It should come as no surprise that Budget 2010 has elicited such a negative reaction from public sector workers and from the trade union organisation in general. The measures contained in the budget in relation to public sector pay are harsh in general and are particularly harsh for lower income workers.

Brian Lenihan's judgment is clearly that further significant tax increases at this juncture could prove even more counter-productive than they clearly have done over the past year, and that tackling the spending side of the equation would pay the highest dividend in terms of stabilising the precarious fiscal situation and more importantly in terms of getting the economy back into growth mode.

At the end of the day that now has to be the key priority for the thousands of private sector workers who have lost their jobs and taken pay cuts over the past couple of years, and the public sector workers who have now had to endure a pension levy and significant cuts in salary.

The nature of Ireland's fiscal crisis is pretty stark and pretty unsustainable at the moment. The general government deficit this year is projected at €19 billion and the Exchequer deficit is projected at €25 billion. Such deficits are simply not sustainable.

They are in the main due to a tax base that was narrowed way too aggressively over the past decade, and a spending base that was allowed grow too rapidly over the same period. We are now left with a structural deficit of at least €12 billion that will not be whittled away by any possible economic growth recovery over the next couple of years.

Brian Lenihan argued in his budget speech that the worst is now over and that we have turned the corner.

I am far from convinced about that. We have now been set up for a property tax, for water charges, for the implementation of a universal social payment over the next couple of years.

These measures will take a lot more money out of people's pockets, and of course further significant expenditure savings will have to be found next December.

On top of this we will still have to cope with the possibility of higher interest rates later next year or in 2011, and a banking system that still appears to have a lot in the way of bad news to deliver in relation to bad debts and further recapitalisation requirements over the coming year.

Against this background it is difficult to be confident that we have turned the corner.

The good news however is that Brian Lenihan is increasingly getting on top of his brief and is not afraid to take hard decisions. Back in 2008, the key problem was that there was a marked reluctance to face up to the cold reality and indeed this was somewhat apparent at the time of the April budget.

Agree or disagree with his strategy this week, at least he is now acting in a decisive manner and provided there are no row backs over the coming weeks, his overall stance should start to feed into higher levels of business confidence.

For a country that is borrowing vast amounts of money and which will have to borrow an awful lot more over the coming years, the international perception of the country is vitally important in terms of borrowing costs. It is important to bear in mind that much of the money raised this week will just go to service the national debt, hence there is no choice other than to halt the growth in that debt.

International observers should be impressed with what Brian Lenihan has achieved over the past week and markets are likely to remain reasonably happy that Ireland remains on track to reduce its general government deficit to 2.9 % of GDP by 2014. Whether that ambitious target is achievable remains to be seen, but at least the markets will believe that we are continuing to move in the right direction.

For the doubters amongst us, a look at what is happening in Greece at the moment should provide a salutary lesson. That country is in a serious fiscal crisis and if its debt rating is downgraded much further, default will become a very real possibility. On Wednesday last Willem Buiter was discussing the Greek situation, and highlighted Ireland as the next most vulnerable country in the EU. We have got to prove him wrong, and I believe that this week's budget goes some way towards achieving that objective.

However there is still quite a distance to go.

The bottom line is that while many will justifiably regard Budget 2010 as unduly harsh, we have no choice.

The only way to solve an unemployment crisis and a public finance crisis is through the generation of economic growth. Stabilisation and improvement of the public finances, and much more progress in regard to the competitiveness agenda are essential to get the economy growing in a sustainable way again.

Hopefully, Brian Lenihan will not be distracted from these objectives, because if he is, it will prove impossible to ultimately address the social agenda.

Jim Power is chief economist with Friends First