100,000 people are marching on the streets of Dublin, Ireland. They are protesting the austerity programs that the government must put in place to try and stem the increasing costs for Irish debt. To Americans, they look like whining fools.
The Irish potato famine caused many to emigrate to America. The Irish debt will emigrate here as well. Not only will some American banks be participating in the bailout, but American taxpayers ought to recognise similarities in federal, state and local governments here.
There is panic in the European debt markets as virtually all of the Western-style socialism implemented over the years comes to a head. Ireland, Italy, Spain, Portugal, Greece, and France are being forced to grapple with fiscal issues that they were able to kick down the road. Like any good accounting scandal, it can be buried in the books and off-balance sheet for a number of quarters, but eventually it has to come out and the bill is due. The maths behind entitlement programs always looks good on paper, but once it is put into practice the present value tables become really sticky.
The sad thing is that the Irish are going to lose a lot of hard won sovereignty. Loss of economic freedom always translates into a loss of personal freedom. People begin to become slaves to the government debt. It’s not a lot different than feudal times, when the King wanted a bigger piece of the peasants’ production to further his own goals.
In this case, their are €85 billion reasons why the Irish should be scared. The first bargaining chip the EU wants to go after is the Irish corporate tax rate of 12.5 per cent. Continental Europe views it as uncompetitive. It is losing government revenues to Ireland since companies will try to recognise as much revenue as they can in Ireland’s low tax zone. The Irish garner as much corporate income tax revenue as the French, who have a much higher rate, 34.33 per cent. Raising the rate will cause companies to leave Ireland, making things even tougher on the Irish people.
The interest rate on the bailout has been pegged at about 5.8 per cent. The loans will run from 3-7.5 years. This is similar, but different, to the Greek bailout. The Greeks are paying 5.2 per cent, but the loans run only 3 years. The difference can account for a couple of things. The Greek situation was almost purely because of entitlement spending, defined benefit pensions and other government institutions that they put in place. Now they have to undo them, or change them. The Irish government screwed up by bailing out failing private banks. By guaranteeing all the loans, they left themselves on the hook for a lot of bad paper.
As an American, this should strike extremely close to home. We will be confronting these same situations in a different form. When California goes broke, which it surely will, do other U.S. states step in and bail them out? Should the federal government bail them out? Once California goes under, it won’t be long before Illinois and New York march in the same parade. In all three states, voters elected Democratic-controlled governments to deal with the problem.
We can no longer afford all the defined benefit entitlement programs all governments offer. The maths doesn’t work. As the baby boomers retire, the cadre of workers left to support them is far too small. The reach of government into individuals’ lives is far too great. Already, Americans are taxed to death by every level of the state food chain. The answer to some is to increase the level of taxation. What they should be doing is decreasing the reliance on government.
Thank goodness that in the U.S., the Tea Party took to the streets before the socialists did.