A leading economist who predicted Ireland’s property collapse is forecasting a new wave of toxic debt could sink the country entirely, this time related to domestic mortgages. As the premium demanded by investors to hold Irish debt hit fresh highs today, Morgan Kelly predicted a 19^th-century-style land revolt by the public, warning their patience over the bank bailout is wearing thin.

Irish household were stretching themselves to the maximum to pay mortgages they cannot afford because of the stigma attached to default. “That will change,” Kelly wrote in the Irish Times. “The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording.”

A professor of economics at University College Dublin, Kelly’s comments have been seized upon as evidence that the country’s financial woes will get worse before they get better. He says the cost of the bank bailout, estimated at €50bn (£43bn), will be far higher than the government has admitted, with losses at Allied Irish Bank and Bank of Ireland equalling those of toxic bank Anglo, leaving the taxpayer with a €70bn bill.

Economist Stephen Kinsella described his views as significant. “They are unpleasant, they are scary, but they come true, and recent history has proven him right time and again. I began life as an economist critical of Kelly’s stance, then I saw his data and the accuracy of his predictions and became convinced by much of what he has to say.”

Doubts about the state of Ireland’s public finances continued to cause concern on the money markets today. The yield on 10-year Irish bonds shot above 8% – much higher than the cost of borrowing from the European Union’s emergency fund – while the premium demanded by investors over German bonds topped 570 basis points (bps).

A budget planned for next month will outline more savage cuts in public spending aimed at curbing the deficit while public anger at the amount of money spent bailing out the banks continues to mount.

Elsewhere in the eurozone, pressure continued on Portugal where 10-year yields rose close to 7%, pushing the yield spread over Bunds to as much as 459 bps after data showed its banks remained highly reliant on the European Central Bank (ECB) for funding.

Kelly was vilified when he warned of a property crash in 2007 and this year he said he had been made to feel that he had broken some kind of “Omerta” by speaking out about the state of the economy. Today he painted a bleak picture of the future and implied that hundreds of thousands would go into mortgage default. “The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War,” he said, in reference to public defiance in the 19^th century when tenants refused to pay their rents, leading to the phrase “boycotting”.

On the bank bailout, he says Ireland has been played brilliantly by the ECB, adding: “Everyone is a winner, or everyone who matters, at least… The Germans and French banks whose solvency is the overriding concern of the ECB get their money back. Senior Irish policymakers get to roll over and have their tummy tickled by their European overlords and be told what good sports they have been. And best of all... the senior management of the banks that caused this crisis get to enjoy their richly earned rewards.”

Lisa O’Carroll in Dublin