Pensions, child benefit and the wages of around 300,000 public sector workers in Ireland would be slashed by 33 percent if the country abandons the European Union-International Monetary Fund bailout deal, the government has warned.
The Department of Finance issued the stark forecast in response to a prediction by leading economist, Morgan Kelly, that Ireland faces bankruptcy unless it pulls out of the deal.
However, the government insisted it would continue with the bailout plan and hopes to negotiate a one percent cut in the interest rate next week, as it seeks better terms to match those of Portugal and Greece.
Finance officials have outlined the consequences of walking away from the EU and IMF. If Ireland reneges on the deal, €18 billion would have to be immediately slashed off public spending, as it would no longer have financial support from the EU/IMF.
Abandoning the bailout would also force the government to get all its money from international markets, meaning it could face interest rates of more than 10 percent, almost double its current 5.8 percent on the bailout loans.
The department warned that drastic measures would "affect everyone," with a deep recession following sizeable tax increases and widespread reductions in public services.
A fierce row raged across the political and economic stage all last weekend after Professor Kelly outlined his radical proposals for abandoning the bailout.
The University College Dublin economist, who is most widely known for predicting the Irish property crash, said the government should walk away from the banking debt, leaving it to the European Central Bank. He said this would leave the country with a "survivable" €110 billion debt.
Transport Minister Leo Varadkar was also quick to dismiss calls to pull out of the bailout deal.
"In my view, that's not a solution. If you do that, first of all you impose personal bankruptcy on a lot of people, horrendous social consequences on working people and people on social welfare," he said.