The Taoiseach of the Republic of Ireland, Brian Cowen, has a paper-thin majority of a mere three seat in the Dail, Ireland’s parliament. Its junior coalition partner, the Green Party, is already threatening to pull out and force a general election, unless Cowen agrees to call new elections by late January. Whether or not the current Irish government is forced into an immediate dissolution of the Dail, or agrees to new elections in January, it faces certain retribution at the hands of an increasingly irate and depressed Irish electorate.
There are two primary causes to the soon-to-be finale of the Cowen government. The first involves the disastrous management of the Irish economy and its acute financial crisis. Reckless speculation by the Anglo-Irish Bank created one of the worst banking crises amid the global financial crisis of 2008. As in other countries facing a similar predicament, the Irish government used the taxpayers of the nation as a backstop for the banking system. In effect, the troubled institution was nationalized, and the entire banking system had its deposits and obligations underwritten by the government, meaning the taxpaying citizens. The net effect has been an ever-escalating figure for the cost of bailing out Anglo-Irish Bank, and the concomitant public obligation to cover the surreal expenses of the banking bailout. While the banking system was being “saved,” the ordinary citizens of Ireland have been punished with higher taxes in synchronization with sharp cuts in social appending, as the unemployment rate reached historic highs.
Despite the cuts in public spending and tax increases, the cost of the bank bailout and the increasing spreads on government bonds defied the ability of a nation of four and a half million people to cover such a large fiscal obligation. Yet, when word leaked out regarding the secret negotiations between Dublin, the EU, IMF and European Central Bank over the terms of a bailout of Ireland itself, the Cowen government at first sharply denied the widely circulated accounts. It turns out that the Cowen government was lying through its teeth, and has now openly admitted to the need for an EU bailout of the Republic of Ireland, to the tune of at least $120 billion.
With Ireland already confronting an annual deficit equal to about 35 percent of its GDP, the even higher levels of tax increases and public spending cuts the EU and IMF bailout will require, on top of the emergence of political instability, point to the meager prospects for the long-term future of the Irish economy. Her sovereign debt crisis is now clearly of catastrophic proportions, and the Irish nation is facing the very real danger of a sustained economic implosion.
First it was Greece and now it is Ireland. In each case, the European policymakers boasted that their massive binge of public borrowing to put together sovereign bailout packages has saved the continent from a much worse financial and economic disaster. But given their track record, how certain can we be that Portugal and Spain won’t be the next dominos to fall? The financial and economic disarray within the European Union appears to be metastasizing rapidly.