The new Irish coalition government
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Added on March 6, 2011 at 22:06 Naples time
The Fine Gael and Labour 64-page coalition agreement ratified by the two  parties today aims to reduce the national deficit by cutting the 2012 budget by another €3 billion. The 3% of GDP deficit - the Maastricht limit for eurozone members - should be reached by 2015. The coalition will demand a renegotiation of the EU/IMF bailout deal. The new cabinet will be presented next Wednesday.

Article added on March 6, 2011 at 12:04 Naples time  
The leaders of Fine Gael and Labour announced today, March 6, 2011 that they had reached an agreement on key subjects including some austerity measures to take to bring Ireland back to a balanced budget as well as the terms of the joint €85 billion IMF/EU bailout accepted by the ousted Fianna Fail government at the end of 2010. Differences remain regarding the future size of the public sector, Labour being less in favor of spending cuts and keener on tax rises.

Fine Gael was the clear winner of the parliamentary election but failed to win an absolute majority of seats to form an independent government. Therefore, Fine Gael leader Enda Kenny immediately started talks with Labour leader Eamon gilmore to form a coalition government.

Fianna Fail has dominated Irish politics since 1932 but lost 57 of its 77 of its members in the Lower House of parliament in the 2011 election; with 20 seats, it is now Ireland's third largest party. The brutal austerity measures adopted in December 2010 was the last nail in the party's political coffin.

Fianna Fail has been key in ensuring Ireland's economic unprecedented progress in the last decades. Ireland was a real Celtic Tiger, before succumbing to the temptations of easy money with the 2002 introduction of euro coins and banknotes (as an accounting currency, the euro was already introduced in 1999). Subsequently, the country went on a downhill slope, carried away by a gigantic property speculation casino.



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The new coalition government formed by Ireland's two largest  parties, Fine Gael and Labour, has a very small room for maneuver despite its clear majority in the Lower House (Dáil Éireann); in the 166 Dáil, Fine Gael controls 76 seats (+25), Labour 37 seats (+17).

The Irish parliament has shifted to the left. But there is nothing left to distribute. It is no time for the nanny state. The unemployment rate stands above 13.5%. But there comes a point where further budget cuts do not make much sense either. A moderate tax increase may well be the better solution for both the Irish budget and the Irish economy. It is just important to keep the increase limited enough in order not to hamper Ireland's comparative advantage of low taxes. Anyway, it will take years for the Celtic Tiger to recover from the real estate bubble and bailout of reckless banks.

The 6% interest rate to pay on the gigantic and misguided banking bailout is a heavy burden. The “rescue package” did not save the banking mess, but dragged down the Irish state as well as the Irish economy as a whole. Now both the private and the public sector are in distress. The Irish economy will still consolidate aka shrink further in 2011. With rising oil prices, the outlook is grim. The times of austerity are far from over. The details of the coalition deal to be published later today, March 6, will help to better assess Ireland's future.

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