Irish financial crisisTwo images came to mind as the International Monetary Fund (IMF) and the European Union began systematically dismantling what is left of the shattered Irish economy. One was a photo in the New York Review of Books of an abandoned, up-scale house in County Leitrim, a casualty of the 2008 housing bubble. The other, an 1886 conversation about the aftermath of the 1845-47 potato famine between Sir Wilfred Blunt and the Bishop of Confert at Anghrim, the site of Ireland’s last stand in the rising of 1688.

“They call it the last battle, but this is not true, for the battle has gone on ever since,” the Bishop told Blunt. “Look at those great grass fields, empty for miles and miles away. Every one of them contained once its little house, its potato ground, its patch of oats…and where are they now? Engulfed in Liverpool, London, New York…and all for making a few English landlords rich.”

Substitute “bankers” for “English landords” and one has to conclude that Karl Marx didn’t have it quite right: in Ireland history repeats itself the second time as tragedy, not farce.

Historical analogies are tricky, but the potato famine and the current economic crisis have parallels that are hard to ignore. In both cases the contagion was foreign born. The 1845 fungus—Phytoph thora infestans—came from Mexico via Boston and the Netherlands. The 21st century bubble came from Wall Street and Bonn (German banks are Ireland’s largest creditors). And in both cases the devastation was a result of conscious policy choices by the powerful.

A little history.

The 1845 fungus pretty much killed every potato in Europe, but only in Ireland was there mass starvation. Because only in Ireland had there been a conscious colonial policy to encourage population growth. Ireland in 1845 had about 10.8 million people, more than twice what it has today. Population density meant a desperate competition for land, which, in turn, kept rents high. Places like rural Connaught had a population of 386 persons per square mile in 1845, considerably denser than England’s. The vast bulk of that population—78 percent to be precise—was dependent solely on the potato for subsistence.

The other great advantage of a high population was taxes, which were increased 170 percent from 1800 to 1849. During the same period they fell 11 percent in England. “Over-taxation is not an accident,” remarked Marx, “It is a principle.” He had that one right.

When the blight struck, this entire edifice collapsed. No one really knows the final butcher’s bill, but between 1841 and 1851 the population plummeted from 10.8 million to 6.2 million. About a million of these emigrated, though many of those died enroute—the ship Avon lost 236 out of 552; the Virginius, 267 out of 476—or when they arrived. Of the 100,000 Irish that immigrated to Canada in 1847, 40,000 died within the first month. How many starved at home? Maybe three million? Maybe more.

The exodus today is smaller, but about 65,000 left last year, and the estimate for 2010 is 120,000. There won’t be mass starvation, but the IMF-imposed austerity package will slice deeply into social services, battering Ireland’s unemployed. Tens of thousands are being evicted from their homes while more than 300,000 houses stand empty, like the one in Leitrim. This time around there will no be cottages filled with corpses as there were 163 years ago, but in the months to come there will be plenty of homeless and hungry.

Ireland’s economy in 1845 may have been unsustainable for the many, but it was quite profitable for a few. There was even plenty of food produced during the famine, but it went to the landlords. In 1847 crops worth 45 million pounds sterling were exported, including hundreds of tons of wheat, barley, and oats, along with cattle, butter and cheese. While the Irish starved, those responsible for their condition drank, ate and made merry.

Jump ahead to 1990.

As a new and “disadvantaged ” member of the European Union, Ireland was subsidized to the tune of nearly 11 billion Euros. In a small country that’s a lot of money. With its highly educated, English-speaking population, proximity to Europe, modest wages, and the lowest corporate tax rate in Europe—12.5 percent—Ireland was the ideal place for multinationals like Pfizer and Microsoft to take up residence. The country’s debt was low—12 percent, one quarter of Germany’s—with good social services. Thus was the “Celtic Tiger” born.

Then came the blight.

Bankers and moguls, allied with Irish politicians, saw a chance to make a killing in real estate. From 1999 to 2007, bank loans for real estate and construction rose 1,730 percent, from 5 million Euros to 96.2 million Euros, more than half the GDP of the island. “It was not the public but the private sector that went haywire in Ireland,” saysFinancial Times columnist Martin Wolf.

House prices doubled and mortgage holders routinely paid out a third of their income to service loans. The politicians manipulated the tax structure to make it easier for developers to avoid taxes and fees, all the while subsidizing speculators with billions of Euros. “The lines between thievery and patriotism, between the private advantage and the national interest, became impossibly blurred,” says Fintan O’Toole in “Ship of Fools: How Stupidity and Corruption sank the Celtic Tiger.”

Ireland went from a small but dynamic economy to one dominated by an enormous bubble, its banks laden down with bad debts, its financial institutions vastly overextended.

When Wall Street melted down, sparking off a worldwide recession, the bubble popped, the edifice collapsed, and Ireland’s debt rocketed to 32 percent of GDP. And, like in 1845, it was the little who people took the hit. O’Toole estimates that Irish taxpayers shelled out $30 billion Euros to rescue the Anglo-Irish Bank, essentially the entire tax revenue for 2009. While the banks got a bailout, the Irish got savage austerity.

Joblessness is at 14.5 percent, 24 percent for young people. Personal income has declined more than 20 percent. Welfare benefits are due to shrink between 4 and 10 percent, and public sector wages from 5 to 15 percent. The Irish will be looking at a decade of lower wages, fewer services, regressive taxes, and record joblessness in an economy burdened with repaying an 85 billion Euro ($113 billion) IMF/European Union “bailout” at an onerous 5.83 percent interest rate. Of course “bailout” is a misnomer: The package is little more than a slight of hand that shifts private debt onto the shoulders of the public.

But the Irish are not famous for being quiet. Workers in Waterford seized their factory last year. In early November 25,000 students wearing t-shirts proclaiming “Education not Emigration” descended on the Dail, Ireland’s parliament, to oppose increases in student fees. And tens of thousands of trade unionists, led by pipe and drum bands, marched up historic O’Connell Street late last month carrying slogans reading, “It’s not our fault, we must default,” “Eire not for sale,” and “IMF out!” In a recent by-election in Donegal, the leftist Sinn Fein Party shellacked a government candidate. The government, says Sinn Fein President Jerry Adams, “Has no mandate to negotiate such terms and impose such a burden on the ordinary taxpayer.”

It will not be the last defeat for the Fianna Fail/Green Party governing coalition. The government’s “bailout” is specifically designed to fall on the needy. While 17.5 billion Euros will come out of the National Pension Reserve Fund, bondholders and banks will go untouched. Even the Financial Times was moved to condemn the “ongoing transfusion of wealth to those who recklessly financed the country’s real estate bubble.” Fianna Fail and the Greens will pay come the next election. But that may be too late if the government rams the “bailout” through, thus setting the plan in stone.

Like the 1845 blight, the financial contagion is spreading. Spain and Portugal are on the ropes, and Italy is in deep trouble. This time around the Irish will have plenty of company in their misery.

However, there is a way out that doesn’t involve inflicting enormous pain on millions of people who had nothing to do with causing the crisis:

1) Reject the pact or, if it is approved, repudiate it following a general election.

2) Dump the Euro and go back to a currency under Irish control. The Euro’s days are likely numbered in any case.

3) Suspend home evictions and put through a jobs bill.

4) Renegotiate the debt with the “Argentina option” in the wings: Argentina was caught in a debt crisis in 2001 and subjected to a barbaric IMF-imposed austerity plan. The Argentines told the IMF to lump it, declared bankruptcy, and successfully rebuilt their economy.

Of course the bankers and the IMF will scream like the banshees, but that would be music to Irish ears.

More of Conn Hallinan’s work can be found at Dispatches from the Edge.

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