Ireland Is the Face of Austerity

The euro dipped on word that Irish Prime Minister Enda Kenny would call a referendum on the new EU budget-discipline treaty.

Dublin, Ireland
Firecrest Picture | Robert Harding | Getty Images
Dublin, Ireland

There's good reason the euro weakened: unlike Athens, there are no riots or burning buildings in Dublin, but the Irish people are suffering terribly under the terms of the 85-billion euro loan package they received from the IMF and other international lenders in December 2010.

And now they're being asked to sign another treaty to enshrine even more austerity.

If you want to see what the face of the IMF-led austerity looks like in full bloom — what Italy, Portugal and Spain might look like in the future — go to Ireland.

Under the terms of the 2010 loan, a drastic austerity was imposed: public expenditures were slashed. Jobs in the public sector were drastically cut; wages dropped 20 percent or more. Welfare benefits were cut. Taxes were raised.

The results are still being felt: house prices in January fell 17.4 percent compared to the same period last year and are continuing to fall; they are now down 48 percent from their peak in 2007. Prices have not recorded a month over month gain since September 2007.

Other metrics, like retail sales, continue to be weak. Unemployment is at 15 percent and far higher for young people.

The Irish are leaving Ireland: Irish emigration rose to the highest level since the 19th century in the 12 months ending in April 2011, according to the Irish Central, and will likely hit another record in 2012.

Will Ireland vote to ratify this new treaty? I wonder if the Irish voters know they have almost no choice; they are a ward of the IMF and the EU. Access to additional help is conditional upon ratification. No ratification, no more money. Without the IMF as a backstop, it would be almost impossible for Ireland to return to the bond market.

Unlike other euro countries, Ireland's problems were not due to excess government spending: it was due to an explosion in property lending, led by Irish banks, who got funding from international investors. These investors are being made whole via a government takeover of the Irish banking system. They are being paid because the Irish government took loans from the IMF rather than repudiate the debts.

Bottom line: the debts of the banks were transferred to the Irish people.

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