Greetings from Cloud Cuckoo Land. Or maybe we should call it the Land of Make Believe. Or even Fantasy Island.

This is the Ireland in which many of those on the state payroll here seem to live.  It's where an imaginary mountain of money exists to give these state workers pay increases that the country cannot afford.

The Fantasy Island mentality of the state sector was on full display here last week when the country's biggest trade union said its 60,000 members across the public service would vote on industrial action in pursuit of their claim for what they call "full pay restoration." The action, which would probably involve strikes and the curtailment of state services, is aimed at forcing the government to restore the pay cuts that state workers suffered since 2008 after the financial crash here.   

Other unions in the state sector are also limbering up to take action, with teachers already implementing a series of one day strikes and nurses warning that they will consider striking as well. Workers in other areas across the public service are demanding immediate action.  

This widespread revolt comes in the wake of the abject surrender by the government two weeks ago to a threatened strike by gardai which was avoided at the last minute by the offer of a significant pay hike.  The average pay of gardai is €67,808, which is 50 percent higher than pay in the rest of the public service and more than twice average pay in the private sector.  The gardai are now to get an average pay hike of around €4,000 on top of this.  

Workers throughout the state services took note of this extraordinary cave-in by the government and are demanding that pay increases of the same magnitude be applied to them -- or else.

They want the existing agreement (known as the Lansdowne Road Agreement) on the gradual restoration of pay in the public service, which is linked to the state's ability to pay, to be abandoned.  They say the economic recovery is already well underway, so their pay should be fully restored without any further delay.  

The Irish Congress of Trade Unions, the overall body of the unions in Ireland, has requested that any ballot for industrial action should be put off until December 1 to give the government time to respond.  They want the government to give a public commitment that negotiations on full pay restoration will start early in the new year, even though the Lansdowne Road Agreement was supposed to run until 2018.  If so they will withdraw the threat. 

So far the government is trying to hold the line on that agreement, but it's becoming clearer every day now that the horse has already bolted, thanks to the police pay deal.             

Of course all of this is Land of Make Believe stuff because, although a fragile recovery has been underway, the economy is still a very long way off where it was at the peak of the boom.

Next year, for the 10th year in a row, the Irish state will spend more than it raises in tax, which will mean that borrowing will continue.  The target of balancing the budget will be missed.  There is no money for lavish pay increases for workers across the public service.

Even if the state did have the money it is arguable that only very modest increases in state pay should be given to the lowest paid workers, since there has been very little pay restoration for workers in the private sector. 

Average pay for state workers in Ireland is already significantly higher than in other European countries.  Teachers and police in Ireland, for example, are already earning more on average than their counterparts in the U.K.   

Another reason for moderation is that overall inflation here has been very low since the crash, despite particular items like property prices, rent costs, car insurance and health insurance costs, all of which have risen.  In spite of these difficulties, however, the fact is that the general cost of living has not increased much over the period and therefore cannot be used as a reason for big pay hikes.  It is actually two percent lower now than it was in 2008, when consumer prices reached their highest-ever level at the peak of the boom.

But the most compelling reason why "full pay restoration" across the public service should be a non-starter is because it would mean restoring pay to the levels reached at the height of the boom, when the state was awash with revenue from the property bubble.  That situation is unlikely to recur anytime soon, if ever.   

Even if we do get back to a budget surplus in the next year or two, any extra money should be used to finance the promised expansion of state services by hiring extra teachers, nurses, gardai and so on.  Because of our growing population this is necessary simply to maintain the current level of services. 

For example, we need more teachers to stop class sizes going up even more.  So any extra revenue must be spent on expanding services, not giving the existing staff even higher pay.

As we pointed out here recently, the comparison with what is happening in the private sector here reveals that what state sector workers are now demanding is completely out of line.  Pay increases over the past few tears in the private sector have either been non-existent or just one or two percent.  And starting salaries in the private sector, just as in the public sector, are very low.

In fact, despite what the public service unions say about low paid state workers, the lowest paid workers here are in the private sector, in areas like hospitality.

There are anomalies in state sector pay arrangements, with new recruits being penalized to maintain most of the high pay levels enjoyed by more senior staff.

But the bottom line is that our public sector pay bill is far too high for a country of our size.  And it's not because we have too many on the state payroll -- teachers, police, nurses, etc. -- in comparison with other countries in Europe; it's because on average we are paying them too much.  Pay in the state sector is still about 10 percent higher than in comparable jobs in the private sector, even after the pay cuts that followed the crash.  

All of which explains why the campaign for "full pay restoration" now being pushed by unions across the public service is unjustifiable, no matter what the union leaders say.   They make a big deal about how tough it is for their low paid workers to make ends meet. But it's just as hard for many more workers in the private sector, few of whom have any job security or guaranteed pensions like state workers.

You might think that the unions involved, both the members and their leaders, would be in favor of achieving fairness and equality in the country as it emerges from the crash.  That is, after all, what trade unions do.  But thinking that would be naive. 

Because of job mobility and other factors unions have lost much of their presence in the private sector here. The only place they remain strong these days is in the state sector, so this action is all about preserving that even at the cost of everyone else in the economy.

It's when one considers the wider context, however, that this threat of national strikes across the public services here really enters Cloud Cuckoo Land territory.  In this Land of Make Believe the union leaders only take their heads out of the sand long enough to repeat their mantra that the recovery is well underway and therefore the government can afford full pay restoration (to boom time levels) for all public servants.  There is no problem, they say.

But this Cloud Cuckoo Land is not the Ireland where the rest of us have to live, which is in the real world, a much tougher place altogether where economic reality dictates everything.  

The fact is there is not just one problem, but three.  Our recovery is slowing, Brexit is already starting to hit us, and the Trump presidency poses a real threat to all the jobs provided by American companies based in Ireland. 

Recent economic figures show that Brexit -- and the fall in sterling -- is already hitting us hard, particularly in the food sector in major sectors like dairy produce and beef.  But it's across the board. 

For example, over 80 percent of the mushrooms we produce in Ireland are exported to the U.K. and this supports 3,000 jobs here.  Margins are tight and the loss on sterling is already driving some producers out of the business. Job losses are already happening. 

We know that Donald Trump intends to slash corporation tax in the U.S. to bring jobs back from overseas.  And there seems little doubt that he will do this as soon as he can after taking office. 

To add to our fears on this topic, there were reports this week that the British Prime Minister Theresa May, as a way of strengthening business in the U.K. ahead of Brexit, wants to reduce corporation tax there down to 15 percent, even further than the target of 17 percent by 2020 which has already been set.  She wants Britain to have the lowest corporation tax rate of the major economies in Europe, she said. 

All this indicates there is trouble ahead for Ireland, serious trouble.  Our 12.5 percent corporation tax rate will no longer be the big draw it once was.  We can't see into the future so we don't know exactly what is going to happen. But it certainly does not look good. 

The recent figures showing a slowdown in tax revenue over the past couple of months and in our general economic recovery make it even clearer that this is a time for caution.   Given the precariousness of our position, if things go against us in the coming year we could be back into another bailout before we know it, particularly if we fail to control state spending. 

A big part of that spending is public sector pay.  Yet instead of being cautious, it appears that we are now on the edge of an explosion in public sector pay.  It's Fantasy Island stuff.   

The unions also said last week that they are launching a campaign for a four percent increase in private sector pay next year, with a minimum increase per worker of €1,000.   This is real Make Believe stuff because, unlike the state, this will have to come out of company profits at a time when many companies will be struggling to stay competitive in their markets.   Plus of course many new companies, especially in the IT sector, don't have unions anyway.

The reality is that this was a fig leaf to try to hide the fact that the unions want to push through high pay increases for state workers even if it further widens the gap with pay in the private sector. They don't seem to care that it's the private sector taxes that ultimately pay all the bills and that what they are doing could bankrupt the state again.

As we said, it's Cloud Cuckoo Land.