Living in Ireland sometimes can drive you demented. Having spent the last six or seven years slowly and painfully climbing out of the financial black hole we dug ourselves into, we now seem to be determined to slide back into trouble again. It's depressing and frustrating.

Even the humiliation of being bailed out by the IMF like a banana republic appears to have taught us nothing. We're off again down the slippery slope of spending money we don't have as the new government here prepares to cling to power.

The Fine Gael minority government which should be formed this week or next will be heavily influenced by its dependence on Fianna Fail in opposition, and on the raggle-taggle bunch of independents who will support it.

Part of the Fianna Fail price for not voting against a Fine Gael minority government is the suspension of water charges. But that's only the start of what Fianna Fail wants. And the independents also have their own list of things they want done, all of which cost money.

So the state will be paying dearly to get Fine Gael back into power. It's public money, much of which will be borrowed, and no one seems to care.

This new wave of profligacy actually started as the election got going, you may remember, with Fine Gael talking about the “Fiscal Space” that would allow much higher spending in the future.

This strange new galaxy was a place none of us had heard about before. It turned out to be the new budgetary space we will inhabit thanks to the extra revenue that is supposed to pour in as our economic recovery continues. Talk about pie in the sky!

The new government would have €10 billion or more extra to splash around in the coming years, we were told. So as the election got going even Fine Gael, the supposedly responsible party, was already promising spending increases using money that we don't actually have yet.

And we may never have it if the global economy does not improve and one of our biggest trading partners Britain votes to leave the EU. We are much too dependent on foreign (mainly U.S.) companies here to be planning future spending in such a cavalier manner (the news this week about job cuts at Intel here is a warning).

All the talk about Fiscal Space, economic recovery and our strong growth figures (much of it due to foreign companies here who have their own agendas) had an effect. It may not have given Fine Gael the election result it wanted, but it gave the public a strong message that our financial problems were over and that we could get back to where we were before the crash without delay.

This shift in attitude is already detectable in the ongoing tram drivers strikes in Dublin (they want a huge pay increase even though they are already the highest paid tram drivers in Europe). That's an example of a small group of workers holding the country to ransom simply because they can.

On a much wider scale and therefore far more worrying is the growing campaign by workers across the state -- payroll, teachers, gardai (police), health workers, and so on -- for restoration of the pay they lost during the downturn.

Despite the fact that workers in the private sector have got back little if any of what they lost in pay cuts, state workers are demanding full pay restoration. They also want their entitlement to generous guaranteed pensions retained, without having to pay a fair share of the cost of providing them.

This despite the fact that many workers in the private sector (whose taxes pay for the state sector) have seen their company pension schemes closed down or drastically reduced.

Why are so many state workers doing this? Because, like the tram drivers, they can. And they have aggressive trade union support for their demands because the public sector is the last place unions remain strong.

The reality is that, despite the ongoing recovery, our economy cannot afford huge increases in state spending which a wave of piggy backing pay increases across the state sector will cause. It cannot afford loading the cost of water services and updating our water infrastructure on to the state.

Nor can it afford many other things that are rumored to be part of the deal between Fine Gael and Fianna Fail, plus all the extra sweeteners for independents.

The exact details of the deal between Fine Gael and Fianna Fail are still unknown and may not even be worked out yet. But if the rumors we are hearing about extended mortgage interest relief to help home owners and increased rent supplement to stop renters ending up on the street are true, then we are talking about an extra couple of billion that has to be found by the state.

There is also talk about increasing health spending (even though we are proportionately among the top spenders in Europe), extra spending on the gardai because of the crime wave and gangland shootings, and a lot more state subsidizing of childcare, possibly through a tax credit scheme for parents. That's at least another couple of billion -- and that's far from all of it.

Where is the money to come from for this? That's not a question that politicians making promises out of Fiscal Space during the election campaign really answered, and it's not troubling them now as they bargain their way into forming a new government.

The priority, as always, is power. The fact that at the end of the day taxpayers will eventually have to pay for all of the improvements now being dreamed up is beside the point.

One might have expected more from Fine Gael, given all their talk about "protecting the recovery" by having prudent economic policies. Managing the situation we now face and preventing it from getting out of control is the biggest challenge facing the new government.

The fact is that the financial crisis here is far from over. We are still running a budget deficit and our debt is still growing.

If even half of the promises that are the price of forming the new minority government are implemented, it will raise serious doubts about us meeting the targets we agreed with the EU to balance the books.

Pay in the state sector is an emotive issue, and it is true that there are many low paid state workers who struggle to make ends meet, just as there are low paid workers in the private sector. But there are also many very well paid people at middle and senior level in the state sector. Rebalancing pay structures in the state sector might be better than borrowing even more to fund across the board pay increases, but there's never any discussion of that.

Instead we are now getting a lot of media stories about how poorly paid young teachers and young gardai are. But as one economist here pointed out here recently, the full facts don't bear this out.

A young garda, for example, starts on €23,750, but that's before overtime payments and allowances which mean that the average pay for a garda after one year of service is €31,000. Even without promotion after seven years that reaches €50,000. And it's much the same with teachers and nurses, for example.

The general point is that Ireland is a classic case of what Americans refer to as "big government,” where the state runs a high tax regime to fund a high spending system, on pay for state workers, state services, welfare and benefits and so on.

Even at the lowest point after our financial crisis, these state payments remained largely intact and our welfare rates, for example, continue to be among the highest in Europe and pay for teachers, for example, is at least 20 percent higher than in countries like the U.K.

The complete mess made of the attempt to introduce water charges here and the hysteria generated by Sinn Fein and, to their shame, Fianna Fail on the issue, is clear evidence of our inability to tackle a real problem here in a sensible manner. The mess is now likely to mean that desperately needed investment in our water infrastructure will not be made.

Our partners in Europe, where all countries pay for water on a usage basis and there are agreed standards for waste water treatment, must be looking at us and shaking their heads.

Ireland signed up for this, and whether we can now ignore the EU Water Directive which implements it across Europe remains to be seen, no matter what "deal" the politicians here reach between themselves on the water issue.

As we said above, living in Ireland can drive you demented at times.

An anti-water charge protest in Dublin in March.Photocall Ireland