THE official line is that nothing has changed: the Government's regionalisation programme is on track and Kerry and Clare are still included within the most disadvantaged region, embracing the Border counties, the midlands and the west.

But behind the scenes fallback positions are being prepared as the Government gears up for tough negotiations with Eurostat and the EU Commission, culminating in the heads of government summit in Berlin on March 23rd.

The situation is fraught with danger. From being confident it would do relatively well out of the new tranche of structural and cohesion funding leading up to 2006, Ireland is now facing major cutbacks and earlier cut-off dates.

Worse than that, the loss of EU infrastructural aid to the five richer regions will almost certainly be exacerbated by deeper than expected cuts under the Common Agricultural Policy reforms.

An accompanying fall in IDA-sponsored aid to 20 per cent, as against 55 per cent in full Objective 1 counties, will add to local misery. And the combination could have a very negative impact on support for the Government.

David Andrews summed up the negotiating position when he declared: "We are prepared to take some pain, but we are not willing to be crucified."

The Government got it wrong when it failed to recognise the seachange that occurred in Europe with the departure of Helmut Kohl. German open-handedness in funding the CAP and EU integration underwent a transformation with the election of Chancellor Schroder. Not only was the new German government unwilling to pay more; it demanded a rebate.

From a position where Irish officials had been confident they could improve on the various reform proposals put forward by the Commission, they were suddenly talking about "an ambush" as the Germans, Dutch and others demanded cuts that went far beyond the Commission proposals.

And, having accepted the Commission proposals in principle, the Government was contesting the new policies from a position of weakness.

What had seemed a clever idea at the time - splitting existing regional structures and including Kerry and Clare among the most deprived counties - was suddenly a great gap in the defences. And it enabled Eurostat - at the prompting of the Commission, if the Government is to be believed - to dump Irish proposals for regionalisation.

Next Monday officials from the Department of Finance will travel to Brussels for high-level talks with Eurostat. If the response to the Kerry/Clare issue is "exceptionally negative", according to reliable Government sources, the situation could change very quickly.

In other words, Kerry and Clare will be dropped from the Irish agenda when Bertie Ahern meets the president of the Commission, Jacques Santer, on Wednesday.

Government strategy seems to hinge on cutting a deal on structural and cohesion funding at the top level and then arguing with Monika Wulf-Mathies about the devolution of powers to new regional bodies. That may be why a meeting has not yet been arranged with the Commissioner for Regional Affairs.

As of now, the Government is hanging tough on its decision to devolve limited power to the two new authorities: the Border, Midlands and Western Group Regional Authority and the Southern and Eastern Group Regional Authority.

Their functions will be mainly advisory. But they will have a role in co-ordinating development and in managing the spending of EU funds.

Officials argue that the proposed powers are considerably in excess of those already agreed between the Commission and the UK for Devon and Cornwall. And they see no good reason - in spite of the views of Ms Wolf-Mathies - to add to their devolutionary proposals at this stage.

Recognition of the changed atmosphere in Europe came only last Monday, when the Taoiseach outlined the approach he intended to take at yesterday's Bonn Summit. It was a downbeat presentation.

In spite of recent economic growth, GNP per capita was still only 85 per cent of the EU average, he said. Our economic infrastructure was inadequate and huge investment was still required for roads, ports, airports, water, sewage and waste treatment. At the same time, investment in education and training must retain priority.

That was why he was asking our EU partners to "look beyond the statistics on Irish economic growth and recognise the need for consolidation of our recent achievements in order to complete the `catching up' process".

He envisaged Ireland becoming a net contributor to the EU by 2007 as a result of the current CAP and Structural Fund negotiations.

Mr Ahern argued that the Commission's initial promise of a "soft landing", through the gradual phasing out of structural and cohesion funding for Objective I areas in transition, should not become a "crash landing" because of German interference.

"Even if our regionalisation proposal is accepted," he said, "the fact is that close to 70 per cent of our population will be in transition from Objective I status."

Given the size of the stakes now being played for at European level, the influence of Jackie Healy-Rae and the domestic importance of Kerry and Clare fade to a background hum.