The Irish government failed to win support from Irish trade unions for a proposed *2 billion in budget cuts on Tuesday. Undeterred, Taoiseach (Prime Minister) Brian Cowen vowed to move ahead with the government's plans to slash public spending regardless. Talks between the two sides broke down in the early hours of Tuesday morning, ahead of a key cabinet meeting, after union leaders resisted calls for pay cuts and discussions on higher pension contributions failed to secure a deal. The Irish government does not need the unions' consent to cut spending; however the failure to agree to a deal is a sign that cracks are beginning to appear in the social consensus that has underpinned Ireland's successful drive to become one of Europe's most prosperous countries. "It would be very premature to jump to the conclusion that there will be threats of industrial action," a spokesman for the IMPACT union, which represents public sector workers, told the press on Tuesday. Meanwhile credit rating agencies, which last month warned that Ireland was at risk of losing its prized sovereign rating if it did not tackle its budget deficit, told the press that they would be monitoring the implementation of any cuts without union support. "The government may well come forward with strong proposals but whether or not they can implement them will be the next question," Standard & Poor's credit analyst Trevor Cullinan said. Even with the targeted €2 billion in spending cuts, the government has said Ireland's budget deficit this year will be 9.5 percent of GDP (Gross Domestic Product), which is more than three times the European Union's 3 percent limit. Cowen said that he would introduce a pension levy on public sector workers to achieve the bulk of the spending cuts this year, in spite of failing to win approval for the measures from trade unions. "Without stable finances, there will be no economic recovery," Cowen told the Dail (Parliament) on Tuesday. Cowen also added that the government would postpone previously agreed public sector pay increases, a move which would deliver projected savings of €1 billion in 2010. Cowen also wants to cut €14.5 billion euros from public spending between 2010 and 2013, and the government has warned that the budget deficit could reach between 11 percent and 12 percent of GDP for each year up to and including 2013 without these corrective measures. The Irish Business and Employers Confederation (IBEC) group, which represented employers in the union talks, said cutting *2 billion from spending was the bare minimum. "The €2 billion proposed savings for 2009 should have been the easy part," said Dermot O'Leary, economist with Goodbody Stockbrokers. "If social partnership can't get agreement on the first 10 percent, the government must enforce its own proposals." On Tuesday afternoon the government unveiled an austerity package projected to save the government €2 billion, hours after the attempts to broker a deal with unions collapsed. The main features of the package are a pay freeze and a sliding scale levy on 350,000 public servants to help pay for their state-backed guaranteed pensions. In effect a pay cut, the levy is designed to save about €1.4 billion. Cowen told the Dail the recession-hit Ireland now faced immense challenges. "We are experiencing the most profound global economic crisis in 70 years," he said. "In addition to the effects of an international financial and banking crisis and a worldwide recession, the Irish economy is suffering from the aftermath of a large housing and construction boom and a loss of cost competitiveness after a period of sustained growth. "This is being exacerbated by the decline in the value of sterling relative to the euro which is placing extreme pressure on Ireland's base of exporting companies." Ireland entered recession during the first half of 2008, becoming the first euro zone nation to do so, after it declared negative economic growth in the first and second quarters of 2008. Cowen said the economy might shrink by up to 10 percent by 2010, a rate of contraction he has described as "without precedent." Cowen added Ireland had no choice but to lower workers standard of living further because the alternative was national bankruptcy.

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