Rejection of Kerry and Clare as part of a cobbled-together Border, midland and west region by EUROSTAT had been anticipated in recent weeks. But the implicit repudiation of a new administrative structure for the State came as a kick in the teeth.

The price of trying to keep Jackie Healy-Rae sweet, by adding Kerry and Clare to the three most deprived regions seeking continuing Objective I status, may have seemed reasonable to Fianna Fail at the time. But the eventual cost could be far more than the Coalition Government anticipated.

Too much political cute-hoorism, with the EU being regarded as a soft touch, has ended in tears. To make it worse, the Government was given adequate warning. As far back as last autumn, EU Regional Commissioner Ms Monika Wulf-Mathies cautioned against attempting to maximise EU aid through "subsidy shopping" and she sought the devolution of greater powers to the regions. She was effectively ignored.

Given our history as one of the most centralised societies in Europe - and the reluctance of the Department of Finance to moderate its iron-fisted control over public spending - it was always going to be difficult to convince the EU Commission of our bona fides in opting for regionalisation.

But vestigial regional structures did exist, having been introduced on the urgings of the EU in 1994 and then allowed to atrophy. And three of the eight regions - the Border, midlands and the west - were clearly below the income threshold to qualify for full Objective 1 funding from 2000 to 2006, and possibly thereafter.

The Department of Finance tried to have its cake and eat it. It envisaged a "soft landing" for the five richer regions, where Objective 1 funding would be gradually phased out, while the three poorest regions would continue to get maximum aid. Two super-regions would be created by the Government and control would remain highly centralised.

The proposed division of the State generated intense friction within and between the political parties. Special needs were advanced. The Labour Party spoke of discrimination against urban black spots and in favour of rural disadvantage. Fine Gael's response depended on geographic location.

And then Jackie Healy-Rae entered the fray. As a key Government supporter in a stormy political sea, he carried weight. The case for South Kerry's inclusion was quickly made. Existing regional boundaries were scrapped and a hybrid "western seaboard region", including Kerry and Clare, emerged.

Last night, the Government was picking up the pieces of its master plan. And, because the best form of defence is attack, it shouted "foul" and accused the EU Commission of influencing the EUROSTAT decision.

This wasn't the end of the matter, a Government spokesman declared. It wasn't changing the form of the application that included Kerry and Clare. It was demanding high-level meetings and EUROSTAT clarification. And Bertie Ahern would raise the matter with Jacques Santer next Wednesday in Brussels.

The main complaint appeared to be that EUROSTAT had not dealt with the application on a purely statistical basis and had, instead, strayed into the political and administrative area. Dark doubts were raised about Commission input. There was concern the issue might be used as leverage in future negotiations as the Commission moved to cut future structural funding.

It was right, of course. And it wasn't that the Government hadn't been warned. It cut and gave the Commission the stick with which it is now being beaten. Having treated EUROSTAT as a stamping machine and having failed to address the issues raised by the Regional Commissioner, it was getting its comeuppance.

It couldn't have come at a worse time for the Government. Already fighting to minimise financial losses through hyped-up CAP reforms driven by the German government, it now finds itself badly exposed and fighting on a second front. Not only had the composition of regions and their proposed administrative structures run into trouble, but pressure was on to cut Irish funding for the transitional regions. That would involve more than 70 per cent of the population.

Michael Noonan was scathing. The Government had botched the negotiations. And its decision to set up the super-regions by way of Ministerial Order, rather than through primary legislation, was a clear signal of its determination not to establish valid regional authorities.

They had been "flying by the seat of their pants when it came to Clare and Kerry," and while Fine Gael regretted the announcement, it was not surprised. The case had been built on sand and was motivated by the "precarious arithmetic of Dail Eireann."

Derek McDowell felt the Government had put its own political survival before the national interest. Its blatant attempt to squeeze more money from Europe at a time it was banking large surpluses at home had influenced the EU response, he said, while the creation of two totally artificial regions was recognised for the stroke it was.

The Government must now prepare proposals for authentic regional areas that would meet the genuine economic and social needs of the State and devolve genuine powers to the regions, the Labour Party spokesman said.

The Independent Kerry TD at the heart of the storm was phlegmatic in his response to the bad news. He had done his bit in getting Kerry included in the Objective 1 region. And he had "no reason in the wide earthly world at this time to vote against the Government."

His constituency colleague and Minister for Justice, John O'Donoghue, was reassured by Charlie McCreevy that the battle for Kerry and Clare wasn't over yet. And he and his Cabinet colleague, Sile de Valera, were hanging tough.

But while a tough, up-beat negotiating approach was being taken in public, the ultra-negative tone of the letter received from EUROSTAT had deeply shocked officials. Word had been filtering out for weeks that EUROSTAT and the EU Commission were taking a jaundiced view of Ireland's attempts to maximise EU structural aid.

The reality was far worse than the expectation.