Irish test limits of austerity

DUBLIN — For two long years, the Irish have suffered through harsh government cutbacks and tax increases that have taken a fat chunk out of their take-home pay — painful medicine to avoid national bankruptcy.

After all that, they're ready to cut some more.

Workers in other European countries with financial troubles are striking or rioting at the mere announcement that cutbacks are needed to dig out of the government debt crisis engulfing the continent. But the Irish are not protesting.

Instead, they are doubling down with more austerity.

Some economists say the decision to keep cutting back is a mistake because it will remove the stimulus of government spending from the economy, deepening and dragging out the economic slowdown. That in turn would reduce tax revenue, defeating the purpose by making Ireland's debts harder to pay.

But many people here think if they can get debt under control, their business-friendly economy could rebound ahead of Greece and Spain, financially troubled eurozone members that have higher business costs and more red tape. Irish optimists cite exceptionally strong links to the giant U.S. economy, Ireland's flair for exporting, its rock-bottom corporate tax and smoother labor relations.

There's a long way to go. Irish unemployment has tripled in two years to a 16-year high of 13.4 percent. The government's 2009 budget deficit of 14.3 percent of gross domestic product was highest in the 16-nation euro zone — higher even than Greece, which needed an international bailout to avoid bankruptcy.

Ireland's debt-to-GDP ratio has skyrocketed from 25 percent at the end of 2007 to 65 percent at the end of 2009 — less than in many other countries but an alarmingly quick increase that is forecast to continue.

More than that, Irish workers have seen incomes sink amid rapidly imposed tax hikes and benefit cuts. All workers above minimum wage have suffered a new levy on paychecks equivalent to 4 percent to 8 percent of their gross pay. Ireland's 350,000 public servants, who have the country's most stable jobs and guaranteed pensions, have been hit much harder through pay cuts ranging from 5 percent to 15 percent and a pension levy equivalent to about 7.5 percent of salary.

Now Prime Minister Brian Cowen promises three more hard-cutting budgets through 2013 that are expected to include new taxes on property and water. Despite this, three surveys show Irish consumer confidence is rising.