The Irish Republic is poised to unveil its second budget in six months as the economy contracts sharply.
The Irish Republic has unveiled its second budget in six months to deal with its sharply contracting economy.
The emergency budget includes higher taxes and a reduction in spending, to boost the public finances.
Dublin faces the double challenge of dealing with a deepening recession while being forced to correct the worst deficit in Europe.
Dublin faces the double challenge of dealing with a deepening recession while being forced to correct the worst deficit in Europe.
Unemployment is already at a record high and government forecasts suggest the deficit could reach four times the level allowed by the EU.
The Finance Minister said the Republic had relied too heavily on the housing sector, which had proved a bubble.
The Irish emergency budget is likely to mean higher taxes and lower spending.
But speaking before the Taoiseach, Brian Lenihan said it would be wrong to assume that it was only the collapse in the housing and construction sector which was to blame for the Republic's recession.
This is in marked contrast to other countries that have been spending billions and cutting taxes in an attempt to stimulate their economies back to life.
It had been especially hard hit due to the nature of Ireland's small and open economy, he said.
The Republic's Taoiseach, or prime minister, Brian Cowen, primed his fellow citizens to expect bad news during a speech aired on YouTube: "The coming months and years we will be asking people to take the strain, to make more sacrifices," he said.
Any future economic recovery would have to be based on a revival in exports.
'Difficult position'
Key aims of the budget include:
Finance Minister Brian Lenihan was also preparing the public for what is likely to be an austere and unpopular budget.
>Restoring the damaged banking system and restoring credit
>Regaining competitiveness, increasing exports and driving down costs
"I think everyone realises now that Ireland is in a very difficult position," he said. "There is an onus on all of us to pull together now for the sake of our country."
>Protecting jobs and improving investment in training
It is a massive turnaround from the late 1990s, when economists were praising the Irish Republic as the model to follow.
>Restoring reputation abroad.
Multinational firms were attracted to a European Union country where running costs were cheap and there was a highly skilled English-speaking workforce. Demand for houses jumped, prompting a boom in construction.
Looking ahead, Mr Lenihan lowered his forecast for economic growth, saying the economy was likely to contract by 8% in 2009, more than a recent forecast of 6.75%.
Tens of thousands of Irish people invested in properties overseas. The state's newspapers were full of advertisements selling apartments in places such as Bulgaria, Portugal and Spain.
Downturn
Banks were only too willing to lend money for construction projects., which has come back to hit banks as the Irish government has been forced to bail them out.
The fall-out of the global downturn has hit the country hard as troubled construction firms now struggle to sell houses or land. The usual remedy of seizing the assets is risky, because they have dropped in value.
This has led to widespread layoffs.
"The government faces problems at home from people losing their jobs and internationally from financial markets, who are wondering if the Irish economy could eventually default," said Austin Hughes, chief economist at the Irish arm of Belgium's KBC Bank. "That isn't going to happen, but the government needs to show that it is prepared to take tough measures."
Deficit
According to Enterprise Ireland director Stephen Hughes, who works for the state body that helps companies boost overseas sales, a recession brings opportunities.
"Most of our companies are relatively small and nimble-footed and can move themselves around in their existing markets, indeed into other markets, with relative ease," he said.
The government in Dublin has reassured the power brokers in Brussels that it will not have to make an emergency dash for the IMF's cash machine, like its fellow EU members Hungary, Latvia and Romania.
The EU has given the Irish five years to get the budget deficit under control, but the decision-makers in Brussels are watching carefully.
Later this year, the Republic will hold a second referendum on the Lisbon Treaty, aimed at streamlining EU institutions to make the enlarged bloc of 27 states function better.
Europe's politicians are hoping Irish voters do not react to the recession and try to punish the government by killing off the a treaty that is considered key to the EU's future.
The budget is expected at 1545 (BST). Will you be watching? What would you like to see in the budget?
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