Ireland Debates the Limits of Austerity

In an age of austerity, Ireland is struggling to decide what is important. Dublin has pushed through nearly 21 billion euros ($29 billion) in spending cuts and tax increases, equivalent to more than 13 percent of Gross Domestic Product (GDP). Investors have been impressed by the calm in Ireland. In contrast to Greece, Britain and Spain, there has been little social unrest.

But as the cuts continue, it's getting harder to decide what should go next. The seven-month old coalition government, headed by Enda Kenny's center-right Fine Gael party, needs to find another 12 billion euros in savings or increased tax receipts between 2012 and 2015 -- probably more if global economic prospects worsen. The cuts are required by the European Union and International Monetary Fund in exchange for 67.5 billion euros in loans. Outgoing European Central Bank chief Juergen Stark told the Irish Times this week that the country should cut further.

In its initial rush to shore up public finances, the previous centrist Fianna Fail government went after easy targets such as assistants for special needs children like Jack. The problem, as new Finance Minister Michael Noonan recently put it, is that "a lot of the low-hanging fruit has been picked."

As other European countries are discovering, the next stage will require not just tough decisions, but a complete rethink.

"We are in a situation where right across the developed world, fiscal policy is tightening and the population is going to have to get used to getting less from the government and paying more for what they do get," says Eoin Fahy, chief economist at Kleinwort Benson Investors.

DISASTER ZONES

After four years of austerity, public patience in Ireland is wearing thin.

Teachers, nurses and council workers have ended up with huge mortgages which are now worth more than their homes, while property developers and bankers have held on to gold-plated pensions and luxurious overseas holiday homes.

Many ordinary Irish see scope for more cuts. But they are also angry that the lean times have not brought a much bigger change of thinking from the go-go years of the "Celtic tiger" economy, when public spending more than tripled in a decade, while basic services barely improved.