Irish Eyes Are Crying, Part 10

Ireland's new austerity plus budget (the plus is a healthy dose of serious pain) is expected to be approved today, as thousands of Irish will be made to pay a dear price for the excesses of the country's banks.

The budget will be the toughest of four austerity plans designed to save 15 billion euros — nearly 10 percent of the country's annual economic output — and get the worst budget deficit in the region back within EU limits by 2014 or 2015 at the latest.

Cowen will push through some four billion euros in spending cuts next year, with social welfare benefits, public pensions and capital projects all set for the chop.

Tax adjustments will make up another two billion euros with roughly half of the additional revenues coming from lowering income tax bands and tweaking tax credits, allowing the government to target the 45 percent of Irish adults, on lower incomes, who did not previously pay income tax.

Some economists have warned that such vicious cutbacks, on the back of two years of austerity, risk tipping Ireland into a prolonged downturn that make its debt targets even harder to achieve.

"This is about the distribution of pain," Michael Lowry, an independent MP, told reporters after confirming he would support the 2011 plan.

Lowry's thumbs up and the expected support of another independent MP mean that Cowen will get his austerity measures through parliament despite having a majority of just two.

And these are vicious cutbacks.  Here in the US cutting 10% of our GDP from the budget would be slicing some $1.5 trillion dollars or so.  Basically it would be the equivalent of submitting a zero deficit balanced budget for fiscal 2012, made up entirely of social spending cuts, Social Security cuts, and eliminating the standard deduction on income tax and getting rid of the minimum limit on taxable income.

Remember, it was Ireland's banks that failed.  The country had almost no public debt until it had to take it on in order to save them.  It wasn't Ireland's taxpayers who were living beyond their means here, but the bankers.  Now Ireland's deficit is some 32% of GDP and it's the average taxpayer there who is going to suffer tremendously to pay this bill off.

Cowen is done for, of course.  But I'm not altogether sure this budget is going to pass.  If it doesn't, it's going to be a hell of an ugly Christmas in the Eurozone.