Ireland tightens its belt as Celtic Tiger reduced to a squeal
After a decade of expansion, a muted Ireland is facing a shrinking economy and massive layoffs.Dublin -- After making its European neighbours green with envy with its strong economic growth, Ireland is now one of the hardest hit by the global downturn and was forced to announce an austerity budget Tuesday that risks sparking social unrest.
Between 1996 and 2007, the island's economy grew at a far greater rate than the European average, expanding by ten percent in 2000 alone.
While other EU countries struggled to tame unemployment, Ireland was trying to deal with labour shortfalls by bringing in workers from Eastern Europe.
But the Celtic Tiger's roar has since been muted.
The Republic of Ireland became the first European country to fall into recession, in the second quarter of 2008, and last year its gross domestic product (GDP) fell 2.3 percent, the sharpest annual decline since official statistics were first compiled.
This year could be even worse. The government expects the economy to shrink by seven percent this year and a further three percent in 2010 -- predictions regarded by some as optimistic given the economic decline of 7.5 percent in the final quarter of 2008.
Unemployment meanwhile is on its way up, rising to 11 percent last month, a rate not seen in 15 years. This is forcing migrants to return home and raising the spectre of the dark days of the 19th century when Irish citizens abandoned their country in droves for the United States.
"It's one of the biggest crises we've ever had, but this time we don't have the safety valve of emigration," said John Gilligan, the mayor of the central Irish town of Limerick, who is furious over a decision by US computer manufacturer Dell to move its production lines from his town to Poland.
As a consequence of rising unemployment, Ireland's tax intake has collapsed -- down 23 percent in the first quarter of this year -- and its budget deficit is skyrocketing.
The European Commission is predictably concerned by Dublin's deteriorating public finances, with Jean-Claude Juncker, the head of the eurozone group of finance ministers, warning that the situation is serious.
In response to complaints from Brussels, Ireland has promised to reduce its ballooning deficit to three percent -- the ceiling set by the European Union's Stability and Growth Pact -- by 2013.
It won't be easy, though -- after an initial austerity plan in February, the government is set to announce a supplementary package on Tuesday aimed at saving up to 4.5 billion euros (six billion dollars) or as much as 2.5 percent of GDP.
The plans are fraught with peril -- whereas other countries are enacting stimulus plans to revive their economies, this small country of 4.2 million people cannot afford similar spending.
Prime Minister Brian Cowen has said the austerity plan is essential to preserve the country's international credibility, with its worsening debt position increasingly having an impact.
Credit ratings agency Standard & Poor's has lowered its rating of Ireland's long-term sovereign debt from AAA to AA+, while Fitch and Moody's have warned they may do the same.
Irish publish finances are now the butt of jokes in the country's pubs, with drinkers at Temple Bar in Dublin's nightlife district noting: "What's the difference between Ireland and Iceland? One letter and six months."
But the tone is not always so good-humoured. More than 100,000 people took to the streets of Dublin in protest in February, and anger quickly swells at media reports of the juicy bonuses for executives at banks that had to be bailed out by the state.
On the streets of Limerick, which has been hammered by 2,000 job losses by Dell's decision to relocate, one poster sums up the town's emotions: "Rich get pay-offs. We get lay-offs."