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In the first of a series on world leaders, Miles Deverson takes a look at Nicholas Sarkozy
The once sterling reputation of Ireland, collectively known as the "Celtic Tiger" due to the country’s rapid economic growth in the past decade, has now vanished, only to be replaced by tides of debt, crisis and duress.
Until the 18 November, Dublin insisted its capacity to deal with the failing economic situation until at least the middle of next year, meaning it could cover its outgoings without turning to the markets to borrow extra money. However, the situation regarding the banks was most certainly overlooked, creating chaos, further fueled by a sharp deterioration in tax revenues and rise in unemployment benefit claims since the recession. The government had provided the banks with a blanket guarantee at the during the height of the 2008 financial crisis, putting the Irish government on the hook for all bank debts, currently worth several times the annual output of the entire Irish economy.
Given the rising losses posed by the bank, foreign investors now questioned the Government’s ability to meet the guarantee, leading essentially to withdrawals from the Irish banks, leaving the banks massively dependent on the ECP for emergency funding. Consequently, Ireland has been consistently pushed to accept a European bail-out by various European Governments, as the continuing debts led to a budget deficit equivalent to 32% of GDP this year.
The total loan is expected to reach 85bn euros (£72bn; $114bn), although talks with the IMF and EU are still ongoing, though it is presumed it was cover banks losses for the next four years, and incorporate bilateral loans from the UK, Sweden, and the IMF. The UK in particular has pledged to contribute about £7million, including a 12% share of the EFSM and 4.5% of any IMF loan. UK trade with Ireland, which exceeds the total UK trade with Brazil, Russia, India and China, would ultimately be heavily hit as the lowered demand curve would undoubtedly significantly affect UK trade.
The Irish government has recently revealed its new austerity programme detailing four years of tax rises and spending cuts, which Taoiseach Brian Cowen hopes will significantly regenerate the Irish economy in the long term, hopefully decreasing the deficit from 12% to 3% by 2014. With cuts already reaching over 15billion, further cuts of 15bn, 6bn of which will come in 2011 alone, could spell disaster for Mr Cowen as the country’s reaction are unveiled. Mr. Cowen has now given in to demands from his junior coalition partner to hold elections in January, after the 2011 budget is passed - amid fears that the government may not even last that long, despite all parties in the Republic supporting the proposed cuts.
The government is expected to present its budget to the Dail on 7 December, while bail-out negotiations are to be concluded before Christmas, on which opposition parties will undoubtedly come under huge pressure to pass the budgetary measures. This being after that the largest opposition party, Fine Gael, has so far failed to pass a vote of no confidence to replace the current political party, Fianna Fáil.
Whilst its still remains a fluid political situation, it is evident that like Ireland's public finances, the Irish government also seems to have now reached breaking point over the issue, and there remains no doubt that is the Taoiseach’s leadership is challenged; it would be a surprise if he decided to battle on.
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