Reviving the economy - Cuts will hit every home and business

LESS than two hours before Brendan Howlin announced €1.4 billion spending cuts in the Dáil yesterday afternoon, a lunchtime meeting began in Paris that will, over time, have a far more profound impact on this society, our economy and the kind of ambitions we can imagine for our children.

German chancellor Angela Merkel and French president Nicolas Sarkozy continued the discussions that will come to some sort of climax this Friday when European leaders meet at the 16th summit since the current euro crisis began. There they will present proposals for a revised EU treaty to facilitate the imposition of strict disciplinary measures and sanctions for eurozone governments.

Mr Sarkozy said they would prefer if all 27 member states approved a new treaty, but would accept one agreed by the 17-member eurozone.

Any such change would probably be subject to a referendum here and the challenge of having it endorsed by an electorate grown weary of very high unemployment, austerity measures and the terrible cost of rescuing banks after private gambles failed should not be underestimated.

There was an indication yesterday that, if the proposals were agreed on Friday, German objections to further ECB intervention in the bond market might be overcome.

There was also a hint that the French view that bondholders accept some losses would prevail. Both of these shifts should be good news for Ireland.

Irrespective of what was agreed in Paris — or what might be settled later this week — our Government had no option but to make the kind of cuts that might push our expenditure towards a figure more in line with our income.

Unfortunately, many more will be imposed before some sort of manageable position is eventually reached. It is unlikely that next year’s budget will be able to ignore the potential offered by income tax increases or cuts to basic welfare especially as early indications suggest a €600 million welfare cut has been earmarked for next year.

Minister Howlin’s package — and Finance Minister Michael Noonan’s announcements today — will hit most families, individuals and businesses but, as we all know, those cuts are unavoidable and have been for some time.

Some of the more speculative suggestions — €10 off all child benefits and €50 a year medical card charge — did not materialise though the change regarding redundancy payments was far more severe than anticipated. Cutting the rebate figure for employers from 60% to 15% will mean some workers will be left high and dry by bankrupt employers.

The recognition of the great crisis in mental health care by providing an extra €50m in the area is welcome though no one can be happy that our commitment to overseas aid has been cut by just over €50m — there are millions far worse off than we are — is at the very least unfortunate.

In the face of ever more violent crime, it is not reassuring that Garda funding will be cut by €79m as a result of payroll and pension measures as well as the closure of stations.

The suggestion from the VHI that new arrangements regarding private beds in public hospitals will add 50% to premiums will anger and worry many.

It is of little immediate comfort but this process is part of reaching the targets that will allow us the comfort of continued EU protection and, as recent events have shown, we could not survive without that protection, even if it comes at a very heavy price.

It may seem strange to greet such a difficult budget, especially when seen in tandem with yesterday’s news from Paris, with a degree of optimism, but it does include some of the hard decisions needed to rejuvenate the economy. It would have been more convincing if an early review of the Croke Park agreement had been announced as it is hard to see how the spectacular protections it affords might survive under any set of disciplines the EU might impose should Friday’s vital meeting be successful.

The sad reality is that we are broke, we have lost our economic independence, and without firm but fair budgeting we could lose so much more. It may not be pleasant but hopefully a step towards restoring sanity to our public finances has been taken. Agreement on Friday about how to save the euro could turn that hope into something close to a certainty.