Colcannon, Good Shark Bait?

I do not profess to being an economic genius, I do however have enough common sense to realise that the cure for debt does not involve building up a bigger list of creditors.  However this is exactly what George Osbourne and his fellow EU loan shark counter-parts have dreamt up, extra credit to bail-out the Irish.

Whilst it may be bad news for the Irish when the EU comes rapping on their door looking for interest payments, its going to be even worse for the EU taxpayer when Ireland cannot repay the debt.

I'm sure we all understand the principle of the loan, give Ireland some money now and when they get back on track they can pay us back.  But its pretty bold to assume that the Irish economy will recover and remain stable long enough to pay back the loan, all before they need bailing out again.  Should governments even be taking this kind of risk with their tax payers money?

The main problem with this economic placebo is that it is not addressing the fundamental problem, EU interest rates.  So long as Ireland remains within the Euro their economy will be at the mercy of European interest rates, if they are too low then Ireland can borrow and "grow" its way back into another readjustment (debt/recession) or if the rates are too high (not very likely) then the Irish economy will be strangled with an inability to borrow.  Either way this is bad news for Ireland and will lead to further problems with their economy, affecting their ability to generate tax revenue and therefore pay back the EU/IMF loan.

The Eurozone nations are really backing themselves into a corner with this, its just a shame the British tax payer (through the IMF) is being dragged along for a ride.  But wait, the Eurocrats are even more determined to shoot themselves in the foot, proposing that Ireland drops its low corporate tax rates at part of the deal!

Any real economist will inform you that low taxation is an excellent condition for economic growth, with higher levels of growth there is a bigger pot of gold to tax, which will help Ireland pay off this loan in years to come.  Whilst the EU are unashamedly trying to blackmail Ireland in their own self interest, arguing that low tax gives the country too much of an advantage in attracting overseas investment (yes you read it!), they are also actively trying to hinder Ireland's ability to repay them.

I'd quickly like to highlight the stupidly of such a policy, just because you remove a competing low tax rate does not result in businesses setting up in your country.  More likely the companies will move to another nation with a low rate.  Pursuing such a policy only damages your neighbour, weakening their ability to trade with you and in turn damaging your own economy.  This is surely insanity!  Fortunately for both the Irish and mainland Europeans Mary Coughlan is currently unwilling to submit to this demand <Link>.

I'm really not sure what the EU masterminds intended to gain from this proposal, weakening an allies economy, costing their own taxpayers more money or attempting to improve their own economic prospects through sabotaging their competitor?  Most likely this is just another in a series of power grabs, forcing the Irish to become dependant on EU money and regulation, attempting to remove the threat of another independent, sovereign nation.

Whilst this is a dismal display of economic and political ineptitude, one can't help but feel sorry for the Irish people, having been duped into the Euro and the Lisbon treaty they are now being bitten in the arse by the very people they helped support.  Unfortunately this is only going to get worse until they pluck up the courage to address the real problem.