Austerity and a Rumored Bailout Put the Ire in Ireland

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Peter Morrison / AP

Officials in Dublin have denied that the debt-burdened nation had asked for a bailout from the European Union, as was widely reported in the media

Seamus Butler's epiphany — the instant he foresaw the bust coming in the wake of Ireland's boom — came in 2006. The businessman walked into his local bank in Longford, a market town in the Irish midlands, and saw a sign asking this question, "Have you thought of taking a holiday?" So eager were Irish banks to extend cheap credit that they proposed giving loans to customers to spend on intangible and unrecoupable pleasures in foreign economies. "The Irish certainly know how to party," says Butler, the founder and managing director of Butler Manufacturing Services, a sewage- and wastewater-treatment company. "But just because it's available doesn't mean you should take it."

After the excess, the sickness. For some time now, Ireland has looked distinctly emerald green around the gills as its government struggles to rein in debt, businesses fail and its citizens gasp from the stench emitted as the property bubble burst. A four-year economic plan, due later this month, and a brutal austerity budget, to be put to a vote on Dec. 7, aim to reduce the budget deficit, which, if the cost of bank debts is included, amounts to 32% of GDP and boasts the dubious honor of being the highest in the euro zone. No wonder a spate of rumors that Ireland plans imminently to apply to the European Union for a bailout continue to circulate, despite vigorous denials from ministers. "There are no negotiations going on. If there were, the government would be aware of it, and we are not aware of it," insisted Justice Minister Dermot Ahern, speaking on a TV discussion program on Nov. 14. "There is nothing going on at the direction of government in relation to this ... Absolutely nothing is taking place in respect of this."

The truth would seem to be a bit more complicated. Finance Ministers from the 16 countries signed up to the euro were to meet Tuesday in Brussels to urgently discuss how to restore economic stability; some countries want Ireland to take a bailout, believing it will help limit the damage before it deepens the strains on their own economies. Irish officials have been looking into all avenues including seeking help from the European Union or the IMF, even though they have not applied for emergency assistance and hope to avoid doing so. Reckless spending — at personal, institutional and government levels during a long run of fat years — has left the Irish struggling with debt. The cost of insuring that debt has risen to unsustainable levels, fueling fears of a contagion that could further weaken the fragile euro zone economies, such as Portugal and even Spain.

Whereas many European countries flinch from the sting of austerity they have yet to feel, swaths of Irish high streets are already battered and boarded up; few families are untouched by a rapid contraction that has seen businesses close and workforces contract. Yet the Irish government insists that no bailout is needed and that the country is "fully funded" until July. The markets remain skeptical, and the Irish electorate doesn't necessarily believe these reassurances either. "I'm not saying they're lying. I'm just saying they're not telling the truth," says a Dublin cab driver.

The governing coalition led by Fianna Fail retains only a tiny majority and a fraying benefit of the doubt after the turbulence. A by-election later this month is predicted further to erode its authority, and passing the budget may prove a struggle. One of Ireland's major newspapers recently called for an immediate general election. "It has become a vital need of the Irish State ... to achieve a new mandate for government that will allow the shaping of a plan that satisfies the people of this country that they have clear leadership and know where they're going," declared the Irish Independent on Nov. 9. Butler disagrees: "What's important is to get this budget through, whatever happens afterwards."

That's certainly what the incumbent government argues, and if the markets are febrile now, it's hard to imagine how they would respond to the prospect of a snap election. Yet it's also obvious that change will have to come from somewhere if the country is to get back its mojo, its confidence and a smidgen of the positivity that got it into trouble in the first place. Without confidence, at home and abroad, recovery seems a distant prospect.

Still, Butler spots a few reasons to be cheerful. The "froth" has been washed away, he reckons, and the solid businesses that are left will survive. He recalls Warren Buffett's acerbic comment that you only find out who is swimming naked when the tide goes out. "There was a hell of a lot of skinny-dipping going on around these parts," says Butler. "But we've learned, and we'll get through this."