Battling to shore up economy at home and abroad

Attempting to frame a budget against the backdrop of extremely difficult economic conditions and the threatened meltdown of the US and global banking system will make Minister for Finance Brian Lenihan"s job on 14th October one that few, in any, politicians would relish. The country is being softened up bit by bit each week for what is being termed a 'bloodbath" budget that will see as much as €2 billion cut from Government spending as the minister attempts to bridge a gaping €7 billion hole in the public finances. The shortfall is expected to be made up throughout increased borrowing. The scene is now set for the toughest budget since 1983, all of 25 years ago, a period when Ireland was also officially in recession. Last Sunday, the Cabinet met for up to six hours to discuss fresh budgetary cuts and a further extraordinary meeting is expected to take place this coming weekend in the run-up to budget day. Such unprecedented gatherings of senior ministers give an indication of the scale of the difficulties the Government faces and the unpalatable decisions it will have to make. The coalition"s first priority is to bring spending into line with the much reduced revenue it is garnering from a substantial shortfall in taxation receipts. Income tax rises for those on the top rate of tax are also not being ruled out, although this move would be a deeply unpopular one. In terms of borrowing, the Government may run into difficulties and large fines from Brussels if it attempts to borrow more than three per cent of the annual value of the economy, the so-called EU budget defecit ceiling which eurozone countries are not permitted to breach. With the huge shortfall in property taxes, VAT and income tax it is now facing, Mr Lenihan has acknowledged that Ireland could well breach the three per cent rule this year, and it may well do so for several years to come unless there is a significant upswing in the economy in the meantime. As the Government considers just how to balance the books as the exchequer figures continue to deteriorate, it finds itself also having to deal with the fallout from the most serious global economic crisis since the Wall Street Crash of 1929, which is spreading with frightening speed across the Atlantic and hitting banks in Europe, several of which have had to be rescued from insolvency by their governments in recent days. The Government has moved quickly this week to guarantee all deposits in all Irish-owned banks, which will also cover all money borrowed by Irish banks from other financial institutions. Effectively, the taxpayer is guaranteeing all the capital of the country"s major banks, with the exception of those which are controlled by foreign-owned parents. The two-year guarantee is being provided on commercial terms to the institutions, though much of the detail has yet to be worked out. This move has been widely welcomed as providing some comfort for worried Irish depositors and the Irish stock market has reacted positively to the news. While Irish banks do not have any significant exposure to the 'toxic" sub-prime mortgage securities that are at the centre of the global credit crunch, many are heavily exposed to the Irish property market and over-borrowed developers as a result of reckless lending practices. They are also finding it increasingly difficult to access funding as the credit markets remain frozen and the failure of the US Congress to agree to its government"s bailout for the American banking system on Monday has only added further to the difficulties. The Irish Government has done the right thing by giving this guarantee in the interests of stabilising the Irish economy and helping to secure a stable financial sector, which is in the best interests of the Irish people. However, the taxpayer - who is now the ultimate guarantor of the banks - has a right to know what it is getting in return for a guarantee that is potentially worth 10 times the national debt and has been described by Labour Party Eamon Gilmore as 'betting the country on the banks". Who"d be a Minister for Finance right now?