Irish officials dutifully cut spending, trimmed the already lean public sector and raised tax revenue, and the nation has met every deficit target with flying colors.
Ireland's economy also managed to grow 1.4% in 2011, rewarding officials' determination to maintain economic competitiveness by keeping the country's coveted 12.5% corporate tax rate despite some EU officials' pleas to hike it.
Had Ireland made firms' tax burden more onerous, production would likely have suffered and lower economic growth may have kept Ireland from meeting the troika's mandated 10.6% of GDP deficit target.
Instead, Ireland's case proves deficit reduction and low taxes can go hand in hand; 2011's deficit was only 9.3% of GDP, easily besting the bailout's mandate. (A lesson Ireland's neighbors across the Irish Sea would do well to learn from as they embark on austerity.)Of course, none of this is to say Ireland's completely out of the woods. Irish GDP contracted in the first quarter, and while analysts expect growth over the entire year, data likely remain choppy. Ireland would also benefit from the relaxation of some bailout terms, particularly the requirement that Ireland repay the banks' private bondholders, which added about ¿30 billion to Ireland's debt load and around ¿3.1 billion in annual interest payments until 2023. EU officials have suggested they may strike a refinancing agreement in October, which would improve Ireland's fiscal footing and likely further increase investors' confidence in the Emerald Isle. Yetm while Ireland does have further to go, the successful return to primary debt markets nicely marks all the progress made thus far, and provides the rest of the periphery a timely example of the benefits of economic competitiveness.
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