By: Dr. Mike Campbell
With confidence gradually creeping back to the Euro after the extension of the EU-IMF safety net to Ireland and the ECB making it clear that it will continue to buy bonds from Eurozone states, today sees a crucial vote in the Irish parliament. The parliament will take the first vote on the austerity budget proposed by the ruling party.
The governing party, Fianna Fail, has a wafer-thin majority and if the budget vote is defeated, it would trigger a snap election and simultaneously put the EU-IMF bailout funding on hold. If the austerity budget vote is passed, then it would cause the first tranche of the EU-IMF support to be released. Clearly, any other outcome is likely to trigger further Euro uncertainty and re-kindle fears of “contagion” of the sovereign debt crisis to Portugal and Spain in the near-term.
One of two independents supporting the government has made it clear that he will support the budget, in the national interest. It remains to be seen if the opposition will block the budget in view of the chaos that such a move would trigger in the country and in the wider Eurozone region. The Irish PM has made it clear that he will call a general election in the early part of 2011, in any event.
The budget will involve reductions in welfare spending, increased taxes and extension of tax to more people. The minimum wage will also be cut and public sector pay will be frozen. The aim is to save €15 billion over the next four years to repair the damage done by the bursting of the Irish property bubble and the associated near collapse of the financial sector.