Ireland’s Monetary Fiasco

The Liberties will be facing social welfare cuts and tax increases as the IMF and EU step in to have a strong input on this year’s budget.

The government are looking to reduce the deficit by €6bn this year in order to reach EU targets by 2014.

IMF officials arrived in Dublin in mid-November, which sparked talks of an impending bailout. However, Fianna Fáil played down their presence in the country.

Last Saturday, the government caved and confirmed Ireland needed a rescue package of an undisclosed figure, believed to be around 90 billion.

“I can confirm that the government has today decided that Ireland applied for financial assistance from the European Union,” said Taoiseach Brian Cowen.

This caused outrage amongst opposition parties. Fine Gael leader Enda Kenny condemned the government claiming they had “deceived” the Irish people.

This announcement means that the IMF and EU are certain to play a significant role in dictating this year’s budget.

The budget bailout package will be in two parts; the first being a restructuring of the banks, which “would become significantly smaller than they were in the past.”

The second would involve a strong policy programme that will involve expenditure cuts and tax increases, aimed at reducing Ireland’s deficit.

It is expected that Britain and Sweden will play a part in the package despite the fact that they are not members of the eurozone. Britain is expected to contribute around £7bn.

Finance Minister Brian Lenihan insisted that asking for a bailout was the responsible thing to do to continue to seek “economic continuity.”

“It is essential that we continue the path of correction in relation to the state finances and the banking difficulties of the past few years,” said Mr Lenihan.

There is fear that the decision to welcome a bailout will force an increase in Ireland’s corporation tax of 12.5 per cent.

This rate, which is significantly lower than the EU average, has attracted much foreign investment in Ireland during the years of the Celtic Tiger, from companies such as Google, Microsoft and Intel.

While the government insists it will fight to prevent the increase of this rate, EU countries such as France and Germany, who have significantly higher rates, may insist that Ireland cooperate in exchange for economic aid.

On the IMF side of the bailout, Ajai ‘Chopper’ Chopra will be leading negotiations.

Chopra is the deputy director of the IMF’s European department and an expert in bust – boom economics. He is credited with pulling South Korea out of dire economic straits.

Despite this apparent failure by the government, Mr Cowen insists that he will not be retiring and intends to represent Fianna Fáil in the next election.