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Ireland: The reckoning

Gavin Hewitt | 10:05 UK time, Tuesday, 8 December 2009

Dublin protest over economic pain, 6 Nov 09Watch the Republic of Ireland. Mark it in your diary. Take a moment on 9 December to watch a bust country in its moment of reckoning.

Not so long ago there were more Mercedes per head of population in Ireland than in Germany. That was then. That was when the Celtic Tiger prowled with pride. Now its people talk of a "bedraggled alley cat".

The reckoning comes in the form of a budget which will be the harshest in Ireland's 88-year history. Who will pay? The unemployed, parents with young children, the jobless young, the public sector. In times past these were the untouchables. It was central to the social contract in most European countries that the most vulnerable would be protected. Not just in Ireland the unthinkable is being considered.

Why? Ireland's foreign debts total more than 800% of its GDP. Next year it will have to borrow 12% of its national output. It needs to find nearly £4bn in savings.

So the word is that a savage budget will come. The expectation is that there will be a 4% cut in social welfare payments, a 9% cut in child benefits, a cut in dole payments to those under 23, a 6% cut in public sector pay. Only pensions will be untouched.

For a family with two children they could lose 360 euros (£327) a year. Tough at any time. Tough when jobs are so scarce.

There have been public sector strikes already. Even the police are considering industrial action. The government has tried to share the pain. The cabinet has taken a pay cut. The Prime Minister, Brian Cowen, is set to see nearly 60,000 euros lopped off what he earns. Higher-paying civil servants will take a higher percentage cut.

And budget cuts carry risks. The General Secretary of the European Trade Union
, John Monks, said the cuts could "choke off" the recovery and cause unemployment to rise.

Watch Ireland because other countries may follow. Greece needs to borrow $70bn (£43bn) next year. Spain teeters on the edge. And then there is the UK. The IMF says that the UK's fiscal deficit in 2010 will be the biggest in the G20 - running at 13.2% of GDP.
Now it so happens that the British Chancellor Alistair Darling will be giving his pre-budget report on the same day as the Irish budget. Will Britain, not now but in the future, face an Irish day of reckoning? The think-tank Reform opined today that a million public sector jobs in the UK, including frontline roles in the NHS and the police, must be axed if the government is to cut its deficit. That is not a platform that any party will go into an election with. But these are times when the unthinkable is being thought.


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