Very bumpy ride ahead as budget looms large

BRIAN LENIHAN moved to put a floor under the economic freefall last night — but after so many false figures, can anyone believe him?

The subtext of his mantra was that the worst is yet to come — hardly the rallying cry we wanted to hear.

The Finance Minister insisted growth would average 2.75% down to 2014 taking into account the €15bn that will be sucked out of the economy via spending cuts and tax hikes — but his department has been so repeatedly wrong in the past it is probably best not to bank on it to heavily.

Added to the €14.5bn already “adjusted” for in taxes and cuts, it is a massive hit for an economy our size to take — especially as Ireland has experienced the greatest contraction of any industrialised nation since the 1930s.

Mr Lenihan pledged hospitals and schools would not have to close as a result of the cuts, but made it clear everyone’s standard of living would suffer as the country races to try to reduce the deficit to 3% of GDP by 2014 in line with EU demands.

The Finance Minister dismissed suggestions Europe is now making the key decisions over the Irish economy, but that is the unmistakable impression left by the rush to “significantly front load” the bad news in the December 7 budget to keep Brussels and the international money markets sweet.

EU Monetary Commissioner Olli Rehn will be in Dublin in early November to discuss the situation with Government and opposition ahead of the publication of details of the four-year plan to bring the deficit down.

Mr Lenihan may be the one standing up in the Dáil on Budget Day saying on which particular welfare benefits, health programmes and educational initiatives the axe has fallen, but the broad thrust of it will already have needed the seal of approval from Brussels in order for the Government to return to the markets in the first quarter of 2011 to borrow the money needed to keep the lights on at home — running at €20bn per year.

On to this can be added the €1.5bn a year needed to service the bank-bailout as the follies of the boom and the crash come home with a vengeance.

If the markets continue to see Ireland as a bad risk then the interest rates could make borrowing prohibitive which would bring the spectre of an IMF intervention — and its inevitable tearing up of the Croke Park deal and much else beside — to loom in earnest.

Though Mr Lenihan’s remark that Croke Park needs to be “deepened and broadened” could be viewed as ominous by unions.

If the finance department has got its figures right finally and the modest predicted growth rates are achieved they will not be enough to make any real dent on mass unemployment, marking the main difference with opposition parties who insist a job creation stimulus is the only credible way forward.

Fine Gael and Labour look likely to soon have to prove they can put their words into actions as this is almost certainly going to be the FF/Green Coalition’s last budget.

Hold on tight, it’s going to be a very bumpy ride.