The Taoiseach (Prime Minister) Brian Cowen bit the bullet Sunday and formally asked for an estimated 90 billion euro ($124 billion) rescue package. His coalition government will now bite the dust long before its term ends in 2012.
The small Green Party, which props up the Fianna Fail-led government, announced Monday that it will support the budget but will insist on a general election in January. Its leader, Environment Minister John Gormley, accused Fianna Fail colleagues of "miscommunication" over the bailout. "The past week has been a traumatic one for the Irish electorate," he said. "People feel misled and betrayed."
Fianna Fail, which has seen itself as Ireland’s governing party for nearly a century, faces a wipe-out in the election. It slumped to a historic low of 17 percent in the latest opinion poll on Nov. 21.
Now Finance Minister Brian Lenihan will have to introduce the harshest budget in the history of the state, a combination of spending cuts and tax increases to the amount of 6 billion euros now and 15 billion euros over four years.
After refusing to acknowledge that a bailout was inevitable, even as IMF and EU officials were checking into Dublin’s Merrion Hotel, a worn-looking and downbeat Cowen appeared in an unscheduled television broadcast Sunday evening to inform the nation of its new mendicant status. He read the news from a prepared statement as if it were the minutes of a minor party meeting.
Afterwards journalist Vincent Browne asked Cowen why he was not resigning, as “the person most culpable for screwing up this country.” Cowen replied defensively that he didn’t accept the premise that “I am the bogeyman you are looking for.”
In the opinion of Jim Downey, veteran political columnist of the Irish Independent, Ireland will not regain its national pride “until we get rid of the present discredited government.”
Many other aspects of Irish life are unlikely to survive in the post-bailout era, as Ireland seeks to convince its new paymasters that it can reduce its deficit from 32 percent to 3 percent by 2014. The lax culture of benefits in the public service will presumably end, with the targeting of anachronisms like uncertified sick leave, hours off to cash pay checks (salaries are now paid electronically) and “privilege days” given to civil servants at Christmas, Easter and bank holidays to allow for travel to and from work. That last perk dates back to colonial days when Dublin’s civil servants had to commute to and from Britain.
To minimize the risk of social unrest, ministers will be under pressure to take some of the pain, by curbing the egregious benefits they enjoy — from state cars and drivers for 24-hour public and private use, to some of the highest salaries and pensions in the world. Even after accepting a reduction of one-fifth in his pay last year, Cowen receives 228,000 euros ($312,000) annually. In comparison David Cameron, prime minister of the United Kingdom — which is preparing to contribute 7 billion euros to Ireland’s bailout — receives a mere 142,000 pounds (195,000 euros or $227,000) a year.
The Irish minimum wage of 8.65 euros ($11.90) an hour, the second highest in Europe and more than one-third higher than the U.S. federal minimum wage of $7.25, will inevitably be reduced. Social welfare payments and child benefit will also be cut, probably by 5 percent.
Living free in one’s own home, an almost unique Irish privilege, will end with the introduction of property tax. Householders will in the future have to pay for water.
Income tax will rise: Ireland’s days as a low-tax country are over, according to EU economics minister Ollie Rehn.
Of particular interest to U.S. companies heavily invested in Ireland, such as Intel, Google, Microsoft and Pfizer, is whether Ireland’s corporate tax rate of 12.5 percent, the lowest in the EU, will survive. Brussels regards it as unfair to other member states, but the low corporate tax rate is Ireland’s unique selling point, and multinationals in Ireland account for almost a quarter of a million jobs.
The generation of managers and directors who ran Irish banks into the ground are also likely to be casualties of the national calamity as EU officials begin to restructure those banks.
At the heart of the Irish crisis is the survival of the euro itself. After Greece, Ireland is the second of the 16 eurozone countries to seek a bailout in seven months. The bailout is designed partly to ease pressure on Portugal, the next weakest link, which is under pressure from the bond markets. The contagion could spread to Spain if not contained.
The events of recent days have given ammunition to skeptics. In an interview with this correspondent in 2001 the now-deceased American economist Milton Friedman described the introduction of a single European currency at the turn of the century as a “great mistake.” He forecast that Ireland would be unable to escape from the euro in a crisis.
“How would you break out and start all over again with a new monetary system, the punt?” he asked. “You have locked yourselves together and thrown away the key.”