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Good old reliable Ireland - depressed Irish continue paying massive bank debt with no end in sight

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Ireland turned green for St. Patrick’s Day on 
Sunday, but problems still persist.

Here's hoping you all had a great St. Patrick's Day.  In Dublin it was less ecstatic than usual, possibly because of the unseasonably cold weather that has afflicted us for the past two weeks.

I see from the TV pictures that it was the same over there, with what looked like sleet showers falling on the New York parade at some stages.   That did not seem to dampen enthusiasm in the Big Apple.

But then again, the Paddy's Day celebrations have always meant far more to people in the U.S. and other outposts of the Irish around the world than they do to us here at home.

That's understandable.  We're here and we're Irish simply because of that.  We don't have to prove it or demonstrate it.

But for those with Irish ancestry in other parts of the world, the national day is an opportunity to embrace and celebrate their roots, to declare with pride who they are and where they came from.

There is also the reality that these days a lot of people here would much prefer to be somewhere else, somewhere with more opportunity, more optimism and more reward for hard work, unlike here where life is all about cutbacks and new taxes.    

The fact is that, despite some flickers of light at the end of the financial crisis tunnel, life is still pretty bleak here.  Cutbacks continue.  New taxes are about to kick in.   Unemployment stays stubbornly above 14 percent. The national mood is depressed.

People's despair and anger at the failure to lift us out of the mess quickly enough is clearly visible in the latest opinion poll.  There is such disillusionment with the government that Fianna Fail, the party that led the country into the economic collapse and was thrown out of office two years ago as a result, is back from the dead.

Once again they are the most popular party in the country.  It puts Lazarus in the shade.

It's not because of any new found love for Fianna Fail, of course.  It's more an expression of anger that the new government of Fine Gael and Labor, despite all their election promises, are dealing with the financial crisis in the same way as their predecessors did -- by dumping it on the ordinary person.

They have been so successful at this that Ireland is now being held up by the EU/IMF leaders as the "responsible" example for the rest of Europe to follow.  

Unlike in Greece and Spain where there have been violent clashes and huge street protests, the Irish have been taking the harsh medicine without any upheaval and with little complaint.

We have meekly accepted our fate of higher taxes and cuts in state spending on services, even though we know that all the wealthy bondholders who gambled on the Irish property boom have been getting all their money back.

The markets have been very impressed with us.  So last week Ireland was able to raise €5 billion in new "10-year" government debt in the first deal of its kind since the EU/IMF bailout.  

We don't riot. We're sticking with the budget deficit reduction program.  We're reliable.  So the markets have decided to lend to us again.  

Being able to borrow again on such a scale means we have moved dramatically closer to exiting the EU/IMF bailout on schedule at the end of this year.

The interest rate on these new 10-year bonds is 4.15 percent, which is less than Spain or Italy are currently paying on their bonds.  The €5 billion we raised last week is half the €10 billion or so our deficit will be this year.

So we're back on track and should be able to continue borrowing enough to fund deficits until we eliminate them, without having to be in an EU/IMF program.  

Clearly this is good news.   And the government has been letting everyone know it, saying it is evidence of the success of government policy not to renege on bank debts or burn bondholders.

But everyone needs to remember that this "success" has been achieved at an enormous price for the Irish people, and that the "success" has locked us into heavy annual debt repayments for decades to come.

The scale of the readjustment in the state finances here and the effect of that on ordinary people tends to be forgotten.

But if a similar "readjustment" was implemented in the U.S. there would be another revolution; given the reaction to the present debate on cutting spending in the U.S. that much seems certain.

The new Irish Times correspondent in Washington Simon Carswell (previously one of the best financial reporters here) pointed out some of the figures in a recent column which compared the situation there and here.

He said that between 2008 and 2012 the Irish government had squeezed €27.5 billion of a fiscal adjustment out of the state, a correction equal to 17 percent of the state’s economic output or GDP.

Carswell said that if the same adjustment had been applied in the U.S. over the past five years, based on U.S. GDP of roughly $15 trillion, the current U.S. deficit of $900 billion a year would have become a surplus of more than $1.6 trillion!

Instead, as Carswell pointed out, the Democrats and the Republicans have been unable to agree on any adjustment, resulting in the sequester kicking in.  And in spite of all the alarm over that, it only adds up to $85 billion in cuts, or less than one-tenth of the current annual deficit.

I'm not saying the Democrats are wrong or the Republicans are right.  The answer, as here, has to come from both growth and spending cuts.

And getting that balance right is not easy.  You don't want to smother growth when you're cutting spending. 

But two things are clear.  First, the scale of the problem facing the U.S. dwarfs the problem we have here in Ireland.   Second, the pain felt by ordinary folk when this kind of "adjustment" happens is very real.  

In Ireland, of course, we have a solution.  The EU/IMF/ECB troika forced us to  pay back all the lenders who pumped the billions in here that fueled the boom.  

They made us turn billions in private bank debt into sovereign debt so that it could be dumped on the ordinary Irish taxpayer.  In return they gave us the bailout.

Now that we have access to the markets again and our deficits are coming back to a sustainable level, the time is fast approaching when we won't need any more bailout money and we can refuse to go on paying.  

In spite of what has just happened in Cyprus, Europe is already starting to accept that turning bank debt into sovereign debt to be paid by all citizens is neither fair nor sensible.

Ireland can lead the way on that one.

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