Irish economy nears collapse

DUBLIN — It took a few minutes for me to realize that something unusual was happening on the weekly RTE television program “Questions and Answers” on Monday.

This program brings together a panel usually consisting of a government minister, a member of the opposition, a trade unionist, an academic and a journalist. It often results in cross-talk, even shouting, as participants try to make their points on the issues of the day.

What was different this time: The guests were listening to each other in dead silence. There were no interruptions. It was as if the topic, the collapse of the Irish economy, was too serious for the usual banter and crossfire.

The academic on the panel, former Limerick University President Ed Walsh, struck the most somber note.

“This is the greatest crisis the country has faced since it was established” in 1922, he said. “We are the most unstable financial state in the European Union. This is a life and death situation.”

Just how grave the crisis has become was outlined by Deputy Prime Minister Mary Coughlan, who pointed out that Ireland’s spending for this year is currently running at 55 billion euro ($73 billion) while revenues have plummeted to 35 billion euro ($47 billion). She warned that 2 billion euro must be cut in spending in the coming months while the government borrows the rest.

The somber discussion that followed brought home to viewers how close the country is to financial meltdown following the bursting of the housing bubble and a crisis in the banks.

A mood of doom and gloom also emanated that day from a conference of 200 economists at University College Dublin, on “Responding to the Crisis.” Their consensus, articulated afterwards on news broadcasts by Philip Lane, professor at Trinity College Dublin, was that public sector pay — the wages of doctors, nurses, police officers, teachers and civil servants — would have to be cut by 10 percent.

A union leader responded to the suggestion that wages should be cut by warning of widespread industrial action. But the situation was so serious, conceded Dan Murphy, general secretary of the Public Service Executive Union, that unions would try to be constructive.

Murphy said he feared that the International Monetary Fund would be brought in if the government failed to control finances, and that would mean “mass dismissals from the public service and pay cuts for the remainder along with cuts in pensions.”

UCD economist Morgan Kelly, one of the few in his much-maligned profession to warn of the consequences of Ireland’s building spree, predicted to his fellow economists that house prices could fall by 80 percent from their peak. More than 20 percent of the 110 billion euro given in bank loans to developers during the construction boom might never be recovered, he added.

The Irish people are becoming angrier with their politicians for allowing such amounts to be squandered.

The disclosure last week that Beverley Flynn, a member of the government party, Fianna Fail, was (legally) drawing an extra 40,000 euro a year expenses as a former independent, caused such an outpouring of fury on radio talk shows that she was forced to give it up.

Politicians’ generous expenses are now coming under close scrutiny. Last month the head of a government department had to resign in the face of similar outrage sparked by his boast on radio that he was entitled to fly first class around the world.

Bankers, too, are feeling the cold blast of public anger. The chief executive of the Bank of Ireland, Brian Goggin, who received a record 4 million euro in salary and bonuses in 2007, is widely expected to be the first bank executive to resign voluntarily.

In December two of Ireland’s top bank executives, Sean FitzPatrick and David Drumm, chairman and chief executive of Dublin-based Anglo Irish Bank, stepped down over the non-disclosure of 80 million euro in loans from the bank to FitzPatrick. Ireland’s financial regulator, Patrick Neary, announced his retirement following an inquiry that found the Finance Minister was not informed immediately when the loans were discovered.

At stake in the coming days is the future of Ireland’s public partnership, under which government, employers and unions agree each year on pay scales, thus reducing the prospect of industrial unrest.

The argument for pay cuts is gaining ground, however, especially as a way to enhance the global competitiveness that Ireland needs to survive: Ed Walsh claimed that public service pay levels in the Republic were 30 percent higher than in neighboring United Kingdom and would have to come down, perhaps by 20 percent.

Prime minister Brian Cowen is himself a case in point: He earns 310,000 euro ($411,000) a year, compared to 127,000 pounds ($185,000) for the British prime minister and $400,000 for the president of the United States. Given the public mood, he himself is the first in line to take a considerable pay cut.