Ireland's pain

Today is Good Friday, a day of pain and suffering in the Christian calender. On Easter Sunday, that pain turned to joy as Jesus rose from the dead.

The Easter story of death and resurrection has always had a strong hold on my thinking — at least symbolically. We may fall, but we have the power to rise again, in a wide variety of ways and circumstances.

For Ireland, a country where Christianity has traditionally been strong, a large dose of secular pain and suffering came three days ago. On Tuesday, finance minister Brian Lenihan presented an emergency budget aimed at getting Ireland out of its current economic mess. The summary is simple: taxes are going up dramatically to restore investor confidence.

Few countries have seen such a dramatic turnaround in their fortunes in recent years as the Celtic Tiger. Growth rates of six per cent a year up to 2007 have turned into a predicted contraction of eight per cent in 2009.

Unemployment is around 12 per cent, and this year's budget deficit is forecast to be more than ten per cent of gross domestic product. The normal limit for eurozone countries is three per cent.

Ireland is paying the price for past successes and excesses. Low taxes and open borders encouraged money and people to flow into the country. Fuelled by eurozone interest rates that were too low for the overheating Irish economy, the construction sector boomed and house prices went through the roof, so to speak.

Irish taxpayers are now being asked to pay the price for cleaning up after the party:

• Through a four per cent levy on for people earning more than €75,000 a year, rising to six per cent on earnings above €175,000.
  
• Through paying for government borrowing to take over up to €90 billion of bad loans from banks, many to the property sector. These loans will be held in a "national asset management company" (or "bad bank").

The danger is that higher taxes will depress demand and deepen the recession. The bank bail-out has also been criticized by experts for making taxpayers, rather than bankers and bank shareholders, pay the price for irresponsible lending in the past.

There is much pain and suffering ahead for Ireland. The joy may come at some point, but at the moment it looks a long way off.