Ireland – A debtors’ prison consisting of a small island located off the north-west coast of mainland Europe, population circa 4,500,000.  c.f. Australia in the 18th century, only much smaller and much closer to Britain.

This week the Irish parliament passed a law which signed the Irish people up to the €85 billion EU/IMF bailout package.  Forget about the details such as the 5.8% interest rate on the bailout debt – effectively the leaders of a democracy have just signed their people up to years of paying back their creditors (mainly banks & insurance companies in Germany, France and the UK).  As has been well documented, the €35 bln required to prop up their banks is what tipped Ireland over the edge (with the ECB unwilling to provide unlimited amounts of money to fund Irish banks indefinitely).

Austerity cuts will clearly cause its economy to shrink over the next few years.  Given that more than half a million people in Ireland are aged over 65 (with another million under 18), most of the burden of actually paying back their creditors will fall upon less than 3 million people.  However the austerity cuts planned in Ireland are merely designed to lower the budget deficit towards 3% of GDP; producing a budget surplus to actually start paying back their creditors will take sustained nominal economic growth (difficult to achieve if your population is shrinking – as Japan has just spent the last two decades proving).

For the time being Ireland has been allowed to keep its 12.5% corporate tax rate (which has been particularly annoying France & Germany).  However it will take a lot more than a super-competitive rate of corporation tax to dig Ireland out of the hole it finds itself currently in.  The only real way out is for Ireland to allow its banks to default on their debts, leave the Euro, reintroduce the Irish punt and devalue it sharply.  Chaos would ensue in European financial markets and German, French and UK banks & insurance companies would come under renewed post-Lehman style pressure.  Ireland’s current political leaders have opted to turn their population into debt slaves but things could change after the next election (currently scheduled for early 2011).  Irish voters will surely vote for an easier way out if they are offered one in the next election.

The people of Ireland have already started to vote with their feet.  Net migration in the year ended April 2010 was about 35,000 leavers (the highest net loss since the late 1980s).  Faced with the choice of emigrating or becoming debt slaves, young university graduates will lead the way overseas, followed by those families willing to uproot and leave.  Ireland is about to experience another period of sustained emigration.