Europe

Spotlight on the Irish economy

The visit by Olli Rehn, the European Commissioner for Economic and Monetary Affairs, to Dublin comes at a time not just of financial but also political uncertainty. As BBC NI's Dublin correspondent Shane Harrison reports, the next few weeks will be critical for both the future of the Republic's economy and its Fianna Fail-Green coalition government...

Sunday lunchtime and the restaurants in the plush areas of Dublin are full.

The rattle of cutlery and the sounds of distant conversations fill the air.

There is little sign of the impending financial and political crisis that so pervades the Irish media.

But the doom and gloom is never far away.

Olli Rehn's visit to Dublin comes less than a week after the Irish Finance minister, Brian Lenihan, indicated that he intends taking 6bn euros out of the Irish economy in next month's budget and a further 9bn euros will have to be taken out in the following three years.

That all amounts to a lot of further pain for the Irish people who have already in the last two years seen tax rises and spending cutbacks amounting to around 14.5bn euros.

All the main political parties agree that the Republic must get its budget deficit down to 3% by 2014 in line with Eurozone rules and agreements made by the Irish government with its European partners.

There is also consensus that the pain should be frontloaded.

But with a possible general election not very far away, partly because of the expected tough budget measures, there is hardly any surprise that the government and opposition parties don't agree on the detail of what needs to be done.

Image caption Olli Rehn, the European Commissioner for Economic and Monetary Affairs, is visiting Dublin

Over the last few days, a number of government backbenchers have lined up to say that while they accept the December budget must be tough they don't want to see any cutbacks to the old age pension which at 230 euros a week is more than double that in the UK.

Politicians here are reluctant to take on the pensioners, especially as grey voters are more likely to go to the polls than their younger counterparts.

The coalition has a very slim working majority that is likely be reduced in coming bye-elections.

The first of those is in Donegal South West later this month with Sinn Fein's, Pearse Doherty, favourite to take the seat.

But there is now a widespread belief that there'll be a general election next spring as the government majority fades away and backbench TDs threaten to bring the coalition down if there is a threat to their local hospitals.

The opposition parties are almost certain to win such an election even though they'll only be able to promise sweat and tears.

The political uncertainty is matched by that in the financial markets.

The Republic's borrowing costs are unsustainable in the long term.

Budget

And unless December's budget and the detailed proposals for the budgets up until 2014 calm the markets' nerves, it is becoming more likely the country will be forced to follow the Greek example and seek a bail-out from Europe and the International Monetary Funds.

The coalition is reluctant to go down the Greek road because of the perceived loss of sovereignty while others believe the Europeans may, in such circumstances, seek to get Ireland to raise its much cherished low corporation taxes that have attracted so much foreign investment.

Whatever the truth about that there is a sense of growing despondency here.

And there is a lot to be despondent about: a bank bail-out that is going to cost at least 50bn euros over a 10 year period, more than 18 months entire tax take; an expected mortgage re-payments crisis when interest rates inevitably rise; an unemployment rate of over 13%; a deeply unpopular government and rising emigration.

Ireland, with its open economy, badly needs the lift it would get from a world economic recovery. At the moment, though, there's no sign of that happening.

The Sunday diners have a lot to talk and worry about.

But at least they can take comfort knowing they can still afford to eat out. Whether they'll be able to do so in 12 month's time is a moot question.

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