Ireland: the hard path to austerity

Ireland has instituted dramatic spending cuts and tax hikes to avoid becoming the 'next Greece.' Dublin may offer a window into where other European countries are headed towards austerity.

Cathal McNaughton/Reuters
Firefighters formed a picket line in Dublin, Ireland, on Nov. 24, 2009. They joined teachers who shut schools, nurses who left wards, and civil servants who vacated offices to protest government austerity plans to cut pay in hopes of preventing the national debt from spiraling out of control.

Áine Gannon, a health department worker in the Irish town of Kilkenny, is upset that so many police officers, firemen, and teachers are being laid off as part of Ireland's drive to avoid being the "next Greece."

Ms. Gannon doesn't mind making sacrifices for the national good. She just doesn't want so many of the cutbacks falling on the middle class and poor. "They are not hitting people equally," she says.

Ms. Gannon's words of class warfare are part of a high-decibel debate over Ireland's far-reaching austerity program – and may be a forerunner of clashes to come throughout Europe.

As several European nations from Italy to Spain to Britain struggle with debt or budget deficit problems, they face the prospect of substantial spending cutbacks as well as big increases in taxes to correct their balance sheets. Put another way, the social welfare model that has been an integral part of many European nations' identities is under assault more than at any time in the postwar era.

Some experts think Ireland, whose finances are among the most precarious in Europe, offers a window into the kind of dramatic actions nations will be taking. Critics here call the government's plan a muddle rather than any kind of model.

The idea behind Dublin's austerity plan, intended to deal with a government deficit running at 14.3 percent of gross domestic product, is simple: slash spending, increase tax revenue, and bailout banks in order to prove the county is a "good financial citizen."

The government cut the pay of police, nurses, and teachers, and imposed a hiring freeze in the civil service sector. It coupled these actions with tax hikes and cuts to social welfare benefits.

The response across the country has been equal parts anger and resignation. More than 13 percent of Irish workers are unemployed. Particularly controversial is the prospect of further payments to banks. The government has already given 7 billion euros to Ireland's two major financial institutions, and billions more may be needed. Smaller banks, too, have been consuming tax revenue.

Last month almost a thousand protesters took to the streets of Dublin, six of whom attempted to attack the Irish parliament. It's not a rebellion of Greek proportions but resentment hovers in the air. "Some kind of austerity package was inevitable," says Stephen Kinsella, an economist at the University of Limerick. "The problem is there is no coherent employment policy – [cuts] kept the bond market happy but that's all."

The government's mantra of "share the pain" has been repeated endlessly, but many people ask why they have to shoulder so much of the burden. They complain the government only listens to the well-heeled. "When you see little old ladies and relatively well-off students in the streets, then people take notice," says Dr. Kinsella.



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