Irlanda: tigre mal herido

Ireland forced into a new era of austerity

Emergency budget heralds tax rises and spending cuts

By David McKittrick, Ireland Correspondent

Wednesday, 8 April 2009

Ireland has set about the dismal business of adjusting to a generational drop in living standards with the end of the Celtic Tiger boom and the prospect of a new era of austerity.

An emergency budget, the second in six months, lived up to its advance billing as the toughest in the country's history as the authorities pushed up taxes and curtailed spending to cope with what one minister called a "difficult and desperate" situation.

Expenses and pensions for MPs are to be cut, while five junior ministerial posts are to go in moves aimed at demonstrating that politicians are sharing public pain. A series of other measures, including a national agency to take over bad debts of up to €90bn (£80bn) from banks, were included in a package designed to impress both voters and international opinion.

To date, neither sector has been impressed by the performance of the government headed by Prime Minister Brian Cowen, which has struggled to exert control over a financial situation that is rapidly deteriorating, with soaring unemployment.

The tone of ministers yesterday was designed to project the sense that they are now getting a grip on the crisis and adopting policies designed to take advantage of an eventual international recovery. The Finance Minister, Brian Lenihan, said he wanted to assure the Irish people that the government had the will to bring the country out of a period of "severe economic distress".

But at the same time, both the political world and the public at large are aware that years of difficulty lie ahead. Within a year, the national psychology has changed from one of basking in the bright sunlight of prosperity to one of facing up to a forecast of years of depressing heavy rainfall.

Much of Ireland's younger generation had developed a "loadsamoney" culture as the years of unprecedented prosperity provided plentiful jobs and even more plentiful credit. Most young Irish people have never known the hardship experienced in previous generations.

Many who rushed to buy property are now being affected by unemployment and facing huge difficulties in meeting mortgage repayments. Everyone is adjusting to the fact that they will have less money in their pockets.

The supplementary budget concentrated on a range of tax increases designed to raise more than €3.5bn in the next year. Social welfare payments were generally spared, but it was made clear that cuts can be expected next year in this and other areas.

Some immediate reactions to the budget characterised it as going too far while others held it was not bold enough. Mr Lenihan described it as "bold and radical action". He said he was "acutely aware" that the new measures would bring down living standards. The approach taken by the Irish government stands in sharp contrast to other nations who have been boosting expenditure and cutting taxes in an effort to stimulate their flagging economies. But Ireland, with a national deficit currently the worst in the European Union, is under intense pressure to get its public finances in order.

Much will depend on whether the eventual conclusion is that the government has ended the sense of drift and no longer appears to be overwhelmed by the depth of the crisis.

The crisis has been exacerbated in the Irish Republic by a lack of confidence in the administration, as seen in opinion poll ratings which have seen respect for the Fianna Fail party plunge as sharply as economic ratings.

The budget contained measures which reflected the fact that the public blame both the political classes and the banks for many of the financial woes.

A new agency is to assume the bad debts of banks, while far stricter controls and supervision of banks and other institutions are to be brought in.

In a passage addressed to international markets, Mr Lenihan declared: "First, and most urgent, we must stabilise our public finances. Until we show that we can put our own house in order, we cannot expect those who have invested here and who might invest here in the future to have confidence in us."

He acknowledged that the country had been badly damaged by the actions of some in the financial sector, saying it now had to be cleansed and repaired.

http://www.independent.co.uk/news/world/europe/ireland-forced-into-a-new-era-of-austerity-1665372.html

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