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In the 1990s and the early years of this decade, the Republic of Ireland was the fastest-growing economy in Europe, with growth around 8-9 percent for many years. It was because of this that it was known as the Celtic Tiger.

But the Republic of Ireland's boom years are over, and it now finds itself suffering a worse economic recession than its much larger neighbour the UK. The Irish economy will shrink more than the UK economy this year.

Not only that, but the Irish unemplyment rate is predicted to hit a whopping 14% later this year, much higher than that of Britain (and no wonder, when you consider that Irish unemployment benefits are far more generous than British unemployment benefits. In the Republic of Ireland, an unemployed person under the age of 25 gets paid the equivalent of around £200 a WEEK, and double that at Christmas, whereas in Britain an unemployed person OVER the age of 25 gets around £100 every FORTNIGHT and only a paltry £80 a fortnight if you are under 25). Why bother working if you can get paid £200 a week for doing nothing?

But unemployment benefits are not the only generous benefits on offer in the Irish Republic. People with children get much more generous allowances than their British counterparts. And every Euro that the Irish Republic pays into the EU they get six Euros back (whereas the British pay more into the EU than they get back). It's tempting to think that the Celtic Tiger boom was fuelled by British and German handouts.

So when Irish economic failings are the cause of their own mistakes, it seems strange that they like to blame the British.

Last week, Ireland's EU Commissioner Charlie McCreevy accused the UK media of running a campaign against Ireland.

Ireland spent the money - now it's time to pay

An emergency budget has raised taxes and cut public spending in the ailing Irish Republic, and worse may follow, writes Sarah Carey


Sarah Carey
07 Apr 2009
The Telegraph

Sarah Carey writes for the Irish Times


Everyone to blame but themselves: The Irish prefer to blame the British (or the Americans or tax exiles), rather than their own incompetence, for their recession


We're past the blame-storming in Ireland. Former Taoiseach (Prime Minister) Bertie Ahern blamed pessimistic economists, whom he accused of talking down the economy. Finance Minister Brian Lenihan – who yesterday produced an emergency budget that raised taxes and cut spending – blamed the Americans for letting Lehman Brothers go under. Workers blame the bankers and the tax exiles. Ireland's EU Commissioner Charlie McCreevy prefers to blame the British (a popular past-time in the Irish Republic). Last week he accused the UK media of running a campaign against Ireland.

"Everyone knows that at some vulnerable moments in our history our immediate neighbours have tried to take us on. But they should remember this: they have never managed to take us out. And we must make sure that they never will."

That's our Charlie.

We know two things about this economic crisis. We know our neighbours are enjoying it thoroughly and we know that ultimately we have only ourselves to blame. McCreevy was Finance Minister from 1997 to 2004 – the years of enormous growth. Some said he was guilty of "Fiscal Philistinism", but his brash style of politics proved an election winner. Fianna Fail has been in power for 20 of the last 22 years. Whatever they did, they did with popular support.

When challenged on his popular give-away budgets during that time he responded: "When I have it I'll spend it. When I don't I won't". We sure don't have it anymore.

His budget surpluses were based on a huge inflow of cyclical taxes like VAT and Stamp Duty. We had so much coming into the Exchequer that Department of Finance officials consistently underestimated the State's disposable income. Now that the credit crunch has pulled the rug from underneath the property market, that income has disappeared.

At the same time, government policy also focused on removing low earners from the income tax net. But how low is too low? Almost 40 per cent of earners don't pay income tax. Our generous tax breaks for high earners further contributed to our precarious dependence on consumption taxes.

What did Charlie spend it on? On the plus side we built up a significant national pension reserve fund. That war chest means we have funds to call on during the crisis. On the minus side, the government agreed to a process called benchmarking. This is now at the heart of Ireland's structural deficit – the latest economic term to enter everyday parlance here.

As property prices soared, public servants complained they were being priced out of home ownership. In response "benchmarking" delivered to the public sector wages that were linked euro for euro to equivalent jobs in the private sector. Those salaries were then linked to public sector pensions. The result? Long-retired public servants found themselves with fabulous defined benefit pensions beyond their wildest expectations.

Meanwhile the private sector is haemorrhaging jobs, while those who hang on must take wage cuts as they watch their pensions collapse. While they suffer the slings and arrows of the free market they look on bitterly at their public sector colleagues. If they got benchmarking on the way up, why don't they take it on the way down?

How does Finance Minister Brian Lenihan deal with this divided society and find the money to pay the bills? He's battling everyone from the state's employees to our new colonial masters – the credit ratings agencies. They haven't exactly helped. Not only did they downgrade our credit rating before yesterday's important budget but a Standard and Poors spokesman expressed a desire for new faces in government.

For once, unity in the Dail as all politicians told S&P our government was none of their business. An apology was extracted.

Lenihan's only friends have turned out to be in the EU. Despite our dismissal of the Lisbon Treaty, all the vibes indicate that they'll turn a blind eye as we smash through the limits set within eurozone countries for national deficits and borrowing requirements.

For months now, commentators and the public have expressed exasperation that the government failed to take action last year to fill the gap in the finances. The debate amongst our celebrity economists has raged between those who insist that public spending must be slashed and those who demand that taxes are raised. All agree on the new clichι – sharing the pain.

Yesterday's budget was painful alright. Nothing was spared and Lenihan probably satisfied no one with his Solomon-like decisions. He's cutting public spending by €1.5 billion and adjusting taxes in the hope of raising €1.8 billion, adding up to a deficit-busting €3.3bn.

Generous social welfare payments have been slashed and emergency income tax levies have been doubled. Minimum wage earners will now pay some income tax.

He even cancelled Christmas – the traditional dole double payment in December has being cut. Worse, we know there is even more to come over the next five years.

The war between public and private sector workers will continue to rage as his speech included precious little about public sector reform. But maybe he's still thinking of keeping those unions on board and off the streets.

But what everyone wants to know is whether the bond markets, on whom we depend, will be impressed. If the international money markets want to see us suffer, then suffer we will. Everybody has lost, and all must have sacrifices.

telegraph.co.uk
Last edited by Blackleaf; Apr 8th, 2009 at 12:19 PM..