Relations between the Catholic Church and the Irish State have hit an all-time low after the Dublin government announced that it is to close its embassy at the Vatican.

A Reuters report stated that Vatican officials were "stunned" by the decision.

"This is really bad for the Vatican because Ireland is the first big Catholic country to do this and because of what Catholicism means in Irish history," said a Vatican diplomatic source.

Irish Churchbosses have reacted with dismay to the news, confirmed by Minister for Foreign Affairs and Deputy Prime Minister Eamon Gilmore.

The Labor Party leader has repeatedly claimed in media interviews that the move is a cost cutting exercise with the Irish embassy in Iran and a consulate office in East Timor also to close.

But Catholic Church leaders are convinced the closure is the latest response by the Government to the row between Prime Minister Enda Kenny and the Holy See over the Church’s attitude to the report on clerical sex abuse in the Cork diocese of Cloyne.

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Kenny gained headlines across the world when he attacked the Church’s failure to co-operate with government agencies investigating widespread claims of clerical abuse in the Cloyne diocese.

The decision to close the Irish Embassy to the Holy See in Rome, at a potential saving of one million dollars a year, is seen as another affront to the Catholic Church.

The decision is just the latest blow to a deteriorating relationship between Church and State. Just weeks after Kenny’s attack, the Vatican recalled Papal Nuncio, Dr Giuseppe Leanza, from Dublin. He has yet to be replaced.

Catholic Primate of Ireland, Cardinal Sean Brady, and Archbishop of Dublin, Diarmuid Martin, have both condemned the decision to close the Vatican embassy.

“My reaction is one of profound disappointment at the closure of the Irish Embassy in the Vatican,” said Cardinal Brady.

“The decision means that Ireland will be without a resident Ambassador to the Holy See for the first time since diplomatic relations were established and envoys were exchanged between the two states in 1929.

“I know that many others will share this disappointment. This decision seems to show little regard for the important role played by the Holy See in international relations and of the historic ties between the Irish people and the Holy See over many centuries.

“It is worth recalling that for the new Irish State, the opening of diplomatic relations with the Holy See in 1929 was a very significant moment.

“It was very important in asserting the identity and presence of the Irish Free State internationally in view of the fact that Irish diplomatic representation abroad was then confined to the legation in Washington, the office of the high commissioner in London, the permanent delegate to the League of Nations, and the Embassy to the Holy See.

“I hope that despite this regrettable step, the close and mutually beneficial co-operation between Ireland and the Holy See in the world of diplomacy can continue, based on shared commitment to justice, peace, international development and concern for the common good.”

The Irish government has denied that the decision to close the embassy has anything to do with the Cloyne Report and is based solely on economic necessity.

Foreign Affairs Minister Gilmore said: “The key consideration was obviously where we could make savings. I was anxious to retain resident missions in countries where there is a clear economic or trade interest.

“We’re not breaking off diplomatic relations with the Vatican. We have diplomatic relations with a large number of countries where we don’t have resident embassies. We informed the Vatican after the decision was taken by Cabinet.”

The building which housed the embassy, valued at $40million, will now play host to Ireland’s Italian embassy, currently located in rented accommodation in Rome.

However the Vatican will not accredit any ambassador who is also accredited to the Italian government.

The head of the Department of Foreign Affairs in Dublin will now look to maintain diplomatic relations with the Vatican.

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