Back in 2009 when Ireland was teetering on the edge of bankruptcy after the crash, the then Fianna Fail government was struggling to find enough money to keep state services going in the schools, hospitals and so on.  Tax revenue had collapsed as the economy went into a catastrophic slide.   

One of the immediate challenges was finding the money every month to pay teachers, nurses and all the other people on the state payroll.  

State pay was not the only area where drastic cuts in state spending were necessary, of course.  After the bailout in 2010, a new austerity regime was imposed as the EU and the IMF took control here.  Savage cuts were made in many areas of state spending, with services reduced and public housing and other infrastructure projects halted.   

But the size of the state payroll was a particular problem.  Thanks to the dubious "benchmarking" system (supposed to match public service pay with private sector pay) the state payroll had mushroomed since 2000 under Fianna Fail governments.  It was a deliberate strategy by Fianna Fail to keep them in power by buying the votes of workers across the state sector.  

The result was that when the crash came, we had among the highest paid public service workers in Europe.  Teachers, for example, were being paid around one-third more in Ireland than in the U.K. and elsewhere in Europe.   

But cutting back was always going to be difficult because the unions, not just in teaching but in all parts of the state sector, were extremely powerful and strikes which would cripple the country were a real danger. 

So the government back in 2009 looked for an easy way out.  The solution was to avoid any heavy pay cuts for existing state workers, but to make sure that all new entrants to the public service would be hired at significantly lower pay rates.  The unions at the time, determined to maintain the high pay rates of their existing members, agreed to this strategy.     

In teaching, for example, the result was all new teachers hired in the years after 2010 were taken on at lower pay rates.  And this has led to the present situation in schools where younger teachers now sit in staff rooms side by side with their older counterparts who earn far more than them even though they are all doing the same work. 

What should have been done 10 years ago was a general pay cut applied right across the public service.  But instead of doing that the government, as we said, took what seemed to be the easy way out.   

Now it is coming back to bite them, as younger teachers and other new entrants to the state sector demand that this be corrected. They want pay parity.   

And the teacher unions, the very people who cynically agreed to this two-tier system in the first place, are shouting about injustice and demanding that this be done without delay.   

What this means across the public service is that the unions want state sector pay to be restored to the high levels they reached before the crash.  The fact that these levels were reached after a merry-go-round of "benchmarking" increases over the decade before the crash is not mentioned.   

Nor is there any comparison of state pay levels here with those in other EU countries, particularly in areas like teaching.    

Apart from pay parity in certain sections of the public service like teaching, the unions are demanding what they call "immediate pay restoration" for all state workers whose pay was reduced somewhat after the crash.  What this means is that they want their pay brought back to boom time levels, and they want it done without any delay.   

The government has already conceded that pay restoration will be done over a few years and a structure to do this has been agreed.  But the unions in the state sector are now refusing to wait and they want all the money back immediately.  

To progress this, the unions last week met the Minister for Finance Paschal Donohoe, who is already preparing the budget for 2019 which will be presented in October.  Thanks to the recovering economy he has an extra €3 billion to play with in this budget, and already demands for extra spending are piling in on top of him from all quarters, not just from the state workers.   

People are also demanding that he stick to the Fine Gael promise to reduce the heavy tax burden on middle income families and the draconian tax rate that hits single people.  And Fianna Fail, which props up the government in office, is insisting that he spends heavily on public housing, schools, hospitals, etc.  

He can't do everything, and when you look at where we are now and the difficulties that lie ahead, the public service campaign to take a big chunk of the extra money available this year to boost their wages seems greedy to say the least. 

The unions point to the reports on how well our economy is doing and how we have the fastest growth rate in Europe.  But there are also huge uncertainties ahead.   

When Britain leaves the EU in March next year, there is bound to be a substantial negative effect on the Irish economy, whether it's a soft or hard Brexit.  Huge amounts of our trade with the U.K. could be hit.  Exactly how much and how badly is still not clear, but there is no upside for us in this.  

On a wider level we have President Donald Trump's continuing campaign against the big U.S. companies that dodge taxes by locating in Ireland and other low tax destinations.  The effect of this, like Brexit, is still unclear, but again it can only be negative for us.

A major part of our phenomenal growth rate is due to these U.S. companies here which also provide a lot of government revenue through corporation tax (even at its low rates).   Relying on that in the long-term, especially to justify big hikes in permanent pay for state workers, is hardly prudent.

On top of all that, of course, is the fact that we are still one of the most heavily indebted countries in the world.  A cautious approach in this year's budget would be far better than blowing everything -- we could pay down some debt and put some funds away for a rainy day that may not be that far ahead.  

Complicating all this is the fact that this October's budget will be the third and final one in the confidence and supply agreement between Fianna Fail and Fine Gael.  That agreement, under which Fianna Fail agreed to support three budgets introduced by the minority Fine Gael-led government, will be at an end, and an election is likely before the middle of next year.   

The temptation for Fine Gael to spend everything in a giveaway election budget and then go to the country for a renewed mandate soon after must be great.  Fianna Fail, for its part, is calling for extra spending all the time now, so much so that Taoiseach Leo Varadkar has accused them of being irresponsible and putting the country at risk.     

What Donohoe should have done last week when faced with the state sector unions demanding boom time pay levels is tell them to take a hike.  But he's far too diplomatic to do that.  Plus he knows that Fine Gael needs as many votes from state sector workers as possible.   

What with house prices soaring and unions demanding big increases for no extra productivity, it's beginning to feel like the good old days of the boom.  And we all know how that ended. 

Finance Minister Paschal Donohoe.