Investors have been wondering openly if Ireland is the next Greece since at least 2010, when Ireland reeled from a banking crisis and rising sovereign debt. Proactive Irish politicians assuaged those concerns by reducing government expenditures, rescuing troubled banks and raising taxes. Those austerity measures, widely criticized at the time, coincided with returning economic growth. Over the next half-decade, Ireland remained one of the few growing and productive economies in the European Union.

No good deed goes unpunished, and Ireland's center-right Fine Gael party and its Labour partners were ousted in February 2016. The conventional wisdom is that austerity created growth and recovery, but Ireland's poor weren't seeing enough benefits.

It is worth wondering if Ireland will slip backwards on the path toward default if its political leaders fail to grapple with uncomfortable economic realities. Here are three troubling similarities between Irish and Greek economic paths.

Very High Debt-to-GDP

The central problem of the Greek crisis has usually been outstanding public debt. Greece ended 2015 with a 176.9% government debt-to-GDP ratio, a slight decline over its 2013 and 2014 figures. Back in 2007, Greece had a debt-to-GDP ratio of just 103.1%. Over the next eight years, problems with massive public worker pensions and salaries were compounded by chronic debt repudiation and revenue shortfalls.

Ireland is on a better three-year trajectory than Greece, but the trendline is actually worse than Greece since 2008. Irish government debt-to-GDP stood at 93.8% in 2015, well below the 120% of 2013 or 107.5% of 2014. Government wages were slashed and benefits reduced alongside targeted tax hikes.

The Fine Gael party came into power in 2011 amidst exploding public debts and a cratering economy. Debt-to-GDP was just 23.9% in 2007, but it grew to 42.4% in 2008, 61.8% in 2009, 86.8% in 2010 and 109.3% in 2011. That means Ireland's 2015 debt-to-GDP ratio was still 292.5% higher than it was in 2007. If new leadership doesn't share Fine Gael's enthusiasm for fiscal responsibility, Ireland's bondholders will grow nervous.

High Personal Income and Sales Taxes

An old saying is that money goes where it's most welcome. There's also an economic truism about getting less of something when it's taxed. These are two reasons many economists are skeptical of high taxes on income. During times of difficulty, high taxes may scare off the very workers and investors necessary to help a recovery.

Ireland and Greece share strikingly similar individual tax policies. The top marginal income taxes are 48% for each, among the highest in the industrial world. Sales taxes, conducted through the EU's value-added tax (VAT) system, are even higher when compared to other countries. Ireland and Greece each average 23% sales taxes on consumer goods.

In the case of a recession, Irish policymakers may find citizens unwilling to stomach increases following already-high tax burdens. The same phenomenon hampered Greek efforts to seriously tackle debt problems in years past.

High Personal Debt and Low Savings

The classic Keynesian fix for economic problems is to encourage more borrowing and spending. The flip side is a lack of emphasis on personal savings. The remedy hits a natural wall whenever personal debts become onerous. People who borrow too much have to pay back their debts and square with creditors, which is neither spending or saving in the traditional sense.

Ireland has very high levels of personal indebtedness. To their credit, the Irish have tightened their belts since the period between 2007 and 2011, when household debt-to-income (DTI) was above 200%. By 2015, that figure fell below 180%. If more stimulus-focused policies are implemented in Ireland, the positive trendline of reduced indebtedness may reverse.

Greece's DTI figures are far lower than Ireland's, but that's not necessarily a good indicator. The Irish workers tend to be much more creditworthy than their Greek counterparts, and Greek lenders are less able to float credit. More problematic was the increase in DTI among Greek households, which restricts future spending and savings.

Important Distinctions

Greece has a litany of social and economic problems that Ireland doesn't have to deal with. Huge levels of government corruption are a drain on resources and legitimacy, while equally prevalent tax evasion serves to balloon the national debt. No modern economy thrives without effective contract and fiduciary practices, yet Greece struggles with both. Moreover, Ireland's economy seems far freer than Greece's. According to the 2016 Index of Economic Freedom, Ireland ranked as the eighth-freest country in the world], ahead of the United States, United Kingdom and Germany. Greece, by comparison, ranked 138th, sandwiched between Bangladesh and Mozambique.

Dire as some of the warning signs and similarities may be, Ireland isn't perfectly analogous to Greece. The two countries differ in very important and structural ways. It's important to bear these in mind before condemning the Emerald Isle to a Hellenic fate.

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