INTERVIEW-Fitch applauds Ireland's quick response to finances

DUBLIN, March 5 (Reuters) - The Irish government's quick response to its deteriorating finances is one of the reasons the country still has a triple A credit rating, Fitch ratings agency said on Thursday.

Ireland's budget shortfall has ballooned to 2 billion euros ($2.52 billion) in Jan-Feb prompting Prime Minister Brian Cowen this week to call for an emergency budget to keep the deficit at 9.5 percent of Gross Domestic Product, already the highest in the euro zone.

"What we look for is a government that responds quickly and the Irish government has responded more quickly than any other government over the past few months," Chris Pryce, a director at Fitch, told Reuters in an interview.

"You may say it has more to respond to but (at least) it has been responding quickly and adequately and we expect that to continue."

Unlike rival ratings agencies Moody's and Standard & Poor's, which put Ireland's prized AAA rating on negative outlook earlier this year, Fitch affirmed it citing the country's low debt levels and the government's determination to tackle its finances.

Pryce said AAA was still the most appropriate rating for Ireland despite a precipitous fall in tax revenues as the economy slides deeper into recession.

Irish tax rates dropped during the go-go years of the "Celtic Tiger" economy when the government could rely on property-related taxes to bring in record returns.

Faced with a protracted and deep construction slump that has hit revenues, Dublin signalled this week that it would raise and broaden the income tax base, possibly to include people on low wages.

The new measures, which will also include spending cuts, come on top of previous tax hikes and cutbacks which sent government approval ratings to record lows and prompted 100,000 people to take to the streets in protest last month.

Pryce said people would just have to accept further pain.

"People are not going to like it but ... they have lost several years of growth and they must now learn that they are going to lose several years of income."

Despite Dublin's efforts to get its fiscal house in order the country's debt yields have widened dramatically over German bunds and its five-year credit default swaps last month were quoted close to 400 bps, making its bonds the most expensive to insure in the euro zone.

Pryce said the market's negative view of Ireland was overdone and reflected a degree of grim satisfaction overseas that the former "Celtic Tiger" economy had fallen off its perch.

"I think there is a certain amount of schadenfreude. Ireland did too well for a decade and I think many commentators in other countries, even the governments of other countries, weren't upset to see Ireland take a fall."

For an interview with Standard & Poor's earlier on Tuesday click on [ID:nL5719458]

(Reporting by Carmel Crimmins)