Ireland has become the latest European country to add its name to the list of recipients of financial aid from the EU and IMF and face protests concerning its austerity program. The country was given an 85-billion-euro ($113-billion) bailout loan at an average interest rate of 5.8 percent from the EU and the IMF. But what are Ireland's internal problems? And will the bailout work? Liu Xiaozhong, a Shanghai-based analyst, shared his views in a recent article in The Beijing News. Edited excerpts follow:

The current Irish dilemma is a mix of banking and fiscal mishaps. Not surprisingly, we can find similarities between the Irish crisis and the U.S. sub-prime mortgage meltdown as well as the Greek debt crisis. In Ireland, the crisis stems from the government's heavy fiscal burden caused by a real estate bubble burst.

Before the global financial crisis, Ireland had kept fast economic growth at 5-11 percent for years, which surprised other EU members. But, at the same time, huge bubbles were simmering in the Irish economy bolstered by real estate and financial service industries. In the first half of 2008, the country's banking system was hit hard as the real estate bubble burst.

Statistics showed the average housing price in Ireland rose three to four times from 1995 to 2007, and the ratio of the housing price to the average household annual income ratio also increased from four to 10. Irish housing prices were so high that they topped all other OECD (Organization for Economic Cooperation and Development) countries. From 1996 to 2006, the proportion of the real estate industry in the Irish GDP also climbed from 5 percent to 10 percent.

The Irish crisis—caused by real estate bubbles—reflects a typical evolution of traditional crises.

Before an economic boom, economic and financial resources often leaned toward capital-intensive sectors like real estate. So, the capital goods were overly invested, and investments in consumer goods were insufficient. Therefore, those capital goods, such as real estate, were traded at price differences, which helped form bubbles.

The Irish crisis has brought more challenges to the EU and the IMF than the Greek debt crisis. Unfortunately, the EU and IMF's prescription for Ireland was a defective edition of the Greek one, in other words, a huge bailout plan that required the Irish Government to cut fiscal deficits or raise taxes such as wage taxes. It seems that this kind of emergency rescue plan deliberately dodges the market-based debt restructuring efforts in the euro zone. A reduction in government deficit can certainly reduce the accumulation of debt risks, but it still cannot restore the government's solvency.

While EU economies are seeking fiscal de-leveraging, which means shrinking internal demand, those in the midst of crises should show their debt sustainability and foreseeable increases in government revenue to ensure solvency and reassure the market. Government revenue increases and economic growth will then depend more on external markets. Obviously, as the global demand sags, relying on external demand is unstable and unpredictable.

The EU and IMF's bailout plan can apparently raise the Irish Government's revenue, but it can stifle the private sector in the crisis-ridden country.

While the EU and IMF's emergency rescue plan for Ireland is needed to prevent the crisis from spreading, market-based debt restructuring should be strengthened, and the private sector should also be activated by tax-cutting measures.