Ireland announces homemade remedy

Yassin Gaber, Thursday 25 Nov 2010

An EU bailout looks more likely for Ireland after a €15bn austerity package was announced on Wednesday. The question, however, remains whether more eurozone nations will follow suit.

Ireland Prime Minister Cowen
AFP: Cowen said his four-year package would restore shattered confidence.

The €15bn austerity package, unveiled by Ireland on Wednesday, was the first step in unlocking an international bailout and boosting national pride by presenting the people with an Irish fashioned solution.  Over the past two years the government has unsuccessfully attempted to resolve its economic problems without international intervention.

The announced four-year plan will slash public sector pay and pensions but will not alter the low corporation tax considered the cornerstone of Irish prosperity.

Prime Minister Brian Cowen believes the plan will serve to restore diminished public confidence. "We can and we will pull through this as we have in the past," Cowen told a news conference.

"We are a smart, resilient, proud people and we are going to come through this challenge because we love our country."

However, some observers, according to a report in The Economist, are doubtful of the efficacy of the austerity measures, arguing that cutting public spending and raising tax will only drive the economy further into recession and reduce tax revenues even more. But the counter argument runs that in an open and import driven economy such as Ireland's, spending cuts are less likely to have a significant impact on domestic output.

The bailout is quickly becoming a reality after EU Economics Commissioner Olli Rehn gave his backing to the four-year budget package on Wednesday. The plan is also believed to have received a nod of approval from the International Monetary Fund (IMF), which continues to examine the amount needed to restore financial stability to the republic – at the moment speculation puts the figure at €85bn.

In a report by the Press Association, Chancellor Angela Merkel stated that Germany was willing to offer help to Ireland, though its assistance was conditional on Dublin "making clear what steps [it] must take to get back on a path of stabilisation".

The increasing debt burden and instability of the Irish government in the past few years, mainly due to bank bailout measures, has made international intervention Ireland's only option. Furthermore, Ireland's reduced tax revenue, due to decreasing GDP growth and increasing unemployment has exacerbated the government's inability to cover this debt burden.

The current unemployment rate is close to 14 per cent, up 10 per cent from its levels in the mid-2000s. With the government planning to axe 25,000 jobs and the existing barren job market, an already aggravated public sector is planning mass demonstrations for Saturday.

"This is a road map back to the Stone Age," said Jack O'Connor, president of Ireland's biggest union, Siptu. "Ireland needs a strategy for growth, but this plan will achieve the opposite."

 Opposition parties have also been a source of vocal criticism, condemning the government's measures and calling for an immediate general election.

Prime Minister Cowen has thus far refused to answer any questions about an election, which he asserts will take place next year after the four-year-plan is ratified.

As Ireland struggles to prove to the international community and its own public that it can clean up the economic mess, another heavily-indebted eurozone country, Portugal, was paralysed by a general strike on Wednesday protesting pending austerity measures.

Portugal is widely perceived among investors and economists in the EU to be the next eurozone country in need of a bailout following in the footsteps of Greece and now Ireland.

Portugal, however, isn't the only Iberian country that might need future economic assistance.  Analysts fear that Spain might be next and, as a report pointed out in The Independent, "while Portugal is small enough to rescue, Spain may emerge as 'too big to fail' but 'too big to save', exceeding even the EU/IMF joint fund's abilities and Germany's resources."

For now all Lisbon, Madrid and Brussels can do is wait and hope for the best, namely that Ireland's debt problems are solved quickly.  

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