Magazine article Public Finance

Ireland in Disarray as the Celtic Tiger Loses Its Roar

Magazine article Public Finance

Ireland in Disarray as the Celtic Tiger Loses Its Roar

Article excerpt

It all looked so good - a Celtic Tiger that repeatedly produced annual growth of 9%. Scotland's nationalist government even talked of an 'arc of prosperity' that drew together Ireland, Iceland and Scotland. Now it looks more like an arc of insolvency.

How life changes, as Ireland's ministers will readily testify. It is not merely that Scottish First Minister Alex Salmond's political strategy needs rethinking. Ireland's economic situation is so bleak that there are suggestions of support packages from the International Monetary Fund and the European Union and even rumours that some EU countries want it to be evicted from the eurozone.

After months of trying to play down the scale of Ireland 's fiscal crisis, Taoiseach Brian Cowen has now admitted that the country expects to lose euro18bn of its projected euro55bn tax revenues for this year. An emergency budget is tabled for next month.

Measures being considered include a new higher rate tax; an increase in the basic tax rate; and bringing more lower-paid workers into the tax bracket. There is also to be a clampdown on benefits cheats, including against the thousands of people living in the border regions of Northern Ireland who claim in the Republic instead, using false addresses to receive the more generous southern welfare.

Yet it was only in February that the government announced an earlier package of emergency measures - a cut in capital spending,atargetofa3% reduction in the public sector payroll and a graduated pensions levy of up to 10% on public sector workers - to save euro1.4bn a year. The imposition of the levy pretty much ended the 'social partnership' with trade unions and led to unprecedented anger, with a demonstration of about 120,000 workers through Dublin.

Cowen warned: 'The measures we are taking to restore our economy will be painful for all. Living standards will fall across the country, and we will need to adjust. Services will suffer in the short term, and we will need to be patient.'

Enda Kenny, leader of the opposition Fine Gael, has called on the government to raise or save euro5bn. 'With 354,000 unemployed, an 8% increase since last month, we have never in the history of the state been in such a position.'

But this week the governor of the central bank told MPs that the economy is set to shrink by 6% this year, which would make Ireland's plight among the worst in Europe. He added that things could get even worse.

There are now serious concerns about the impact on Northern Ireland too. The Republic's government had promised to spread its wealth northwards, assisting economic development in Northern Ireland by paying for the upgrade of transport links that service the all-Ireland economy -the Dublin to Derry and Belfast to Port of Larne roads and the City of Derry Airport, owned by its district council.

These worries are shared by the Northern Ireland Executive, which has met with ministers from the South. A spokeswoman for Northern Ireland's Department of Finance and Personnel, commenting on rumours that the Irish government was set to drop some pan-Ireland projects, said: 'This is speculation at this stage as no formal confirmation of this intention has been relayed to the Northern Ireland Executive.

'The Irish government previously announced a range of projects in Northern Ireland that they would make a financial contribution towards. Until notified that this is no longer the case, we will proceed on that basis'

But a spokesman for Ireland's Department of Finance told Public Finance: 'Given the current situation we are facing, the government will be looking at all aspects of expenditure, capital and current. It remains committed to North-South co-operation and exploring ways of working with the Northern Ireland Executive, within the current economic environment. …

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