Fallout: The Financial Crisis

Ireland methodically slashes spending

Christopher Werth Mar 15, 2010
Fallout: The Financial Crisis

Ireland methodically slashes spending

Christopher Werth Mar 15, 2010


Kai Ryssdal: Finance ministers from the 16 countries that share the euro as their common currency had a little tete-a-tete in Brussels today. They’re trying to figure out how, or even whether, to bail Greece out of its debt problems. Athens is running a budget deficit that’s about three times what’s allowed under euro rules. The government has announced huge spending cuts in response. More than $6 billion worth.

That’s a popular number elsewhere in Europe, too. Ireland has made its own $6 billion in cuts. For a country far smaller than Greece, that’s a lot of pain to spread around. From Dublin, Christopher Werth reports.

CHRISTOPHER WERTH: The Cobblestone Pub in downtown Dublin. You sit here, your feet tap to the music, your hand cradles a whiskey and life feels good. Along the walls, smiling faces beam down from fading photos. Happy days. In here, you could easily forget that Ireland is suffering its worst economic downturn in decades.

But outside on the freezing streets, times are tough.

Just off O’Connell Street, Bujo Viora strikes up an accordion tune from his native Romania. He came to Ireland seven years ago, before the housing boom turned to a bust. He worked construction jobs back then. Building sites couldn’t hire workers fast enough. Today, Viora has to feed his family on the few coins that passers-by toss into his hat.

BUJO VIORA: No job. No job, very difficult. I play the accordion. The baby for food. No pampers. No milk. No bread. It’s very difficult.

Over at the Department of Finance, adviser Alan Ahearne says the government relied too heavily on the tax revenue that rolled in during the housing boom. The bust left a gaping hole in Ireland’s finances and taxpayers had to stump up $80 billion to recapitalize banks that were heavily invested in real estate.

ALAN AHEARNE: So you don’t see as many cranes around. In fact, you see quite a lot of empty apartment blocks and houses. So the economy is going through quite a wretched adjustment. There’s no doubt about that.

Last year, Ireland’s fiscal deficit reached almost 12 percent of gross domestic product. That’s nearly as bad as Greece. Those debt levels have made it tough to borrow money through government bonds.

And as a member of the eurozone, Ireland doesn’t have the option of devaluing its currency to become more competitive and restore growth. What it could do was cut spending. And it’s done that with a vengeance.

Once praised for its strong economy, Ireland now gets plaudits for its austerity: it’s cut government workers’ pay, reduced social welfare benefits and is gradually raising the retirement age from 65 to 68. Next year, it plans to cut a further $5.5 billion from the budget.

AHEARNE: We have shown to the markets that we’re willing to do what’s necessary to put the economy back on the road to recovery, to take the medicine. And I think you’re seeing the reward for all that work in that borrowing costs have come down very significantly over the last year.

But civil servants like Geraldine Mangan say the rich aren’t paying their fair share. Her wages have been cut by 12 percent. And she says that’s made it nearly impossible to pay for the house she bought at the height of the market.

GERALDINE MANGAN: I know cutbacks have to be made because they’re spending more than they’re bringing in. It’s just unfortunate that the lower-paid civil servants in this country are getting hit. It feels like their laughing in our face, really. That’s what it feels like.

But the question is, are these deep cuts going to be enough?

Leo Varadkar of the opposition party, Fine Gael, says that by 2015, simply servicing Ireland’s debt will gobble up a third of what the government takes in in taxes. He says that if the current plan doesn’t work, Ireland may have to seek a bailout from the European Union, or worse yet, it may even have to consider the unthinkable.

LEO VARADKAR: There is a growing debate. It’s not a mainstream one by any means, but that we do have to consider potentially the nuclear option of leaving the euro. Like many nuclear events it might work, but there would be huge casualties in doing so.

The very thought could drive some people to drink. At least, that’s what they’re hoping back at the Cobblestone pub.

Though the roar of the Celtic Tiger has shrunk to a rattling cough, there is one consolation. The same government that’s dramatically cutting public spending has also cut taxes on alcohol. And, with St. Patrick’s Day just around the corner, that has to strike the right note.

In Dublin, I’m Christopher Werth for Marketplace.

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