Europe’s economic woes may have escaped the business pages for a few months, but it appears that the troubles of Spain, Portugal, Italy and especially Ireland are once again rearing their heads. Ireland appears in the most immediate danger, with the mooted €35 billion cost of bailing out Anglo Irish Bank causing Ireland’s budget deficit to increase to an alarming 32% of its GDP (ten times the EU limit).

The move has shocked many observers, who believed that Ireland’s austerity measures would place the nation’s economy back on sure footing. But while many have applauded Ireland’s ostensible tough stance, if one looks more closely it appears that the Irish Government isn’t especially austere. In fact, the Emerald Isle’s social security practices may lead the nation further into an economic mire which may last for decades.

It wasn’t always this way. The Celtic Tiger roared to an average annual growth rate of 6.5% from the mid 1990s until the global financial crisis struck in 2008. European Union money flooded into Ireland, allowing it to lower its corporate tax rate (and attract bases for major international companies like Google and Dell), while still investing billions in infrastructure. Unemployment in Ireland dropped dramatically and living standards improved.

But growth soon gave way to a massive housing bubble. Cormac Ó Gráda, a professor of economics at University College Dublin, wrote that:

“[People thought that] rising real incomes, low interest rates, immigration and an expectation that prices would continue to rise indefinitely — all of these factors buoyed the demand for housing. Lending institutions almost threw money at borrowers: before the housing bubble burst in 2007 house-buyers were borrowing up to eight or ten times their annual earnings.

The rich speculated heavily in property investments, both at home and abroad. The flurry prompted builders who had grown rich in the Tiger years to overreach themselves, buying land and developing sites at increasingly unrealistic prices.”

Much of that bubble was funded by Anglo Irish and other banks like Allied Irish (which is seeking €3 billion) and Irish Nationwide Building Society (which has been nationalised). As it turned out, the investment largely consisted of over-paying for property, which has since massively dropped in price.

Since the crash, Ireland has undertaken a very public austerity plan, aiming to slash the country’s budget deficit from 12% of GDP to a more reasonable 3% by 2014. But even while public spending was being reduced, the Irish economy remained mired in bad debts, as Business Spectator’s Karen Maley observed:

“Ireland is struggling to cope with the cost of propping up its banking system after a disastrous property market collapse. So far, the government has spent about US$45 billion … But Ireland’s economy is struggling.

The country’s GDP shrank at an annualised rate of close to 5% in the second quarter, raising doubts whether the country can afford to pay for more bank losses…Ireland’s high levels of borrowings — the country’s total debt stands at five times Irish GDP — means that the Irish troubles will spill over into the rest of Europe. UK and German banks are the country’s biggest lenders.”

But while the former Celtic tiger has won plaudits for its apparent belt-tightening ways (and criticism by others for “locking itself into permanent depression and deflation, from which the only way out may be a default”) on the ground, it appears that one man’s austerity is another’s prolificacy.

Several Irish residents told Crikey that while claiming austerity, Ireland maintains an extraordinarily generous welfare system. For example, unemployment benefits are payable to one spouse even if the other spouse continues to work (apparently, in Ireland, double incomes are a right, not a privilege). Or if an employer reduces the hours of a staff member from full to part-time, then the Government will pay the employee a top-up transfer payment so that they are being paid as if they were working a full five-day week.

Perhaps most surprising is an Irish policy which actually encourages its citizens to assume more debt. In Ireland, if you take out a loan (for virtually any purpose) and subsequently lose your job, the Government will pay the interest on the loan for you. This even applies if the person was aware that they were about to lose their job at the time of taking the loan. The over-leveraged Irish Government is in effect, encouraging banks to lend to poor credit-risks. Forget computers, the Irish are now manufacturing moral hazard.

So while the Irish Government may be appearing austere to the outside world, on the ground, its policies are further encouraging debt-funded consumption at a time when the nation’s financial institutions are already virtually bankrupt and more than 13% of its workers are unemployed.

Irish bond yields hit a record high last week as investors worry that the nation will default on its debts.

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Crikey two weeks ago questioned the accuracy of published auction clearance rates, alleging that real estate bodies like the Real Estate Institute of Victoria produced knowingly misleading clearance rate figures. Inflating the real clearance rate gives the appearance of a stable and rising housing market, when in fact, the opposite may be true.

This understandably didn’t go down to well with Robert Larocca, the Institute’s Communications Manager who told Crikey that:

“The contention that “REIV tends to ignore the substantial number properties that are not reported — almost all of those no-results actually have a result — that is, they are passed in” is totally incorrect. We follow up each result and vary the clearance rate to ensure a full picture of the market is presented. No one else provides that service.

By separately reporting each variant and the overall result, it is as transparent as it can be; market watchers can either take our clearance rate or calculate their own. We use the same methodology each time to ensure weekly results are comparable over time.

Like it or not, our results are the most accurate and comprehensive.”

Yesterday, the Sunday Age reported REIV clearance rate figures of 74 percent, noting that “while some vendors decided to hold off, others stuck with their auctions–– largely good results.”

It appears however that the REIV’s ‘transparent’ ‘full picture’ wasn’t especially accurate. Today, the Financial Review reported that Melbourne’s “love of footy did appear to affect auctions, with a 61% preliminary clearance rate reported by Australian Property Monitors, the lowest for a year.” The REIV’s website still has the 74% clearance rate stated.

Things were even worse in Sydney, with APM reporting a 54% clearance rate, also the lowest in a year.