Travelers prepare to leave Dublin airport after the holiday break

There were the usual tearful scenes at Irish airports over the past week as emigrants who were home for Christmas headed back to their new lives in the U.K., the U.S., across the Eurozone and around the world.

So many seemed to be going back to Australia and other faraway places. A nephew of mine, for example, is gone back to Shanghai where he is teaching English. (Teaching English in places like South Korea, Japan, or China is the latest adventure for young Irish graduates of all kinds who can't get a job at home.)

The emotional scenes were captured by the TV cameras for the news and the interviews, as always, would give you a lump in your throat. The youngsters always put a brave face on it and make a joke; the parents try not to get emotional, usually unsuccessfully. The quick final hugs and the choked goodbyes reveal the reality.

It's not as bad as it used to be, of course. In these days of cheap travel and global communications, there is not the same feeling of immense distance and separation. These days they Skype each other from the other side of the world, shrinking the globe.
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But there is no denying the pain and the disappointment. Most of the young ones, especially the couples, don't really want to be away. They would rather be here, playing for the team, socializing in the local bar, sending the kids to school here, being close to extended family and familiar places.

Of course they can Skype, but it's not the same. Just ask the parents at home, missing their grandchildren, knowing that a return any time soon is unlikely.

Their grandchildren will grow up in faraway places and will have accents when they come back on visits. It's another lost generation.

There has been a lot of anger here about this situation over the past few years, leading to the dramatic dumping of the last government. The anger is still there, but this Christmas I detected a change in the way people were talking at the airport. These days the anger has started to subside into a kind of depressed resignation.

They've changed the government, but nothing else seems to have changed. The Irish economy is on the floor, unemployment is huge and all the signs are that we're in for a slump that will go on for years.

So no one at the airport last week was pretending that all these emigrants are just gone for a year or two. That's what gets the parents of the young emigrants so upset. They know that it's more or less permanent.

It really is a lost generation. You can Skype all you like, but it's a tiny glimpse of lives being lived far away. It's not the same as having them here.

So what hope is there for the future? The outlook for 2012 is not encouraging.

The new government tries to be positive, because that's what governments do. Our senior politicians tell us the austerity measures are working, that we are sticking to our budget deficit targets and getting the approval of the EU and the IMF for the way we are implementing the bailout plan.

All that is true, of course, but it is being achieved at a terrible price. The price is a severely depressed domestic economy and planes full of our young people who can't get jobs at home.

In spite of the huge cost in monetary and human terms, not that much is being achieved in sorting out the country's finances. The latest figures published last week gave us the full picture for 2011, and they show that tax revenue for the past year was slightly below the target set at the start of the year.

This happened despite the heavy extra taxation that was applied during the year, including a new tax called the Universal Social Charge and a levy on all private pension funds.

The decline in tax revenue was a direct result of the further slowdown in the Irish economy, with revenue from both income tax and VAT (sales tax) falling.
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Despite this fall in tax revenue, the budget deficit reduction target for 2011 in our EU-IMF bailout plan will be met. It will be met because the government has continued to cut state spending.

A fall in tax revenue simply means that even more cuts in spending have to be implemented. It's a downward spiral, of course, but we are told there is no alternative.

Overall tax revenue for 2011 was just over 34 billion, but overall state spending in 2011 was 25 billion

More than that. To be fair, that 25 billion overrun does include 9.5 billion we pumped into the banks in 2011 to recapitalize them even more.

And it does include the cost of servicing the national debt at 5.4 billion, which is around a billion more interest than we paid in the previous year. Our actual day to day state spending was 46 billion, which was around 2 billion (or 1.6%) lower than in 2010.

These figures show that although we are starting to get our state spending under control, there is still an enormous gap to be bridged. Progress is slow because it's so difficult. One reason is that the record number of people out of work means that welfare spending is huge.

Under our bailout program, the target for the underlying budget deficit in 2011 was 10.1% of GDP. The figures released last week show that the deficit for the year will be about 9.8%, so we are slightly ahead of the game.

But there is no reason to feel pleased. It's getting harder to cut state spending each year as the squeeze goes on and what the politicians call low hanging fruit are picked.

It will be even harder at the end of this year to reach the deficit target of 8.6% of GDP that has been set for 2012. Under the bailout plan, we have to get the deficit down to 3% by 2015.

One thing that stands out from the state finance figures for 2011 is the heavy burden of our borrowing and our bailout money. Yes, we're still borrowing to bridge the budget deficit for day to day spending. But we're also borrowing and using the bailout money to pay back the bondholders in the Irish banks, and that is costing us billions in precious tax revenue each year.

To save a few tens of millions or even a few hundred million in day to day state spending, we are now enduring heavy cutbacks that impact on the lives of ordinary citizens. One of the main hospitals here last week said it might have to close for a month. This week there is a dispute about an attempt to take more tax from old age pensioners.

Every day there are examples of hardship being suffered by people who depend on state services and payments. A sense of fear pervades the land about what cuts may be next.

And while all this is going on, we are paying back billions to the bondholders who took a gamble on Irish banks during the boom. We're paying them back in full because that is one of the conditions under which we are getting the bailout money from the EU and the IMF.

Obviously this is unfair, but the EU/ECB/IMF troika are more worried about the stability of the financial system in Europe than they are about the effects of cutbacks in Ireland. They fear that if we don't pay the bondholders back in full it could destabilize the system across Europe, so we have to keep paying.

Here's a few predictions for Ireland in 2012:
•The Irish economy will continue to stagnate in 2012 (and 2013), mainly because growth in the U.K., Europe and the U.S. will be feeble.

•Our ability to stick with the bailout plan depends on modest growth in our economy, driven by exports, and this will not happen in 2012.

•Our hopes of returning to the financial markets over the next year or so to sell Irish government bonds and begin our exit from the bailout will turn out to be a pipe dream. (This is indicated by the current price of 10-year Irish bonds at around 8%, a level that is not sustainable.)

•Despite Greece this week talking about a 50% haircut for bondholders, the EU will continue to deny us any debt restructuring.

•Requests for a further reduction in the interest we pay on the bailout funds will also be denied. (We got the interest rate reduction last July not because of lobbying by the taoiseach, but because the EU had to give it to us when they gave it to Greece.)

•A mini-budget in 2012 with further cutbacks/tax increases will be necessary to keep us on track.

•Despite this we will not be able to meet the requirements of the bailout program.

•Growing unrest and opposition to the austerity program here will scare the government into seeking a second bailout from the EU/IMF.

•Lack of faith in a future in Ireland will lead to ongoing substantial emigration among the young.

•January 2013 will be even more tearful at Irish airports as the lost generation heads back to their new lives around the world after spending next Christmas “at home” in Ireland.
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