Fein, forced their way through the main gates of Government Buildings during an afternoon march.

Among the demonstrators was one of the party’s TDs, Aengus O Snodaigh, who said they were demanding the IMF leave the country and that a general election be called immediately.

The opposition and two Independent TDs also demanded a vote.

Several Fianna Fail backbenchers have warned that Mr Cowen`s time is up.

Mr Gormley dismissed the idea of a general election last Friday only to meet his party on Saturday and decide on pulling out of Government.

But speculation is intensifying that Mr Cowen may not make it to the new year, with a razor-thin majority to pass the worst Budget in the state’s history on December 7 and a by-election looming on Thursday.

Main opposition Fine Gael leader Enda Kenny said: “What is needed now is an immediate general election so that a new government, with a clear parliamentary majority, can prepare the four-year economic plan, complete negotiations with the EU and IMF and frame a budget for 2011.”

Labour leader Eamon Gilmore said: “Fianna Fail has made a mess of the country; they have crippled the economy and brought national morale to an unprecedented low.”

In the budget the €8.65 minimum wage, the second highest in Europe, look set to be cut by one euro along with social welfare cuts and new taxes on the cards.

The Government has faced calls for resignations and warnings of distrust among the public over the last week after initially insisting there were no talks with the IMF before conceding a loan might be needed and ultimately asking for one.

by Colm Kelpie and Ed Carty

Ireland’s Taoiseach has told his country there was no need to be ashamed as he opened its books to the International Monetary Fund.

Brian Cowen insisted Irish sovereignty was not for sale, despite predictions from the country’s top banker of an imminent bailout running into tens of billions,

“There is no question of loss of sovereignty for Ireland,” Mr Cowen said.

An IMF mission of up to 12 officials will begin poring over Ireland’s debt-riddled accounts in Dublin on Friday morning.

Mission chief Ajai Chopra has already taken up lodgings across the road from Government Buildings at the exclusive Merrion Hotel.

The ominous arrival has heaped further tension on a population struggling to cope with uncertainty surrounding the country’s crippled finances.

In an attempt to calm fears, Mr Cowen – who has been widely criticised over his ability to communicate with the public – insisted Ireland was simply working out options with EU partners to secure the banking sector and the Euro currency.

“I don’t believe there is reason for people to be in any way ashamed or humiliated at all,” he said.

Mr Cowen repeated that “no formal application” has been made for a bailout or loans from either the EU or the IMF.

But suggesting a funding package was on the cards he added: “It will be the sovereign decision of the Irish Government on behalf of the Irish people that will decide what shape any package would be where we can decide that’s in our best interests.

“At the moment we are in the process of working out what the best options are.”

Mr Cowen said “technical discussions” were intensifying since the meeting of EU finance ministers in Brussels earlier this week.

“When all of those implications have been worked out – and they haven’t all been worked out, and no specific proposal has been put to the Government – it is then that the Government will determine what is in the best interests of the country at this time,” he added.

Accepting he has come under intense criticism within Ireland, Mr Cowen insisted his Government’s actions have been “fair, valid and responsible”.

But one former Taoiseach described the arrival of IMF officials as a “very, very sad day for Ireland”.

John Bruton, now EU ambassador to Washington, said the country’s long struggle for independence was for the right to have sovereign control over spending and taxation.

“We’re now in a position where we’ll still be making the decisions but we won’t be making them on our own, we’ll have others looking over our shoulders,” he said.

“This is a very serious state of affairs.”

Mr Bruton suggested the IMF would be “involved in all of the decisions” in the upcoming 6 billion euro cost-cutting Budget on December 7.

But he added that Ireland could quickly regain full control of its affairs if it took all the decisions that were necessary.

Brian Lenihan, Finance Minister, appeared to signal the Government’s desired way out of the financial mess – “substantial contingency capital”, or ‘CoCo’ as it has become known in the banking world.

Money would be borrowed from the IMF and the EU, with other bilateral funds paid into a pot, in effect creating a massive cash buffer for the banks in the event of another blackhole.

The loans would be guaranteed by an elaborate share scheme triggered if the banks’ finances hit a red-alert mark. Lloyds of London adopted a similar approach to tackle funding issues.

“The job of Government is to protect the taxpayer and that is what we have been doing and what we are now doing,” the minister said.

“If the Government has been reticent in making public comment, it has been in the interests of protecting the taxpayer.

“Jumping to conclusions ahead of all of the facts is not to the benefit of the taxpayer. Nor is it in our interests in advance of discussions that are now taking place.”

Professor Patrick Honohan, Ireland’s Central Bank Governor, was the first and only senior Irish official to give an indication of the extent of a potential bailout – tens of billions.

But he added: “I don’t see it as something that is really worrisome or should lead to a huge change in direction.”

And with the IMF and EU bean counters knocking, three ministers were prompted to fight Ireland’s corner over the controversial 12.5% corporation tax – among the lowest in Europe.

The message to the business chiefs, taxpayers and the IMF/EU was: “It’s non-negotiable.”

The IMF refused to be drawn on the issue insisting every state is different but the next seven to ten days will be crucial as the agency’s 12-strong team of auditors sees the financial mess first hand.

Ireland has moved to reassure Europe that the debt-ridden country is not in crisis and that no multi-billion pound bail-out is necessary.

Prime Minister Brian Cowen used a statement in the Dail to insist the debts were “fully-funded” until mid-2011 and that domestic measures to stabilise public finances were working.

At the same time his finance minister Brian Lenihan arrived for talks with his 15 eurozone counterparts in Brussels to assess the impact on the single currency, now under severe pressure in the markets.

Mr Lenihan told waiting reporters: “Market developments have not been good to Ireland (but) Ireland is fully funded until the middle of next year.”

He was expected to fend off mounting pressure on Ireland to accept the need for a massive bail-out, either from the European Union or the International Monetary Fund or a mixture of the two.

Germany was leading efforts to convince Mr Lenihan that market stability and the long-term security of the euro could only be guaranteed by swift, decisive action to prop up Ireland.

But there were no signs that Dublin is – yet – prepared to offer up its economic sovereignty in the hope that volatile markets will ease pressure on the currency.

Mr Cowen told Irish MPs: “We are living in a very fragile time and we need to be careful about what we say so that we don’t add to the turbulence.

“Those that are now commenting on Ireland’s financial situation should also remember that the Exchequer is fully funded into the first half of 2011, so the impending sense of crisis that some wish to suggest the Irish State faces is not a fair reflection of the facts.”

But he conceded: “Clearly there is a need to bring stability to markets, here and elsewhere, as the current costs of borrowing are very high and are at a level that would make it difficult for banks here to operate as engines of recovery.”

On Ireland’s massive deficit – at 32% of GDP, the highest in Europe and way above the maximum 3% allowed under single currency rules – Mr Cowen said: “While substantial progress has been made in tackling and stabilising the deficit, this Government is acutely aware that further measures will be required to restore sustainability to the public finances. That is vital to underpin future economic growth.”

He insisted the Government remains committed to getting the deficit below 3% by the end of 2014.

Mr Cowen said significant steps had been taken since 2008 in response to the rapid deterioration in public finances “to stabilise the situation and begin the process of returning this country to a sustainable fiscal position”.

He described the Government’s four-year budgetary plan, to be published shortly, as “clear and workable” – something which would “map out a way forward to national recovery”, boosting jobs and growth.

He said the European Central Bank continues to meet the liquidity requirements of the Irish banking system, and emphasised that the Government’s priority is to safeguard deposits – a concern shared by governments across Europe and by the European Commission.

But the Taoiseach said: “Let me reiterate what I have been saying in response to speculation over the last number of days that Ireland is seeking financial assistance: Ireland has made no application for external support.”

He said there are ongoing contacts with “international partners”, and Mr Lenihan had gone to Brussels to discuss the situation with his eurozone colleagues.

Mr Cowen said: “It is in all of our interests that we find a credible, efficient and above all workable solution that will provide assurance to the markets and thereby restore confidence and stability.”

Reassuring financial markets is “not an insurmountable problem”, said Mr Cowen, pointing out that “the turbulence in the markets over recent weeks has been about issues of wider concern than Ireland’s situation. It is appropriate therefore that we discuss with our partners, as we are, how these issues should best be addressed”.

But the question now is whether other eurozone governments would accept such reassurances, particularly with growing concerns about “contagion” already said to be affecting weaker single currency economies such as Greece and Portugal.

The argument at the Brussels talks was over what moves would best calm market jitters – and some felt remarks from EU Council President Herman Van Rompuy hardly helped.

Mr Van Rompuy used a speech to business leaders to warn that if the euro failed, the EU would fail too.

He said: “We all have to work together in order to survive with the eurozone, because if we don’t survive with the eurozone we will not survive with the European Union.”

Mr Van Rompuy was echoing a statement by German Chancellor Angela Merkel that the failure of the euro would amount to the failure of the EU, but his timing was attacked as provocative and hardly likely to steady the markets.

However Mr Van Rompuy also expressed confidence that the current problems could be resolved.

by Geoff Meade

The Irish Government’s four-year plan to fix the economic crisis will be published early next week, a minister has said.

As the European Commission (EC) confirmed Ireland has made no request for an EU bail-out, Justice Minister Dermot Ahern revealed the 15 billion euro adjustment was being finalised.

Meanwhile Irish borrowing costs eased back following assurances from key European figures that investors would be repaid if the country tapped into a rescue fund.

“Obviously we would like to get the plan out sooner rather than later,” said Mr Ahern (pictured).

“I anticipate it will be some time next week.”

Reports Ireland was under increased pressure to apply for a multi-billion euro emergency bail-out was again rejected by Mr Ahern, who instead confirmed officials from Ireland, the European Central Bank (ECB) and EC were in constant contact over the pressure on the euro.

He said Mr Lenihan will be articulating Ireland’s position at the meeting of EU finance ministers.

“People need to be calm,” said Mr Ahern.

“Ultimately there’s people who may very well have their own particular interest for making comments.

“It’s vital the less said about these issues the less speculation there is because speculation does lead, as we have seen, does lead to some very significant spikes in the cost of funding of not just Ireland, but in a number of other countries across Europe.”

Irish 10-year bond yields – the interest rates that investors demand to hold the debts, a reflection of risk of default – have sunk to 8.1% from their peak of 8.9% on Friday morning.

The drop in yield came after Vitor Constancio, the ECB vice president, said the European Financial Stability Facility would be adequate to help the Irish government prop up its economy in the same way it had helped Greece

Ireland’s financial crisis was discussed by Commission officials at brief talks in Brussels yesterday afternoon, but no conclusions were reached.

A spokesman in Brussels said there was a “financial backstop” available for Ireland under emergency EU financing agreed last May.

But so far there has been no approach from Dublin for help with “financial stabilisation”.

He pointed out that Ireland’s sovereign debt is fully financed until next summer and dismissed suggestions that the Irish government is facing pressure to take advantage of EU assistance.

“The Irish authorities have made no request for financial assistance and their sovereign debt is fully financed until summer 2011″ he said.

“The Commission is in close contact with the Irish authorities as you can imagine.”

by Sarah Stack and Geoff Meade

Fears that Ireland is heading for a Greek-style bailout has swept through the UK banking sector amid mounting worries about the country’s exposure.

Part-nationalised RBS was the worst impacted, down 4% at one stage, as investors fretted over its vulnerability to an Irish crisis through the group’s Ulster Bank subsidiary.

The wider FTSE 100 Index also slipped into the red amid speculation of a worsening financial crisis in Ireland that could see the country turn to rescue cash to avoid bankruptcy.

Ireland’s cost of borrowing has reached its highest level since the launch of the European single currency.

The yield on a 10-year bond reached almost 9% yesterday.

In currency trading, the euro was likewise under pressure, down against the US dollar and the pound.

RBS was not the only bank seeing falls, with Barclays down 2% and HSBC off more than 1% in a poor session for blue chip financial stocks.

The International Monetary Fund (IMF) warned over bank exposure to debt-laden eurozone countries earlier this week, which it said could have a knock-on impact on the UK economic recovery.

Joshua Raymond, market strategist at City Index, said experts were anxious over a potential “domino effect” across the banking sector if Ireland’s woes impact RBS.

He said: “Some market analysts have estimated the UK bank has exposures roughly totalling ¬£42.2 billion worth of Irish debt and so any escalation of its current problems could create a domino effect amongst those banks that have a direct or indirect association with its debt.”

Concerns over Ireland centre around its mammoth bank bailout – the world’s costliest when measured per capita – with some worried it will overwhelm the country’s finances and force the Irish government to seek a financial rescue from eurozone partners.

The effect of this on its borrowing rates pose a serious headache for Ireland, making it highly expensive for the country to borrow.

Ireland’s central bank governor Patrick Honohan has dismissed fears that Ireland will need to tap rescue funds, insisting that budget measures will resolve the nation’s financial woes and restore investor confidence.

But the Budget has to get passed first on December 7 and experts remain concerned that Ireland is already effectively being shut out of credit markets.

It could be forced to follow in the footsteps of Greece, which was saved from imminent default on its loans in May, when it received a 110 billion euro (£93.3 billion) rescue loan from the other 15 eurozone nations and the IMF.

The Ireland issue comes as the G20 economic summit takes place in Seoul.

European Commission President Jose Manuel Barroso reportedly said yesterday at a briefing on the sidelines of the meeting that “in case of need, the EU is ready to support Ireland”. He noted there were “necessary instruments” in place for that support.

Ireland is not returning to the dark days of mass emigration, Taoiseach Brian Cowen pledged today.

With 100,000 people predicted to flee over the next four years, Mr Cowen accepted the Government had been unable to create enough jobs.

But the Taoiseach (pictured above with young GAA players from Parnells club in Dublin) said the country was not facing the prospect of a repeat of the huge exodus of young workers in the 1950s and 1980s.

“We’re not going back to those days,” Mr Cowen said.

“What we’re talking about here is the fact that we have many people who have come to Ireland over the past 10 years, many of whom are also returning home because the job opportunities obviously are no longer there in the numbers that there were.

“And there are also many of our own people who are leaving, some voluntarily, some because we haven’t been able to produce enough jobs in the immediate term.”

Mr Cowen said 65,000 people left the country this year, while 30,000 came in.

The Government yesterday revealed taxpayers would be hit with a €6bn slash-and-burn budget next month, with spending cuts making up two-thirds of the package.

Outlining details of the four-year budgetary plan the Department of Finance revealed it expects 100,000 people to emigrate up to 2014, with 45,000 to go next year.

“There’s a flow of people coming and going so we’re simply reflecting that in the projections for the four-year plan,” Mr Cowen added.

Meanwhile, efforts to calm investors’ fears by revealing the Budget target for next year appear to have had little impact, with the cost of borrowing on international markets hitting 7.7 per cent.

But in a boost to the Government’s efforts the EU’s Internal Markets Commissioner Michel Barnier predicted the situation would improve.

“I know your government and you as a parliament are taking courageous measures,” Mr Barnier told the Oireachtas European Affairs Committee.

“I am confident that there is light at the end of the tunnel.”

Mr Barnier also moved to assuage fears that Europe could force a hike in Ireland’s 12.5 per cent corporation tax by insisting the country would keep control of its tax policies.

Taoiseach Brian Cowen has insisted there were no soft options as the Government unveiled plans for a €6bn slash-and-burn budget.

Taxpayers face €1.5bn in extra levies next year while state-run services and benefits will be savagely cut by €4.5bn.

And in an attempt to restore international confidence, Mr Cowen said Ireland was now half way through the battle for economic survival.

“We’ve turned a corner – I don’t accept that we’re wrong,” Mr Cowen told RTE.

The shaky coalition Government will try to impose the cuts, the most drastic in Irish history, with only a three seat majority and four outstanding by-elections.

Ireland’s four-year budget outlook estimates the beleaguered economy will grow by 1.75 per cent next year.

But the devastating impact of the downturn was laid bare with officials warning the record 400,000-plus unemployment levels will remain for another 12 months. Dole queues will only ease as an estimated 100,000 people emigrate by 2014.

The plan aims to secure two thirds of the economic and fiscal correction by the end of next year.

It is targeting an unprecedented €15bn of savings to restore the Exchequer deficit to three per cent of the value of the economy by 2014 – twice last year’s estimates.

“Let’s be clear. Unless we make these changes and allow the economy to grow … then we put at risk all the gains we’ve made and I’m not prepared to contemplate that,” Mr Cowen said.

“And anyone who suggests in the opposition that there is some easy soft option – let’s be clear, if things work out better, there won’t be as much adjustment.”

Speculation has centred on sweeping cuts to services, including welfare, education and health., with water and property charges among possible new taxes.

And the efforts to calm investors’ fears appeared to have little effect with the cost of borrowing on international bond markets hitting a new high again of 7.8 per cent.

Chief opposition party Fine Gael accused the coalition Government of having no plan to protect jobs and public services over the next four years.

Michael Noonan, finance spokesman, said: “Fianna Fail and the Greens don’t get it.

“The country needs hope, optimism and the confidence that only a jobs and growth economic plan in parallel with the fiscal correction would deliver.”

Joan Burton, Labour’s finance spokeswoman, said 6 billion euro cuts in one year was misguided, and excessively risky.

“It is an unwise, and unacceptable risk to the economy, to jobs and to the living standards of Irish families,” she said.

The December 7 Budget will be the fourth time since October 2008 that the Fianna Fail/Green Party coalition government has been forced to introduce harsh measures to tackle the black hole in the public finances.

A more detailed four-year plan will also be unveiled later this month.

Mr Lenihan said: “I want to stress again the strength of the Government’s resolve to return the country to a sustainable fiscal position. I am well aware that such measures will impact on the living standards of everybody.

“But our spending and revenues must be more closely aligned. This is the only way to ensure the future economic well-being of our society.”

The plan also revealed that interest payments to cover money for the bank bail-outs will not take hold for several years.

Key projections from the pre-budget outlook include:

:: Domestic demand is likely to fall once again next year, although at a slower pace than over the past three years.

:: Gross Domestic Product will be 1.75 per cent while Gross National Product will be one per cent.

:: Exports would jump by five per cent next year.

There were violent scenes at a massive student protest in Dublin as Gardai moved in to quell militant elements in the crowd.

Three protesters were arrested after about 50 forced their way into the lobby of the Department of Finance in Dublin city centre angry at proposals to re-introduce fees.

Bricks, bottles, eggs and placards were hurled at gardai in riot gear and on horseback as several hundred people broke off from the main protest.

One Garda suffered a suspected broken nose, one protester was carried from the building apparently unconscious and several others had bloodied noses and heads after the clear-out was ordered.

The Union of Students of Ireland (USI), which organised the main demonstration, distanced itself from the trouble, claiming the march had been a peaceful protest.

Gary Redmond, USI president, said: “The organisation is deeply disappointed at the destructive behaviour of a minority of people at the Department of Finance, which occurred separately from the USI march.

“We do not condone destructive behaviour and believe that peaceful protest and open discussion and debate is the way forward for the students of Ireland.”

Gardai estimated 16,000 students marched through the Irish capital to vent their anger over proposed fee hikes which could double annual costs.

More than 200 buses carried students from college campuses nationwide to the USI march, with student representatives putting the number taking part in the rally at Government Buildings at over 40,000.

The riot squad, dog unit and mounted police forced the violent protesters, some carrying banners for the Socialist Workers Party and others linked to the hardline republicans Eirigi, on to nearby Stephen’s Green after about an hour.

Some protesters suffered cuts to the head and bloody noses during the scuffles.

As the crowd dispersed, dozens moved on to stage a sit-down protest outside the Irish Parliament demanding the Government does not double the student registration fee.

The three arrested were suspected of public order and criminal damage offences.

The atmosphere at the main body of the parade was described by organisers as a carnival, with missing traffic cones the only concern.

Mr Redmond added: “It was nothing to do with us – it was interest groups.

“We had a carnival atmosphere. Everyone was in good spirit.”

Speculation has centred on possible Government plans to increase the €1,500  charge to €3,000 in next month’s Budget, expected to be one of the harshest in the state’s history.

The USI said the trouble was an attempt to hijack the peaceful protest.

“USI will continue to campaign tirelessly and peacefully to ensure that higher education remains accessible to people from all socio-economic backgrounds in Ireland, not just those who can afford to pay hiked college fees,” Mr Redmond said.

Earlier, Mr Cowen refused to be drawn on whether third-level fees would be introduced or increased in the forthcoming Budget and said every aspect of spending was being looked at.

But Education Minister Mary Coughlan warned there will have to be a cut in her department’s expenditure.

Mr Redmond said the huge turnout was a testament to the level of fear of further hikes in registration fees.

“The Government has been told loud and clear if they continue to slash and burn in education they will feel the pain at the ballot box,” he said.

“Students, who are the taxpayers of the future, will end up paying for the bank bail-out. All we want is a fighting chance.”

Later students from two groups opposed to fees, Free Education for Everyone (FEE), based at NUI Maynooth and NUI Galway, and the Students in Solidarity Network, based at University College Dublin and Trinity College claimed they had called for left wing support at the demonstration.

In a statement, the two groups claimed 1,000 students joined a breakaway at the Department offices and also a sit-down protest outside Leinster House.

“Recognising the futility of marching from A to B and listening to the same speeches from aspiring politicians, many of these students joined us in marching to the Department of Finance where a sit-in demonstration was held,” the groups said.

“It is the Department of Finance which is attacking ordinary working people with such vigour in recent times, and this occupation was symbolic of the anger of students and the Irish public.”

They claimed they were supported by student activists from the Socialist Workers Party, Socialist Party, Workers Solidarity Movement, Eirigi and others.

Lorcan Myles, a FEE activist, denied acting violently and claimed the groups were perfectly in touch with the anger felt by the student body.

“Ultimately, events like today’s will happen in a society where people are under constant attack from the political establishment. The arrests and attacks carried out on students today will not deter the movement,” Mr Myles said.

Gardai later said one of those arrested was charged with an offence under the public order act. A second was charged with criminal damage and the third released with a caution.

Finance Minister Brian Lenihan warned that the budget cuts would be twice the initial estimate.

Ireland’s finance Minister Brian Lenihan has warned that a sizeable chunk of €15bn in savings over the next four years will be in December’s Budget.

The Government said the target for 2011 will be revealed next month and stated cuts and taxation measures will hit people’s living standards.

The massive figure – twice the initial estimate – was blamed on higher debt costs and predictions that the domestic and international economy will grow at a slower pace than first thought.

Mr Lenihan said the bulk of the pain must be taken in the Budget.

“The Government accepts that there must be significant front loading in relation to this figure in the Budget this year,” he said.

“Clearly for credibility purposes it has to be frontloaded.”

The Cabinet met for around six hours on Tuesday to discuss December’s budget and the four-year budgetary road map.

A statement issued after the meeting stated the Government decided on the 15 billion euro figure to ensure the budget deficit is slashed to the EU-agreed target of 3% of Gross Domestic Product, of the value of the economy, by 2014.

Mr Lenihan said the figure was based on an annual average growth rate of 2.75%.

The minister said EU economics commissioner Olli Rehn will travel to Dublin in the week beginning November 8 to brief opposition parties and the social partners.

It is expected the four year plan will be published shortly after.

Speculation has been focused on the scale of the savings needed this year amid suggestions it could be as much as double the initial three billion euro (£2.6 billion) estimate.

The Government said the figure would not be revealed until the four-year plan is published next month and warned delaying the pain was not an option.

A statement said: “The Government realises that the expenditure adjustments and revenue-raising measures that must now be introduced will have an impact on the living standards of citizens.

“But it is neither credible nor realistic to delay these measures.

“To do so would further undermine confidence in our ability to meet our obligations and responsibilities and delay a return to sustainable growth and full employment in our economy.”

Labour deputy leader and finance spokeswoman Joan Burton said the Government was refusing to reveal key information that explained how it came to the 15 billion euro figure.

Ms Burton said other basic economic information was also being withheld from the public and Opposition parties.

“The Government has not yet produced their forecast for economic growth and employment for the next four years to explain the basis for their plan,” she said.

“They have not yet set out what their growth forecast is for 2011, nor have they agreed that forecast with the European Commission.”

Ms Burton said there was still no clarity on the savings needed in December’s Budget, the impact of the bank bailout on the national deficit and savings expected from the Croke Park deal.

“Frankly, if this is the basis on which the Government is having its two-day meeting, then it’s little wonder that the country is in the mess it is in,” she added.

Business body Ibec claimed the 15 billion euro adjustment was challenging but achievable.

Chief Economist Fergal O’Brien said: “It is essential that we don’t stunt our fledgling economic recovery by overtaxing the country. The bulk of the adjustment must come in the form of current expenditure reductions.

“The Irish economy remains in the international spotlight and it is vital that we take the steps necessary to restore confidence. We must demonstrate our ability to solve our own problems and unfortunately this means tough decisions.”