With a two to one majority voting in favor, the Lisbon Treaty was approved by the Irish people in a referendum last Friday.  This provoked a muted euphoria in government circles here at the weekend.   

At least we had been spared the embarrassment of becoming the bad boys of Europe at the very time when our day to day bills are being paid by the European Central Bank. 

But this week it's back to reality, and there's nothing to be even mildly euphoric about, either for the government or anyone else in Ireland.   The Lisbon Treaty will make the European Union a more efficient entity that will benefit us all in the long term. 

But it does nothing to solve our immediate problems.  And those problems have now reached a scary level.  

Figures released here last week showed that tax revenues have collapsed even further, mirroring the continuing contraction in the Irish economy.  The figures cover the first nine months of the year up to the end of September. 

For example, comparing September 2009 with September 2008, income tax receipts were down almost 28%.  You don't have to be an economist to see that's really scary.    

Overall revenue is way below what the government was expecting, so we are borrowing even more than before to keep going. 

In the Bord Snip report a few months back, the report which identified cuts in state spending we should make, the economist Colm McCarthy said that we were borrowing €400 million ($587m) a day just to pay for day to day state spending.  That figure shocked everyone at the time and showed how urgent it was to start cutting back.   

But now it's even worse.  Last week's figures showed that we are now borrowing over €500 million ($734m) a day to bridge the gap between tax revenue and the cost of day to day spending on schools, hospitals, welfare and all the other areas of state spending.  All that money is coming to us from the European Central Bank.   

So if you're wondering why such a big majority of Irish people voted yes in the second referendum on Europe last Friday, now you know.  It was fear, pure and simple. 

Fear of what might happen if we turned our backs on Europe. Fear and a realization that without Europe we would already have gone belly-up like Iceland.  And a realization that support from Europe will continue to be vital to our survival in the months and years ahead. 

So although there was relief in government circles this weekend, there was no triumphalism.  There are grim days ahead, and the Taoiseach (Prime Minister) Brian Cowen knows that.  

Now that Lisbon is out of the way he has no reason not to take action.  Up to now there has been lots of talk about the need for cuts, but little real action, partly because the government did not want to upset voters before the Lisbon referendum was safe.  

But now we're in for it, and it's going to be even worse because of the decline in tax revenue shown in last week's figures.  The budget in December was supposed to take around €4 ($5.87)billion out of state spending.  Now it will have to be even tougher if the government is to keep to the deficit guideline agreed with Europe for this year. 

Cutbacks will have to be even deeper to match the steeper falls in revenue that are now happening.  It's going to be such a draconian budget it will make previous tough budgets look like giveaways.

First in the firing line will be the pay and pensions of state sector workers, who on average earn far more than their counterparts in private industry.  Unlike private sector workers, they have been only slightly affected by the bust in the economy, and that cannot go on.  

But the unions are preparing for a fight, threatening to bring the country to a halt if they have to.  The state sector, with its close to half a million workers, is the only part of the Irish economy where the unions remain strong.  

They know there is no money, but they point to the billions being borrowed to prop up our banks and say, why not us?    

To make the point, the unions are getting ready to mount a combined campaign against any pay or spending cuts, with a national day of action next month. And the head of the biggest union in the country has threatened widespread industrial action if a 3.5% increase promised last year, before the economy went into freefall, is not delivered.

And yes, you heard that right.  They want an increase, even though the country is bust. 

This is fantasy stuff, of course, because they may want pay increases but what they are going to get is pay cuts.  The exchequer deficit is already running at over €20 ($29.36) billion this year, which is twice what it was at the same time last year.  

By the end of the year what it will be does not bear thinking about.  Public sector pay is one-third of all government spending, so it should be cut back in line with the fall with revenue.

Another one-third of state spending is on welfare, and that will have to be cut back as well.  The cuts will hit all benefits, from payments to people out of work to the various state payments (like child benefits) that are paid even to people who not only have jobs, but may be well off.  

All of this will be hugely controversial because of the scale of what is involved.  Cuts of four or five billion out of total state spending of around €30 ($44.04) billion means a real diminution in state services that will hurt everyone.  

Getting the public to accept this will be an enormous challenge, and already some commentators are worrying about public protests or even riots. 

There is also real concern that private sector workers, many of whom have seen their earnings slashed and their pensions vanish, will get into conflict with the protected state sector workers with their high pay and guaranteed pensions.  All it would take is opposing protest marches on the same day. 

That may be alarmist, but it is not impossible.  There is huge pent-up anger in the population here right now. 

And getting people to accept major cutbacks is going to be even harder for the government now because of the ongoing publicity about the inflated salaries and expenses that so many people at senior level in state organizations here have been getting.  

In particular, there is a big dispute about the outrageous expenses claimed by the current chairman of the Dail (Parliament) John O'Donoghue which have been exposed in the media over the past week.  He had been in trouble before because of his lavish spending (of public money) on five star hotels, limos and so on while he was minister for the arts.  

The excuse then was that, however objectionable, such lavish spending had become the norm during the boom.   But now it has emerged that he continued his expensive habits over the past year or two even after the boom turned into bust. 

It reminds me of the way the fat cats at the top of the old Soviet system lived in luxury while there was nothing in the supermarkets for the ordinary people.   You can expect to hear about O'Donoghue's resignation any day now.   

Cowen needs to send out a clear message that we are all in this together, and there is no place for a cosseted elite at the top.  He could start with O'Donoghue.