On Tuesday, Brain Lenihan, the finance minister will announce plans to increase taxation and reduce expenditure. This will reduce the governments borrowing requirements and make it somewhat cheaper for the government to source more money in the future.
Therefore, the balance sheet of the government will improve. Yet, this is no reason to celebrate. As the improvement in the balance sheet will be caused by transferring risk from government to the private sector's balance sheet.
Thus, there will be further increases in unemployment, businesses will close but more saliently many more people will begin to default on their mortgages.
The level of default on loans will overwhelm so many of the Irish banks that the Irish government will be forced to take not only the risk but now the actual loans on their balance sheet.
As a consequence, Brain Lenihan will be faced once more with the exact same issues he was hoping to address as Government borrowing will becomes more expensive and our borrowing requirements will increase again.
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