As furious Irish blamed their prime minister, Brian Cowen, and his party Fianna Fail for the disastrous condition of Ireland’s finances, the government unveiled its four-year austerity plan on Wednesday, which included the take over of two of the country’s largest banks.
The Irish Independentreported that talks were underway to inject more government capital into the banks, Allied Irish Banks and Bank of Ireland, whose shares have plunged; action may come as soon as this weekend. AIB has seen share value plummet 73% since the beginning of 2010. Bank of Ireland’s value is now less than a tenth of what it was during the Celtic Tiger’s boom.
The austerity plan will cut public assistance by around 10 billion euros and raise taxes to the tune of 5 billion euros. It will slash unemployment benefits and the minimum wage, according to a Reuters report, cut public sector pay, and drop public employees. A property tax will be initiated and many more workers will be subject to income tax. However, the low corporate tax rate of 12.5%, a source of anger in other euro zone nations who see it as unfair competition, will remain untouched.
Cowen also said Wednesday that there would be no general election till February or March, according to the Irish Independent, “because of the complex process of passing all elements of the budget.” The opposition has been calling for Cowen to step down, but he intends to see the budget passed first so that the rescue package can proceed.
The Irish are already beleaguered by two tough years of rising unemployment, falling home values, and cuts in government spending. There are rumbles from the opposition about the budget to be voted on Dec. 7. Those rumbles are causing concern throughout the euro zone, as other nations worry that failure to adopt the budget will halt the rescue package currently under construction by the European Union (EU), European Central Bank (ECB), and the International Monetary Fund (IMF) and the euro itself could be in danger.
That currency fell to a two-month low against the dollar, according to Reuters, over concerns of contagion of the Irish debt crisis and over the outbreak of hostilities between North and South Korea on Tuesday. The situation was not helped by the downgrade of Ireland’s credit rating two notches, from AA- to A, by Standard & Poor’s; its outlook is negative.
Gold, which usually drops when the dollar is strong, has been holding relatively firm despite the fact that the dollar hit two-month highs compared with several currencies; gold is also up against the euro, and has hit its highest level since early June.