THE GOVERNMENT is to produce a multi-billion list of cutbacks by the end of the month, after Ministers were warned yesterday that one in every five euro spent by the exchequer this year on day-to-day spending will be borrowed.
During a six-hour Cabinet meeting, Minister for Finance Brian Lenihan offered a stark outline to colleagues, warning that the exchequer will have to borrow €20 billion this year alone unless major action is taken quickly.
The Government's concerns about borrowing have been heightened after the German government yesterday failed to sell one-third of a multi-billion bond issue on international financial markets.
Taoiseach Brian Cowen will lead talks in Government Buildings with employers and trade union leaders over the next two days on the need for a major re-negotiation of the social partnership deal.
Mr Lenihan's memo on the exchequer's problems presented yesterday outlines the state of the country's finances for each of the next five years unless action is taken now.
It will be published in full in coming days - though a formal publication date has not yet been decided - partly to highlight for the social partners the scale of the challenges ahead.
Mr Lenihan is to now begin work on a detailed list of the cutbacks that will be needed to make the savings required to begin a five-year effort to get the State's finances back in order, though the sums required for this alone are measured in billions.
This list will not be ready for "next week, but, certainly, by the end of the month", senior sources said last night.
However, Mr Cowen does not intend to put the Government's list of demands during talks today with the Irish Business and Employers Confederation (Ibec) and with the Irish Congress of Trades Unions (Ictu) tomorrow.
"He intends to initially brief them on the situation. Does he intend to set out his stall straight away? No, he doesn't. That is not the way business is done in the social partnership," said his spokesman last night.
The decision to involve Mr Cowen directly at the meetings has seemingly been taken in part to stem criticism that the Government has failed to create an air of urgency about the financial crisis over recent weeks.
Once the two meetings are over, matters will be left by Mr Cowen to senior Department of the Taoiseach officials, including secretary general Dermot McCarthy, for the next week.
Mr Cowen departs to head an Enterprise Ireland trade mission to Japan on Sunday and he will not return to Ireland until the following Saturday.
The crunch issues in the talks, including the belief of senior Ministers that the public pay bill has to be cut significantly, will not be dealt with until next week's talks, unless employers and union leaders force the issue over the next two days.
Some quarters in Government believe that the publication of the Lenihan memo will help to concentrate the minds of public service union leaders and workers.
Last night, the Taoiseach's spokesman once more insisted that Mr Cowen wished to have the agreement of the social partners on board.
However, the decision by Mr Lenihan to start work on a list of cutbacks while parallel talks continue also sends a message to the social partners that that they will not be given a veto.
The Department of Finance has yet again insisted that the Government has not decided on whether it should ask for a pay cut amongst public servants, and nor has it decided on the scale of a such.
Some union leaders have said that the Government will ask for a 5 per cent cut in wages for public servants, bar those earning below €40,000, but Government sources privately belief that this is an effort to set the bar low.
Other union quarters privately fear that the pay cut demand will be much higher - and in the order of 10 per cent with a threshold for lower earners.
A 10 per cent State payroll cut would save €2 billion annually, but it would require significant job losses, which would be difficult for the exchequer to afford right now, and pay cuts for those remaining.