If Ireland Represents a Success then the Model is Broken

Whatever your position on the Eurozone crisis it is an important day for Ireland. Today the country returns to being a democratic sovereign state after three years during which power was held by unaccountable technocrats working in the interests of global finance. The fact that Ireland can once again borrow in the finance markets is being heralded as a success for austerity, but that rather depends on your perspective.

If Ireland's problem was that it had borrowed excessively then this has certainly not been solved. The country's debt represents 124% of its GDP, meaning that its people are working harder to pay money to absent shareholders of foreign banks. The unemployment rate of 13.5% (see the graphic, left) is an artificially low figure because of the high rate of outward migration, a process that threatens the country's future by removing the most talented young people. Meanwhile cuts in a range of social benefits and government programmes will deepen and continue.

We should also be questioning how Ireland found itself holding unpayable debts: what is its story as one victim of the msiguided Eurozone project. Because the single currency area required a uniform interest rate for countries in vastly different economic situations it was bound to destabilise particularly the smaller economies. In Ireland's case the low Euro interest rates provoked an absurdly euphoric boom in construction. The later bailout of the corrupt and disreputable Anglo-Irish Bank at a cost of  €440bn was the final straw for the Irish economy, which became effectively bankrupt.

Ireland's political establishment chose to repay the country's debts and to win the favour of financial elites, rejecting routes such as default, deflation, or the repudiation of the debts as odious. This decision has come at a truly hideous price for the people of Ireland. At the time of Ireland's latest budget in September, the EU troika that was then effectively running the country required Joan Burton, minister for social protection, to cut €440m or just over 2% from the 2014 budget. Seamus Coffey of University College Cork points out the impact that the debt restructuring will have on future generations as 'excluding interest costs and sovereign bank support, the total deficit in the six-year period 2008-2013, will put debt of nearly €60bn more on us in services and transfers than is [collected] from us in taxes and charges.'

The European authorities have decided to allow Ireland to keep its extremely low corporate tax rate, allowing it to generate cash to pay to its creditors. This means that we, as Ireland's economic neighbour, are also suffering as a result of the deal. US corporations, particularly those in the high-tech sector including Apple and Google, set up in Ireland where they are only required to pay 12.5% tax rather than in the UK. This also justifies George Osborne's decision to cut corporate tax rates here on the basis of the need for us to be competitive. While Ireland's time with the bailout programme has turned it into a beggar its route out of the crisis is also beggaring its neighbour.

This sort of competition between countries should be cooperating for mutual benefit is an inevitable consequence of globalisation. It is the very system itself, with the free movement of capital and lax regulation of corporate activity, that is enabling capitalists and particularly financiers to benefit at the expense of the citizens of the world.

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The Troika, the US Hedge Funds and the Diversion of Taxpayers' Money

A guest post by Stephan Lindner

Do you remember John Paulson? In 2007 he became famous for having the highest income of all hedge fund managers on Wall Street, because he bet against the US housing market. Not all of his deals were fair, to say it politely. Later the SEC investigated a deal called ABACUS 2007-AC1, for which Paulson told Goldman Sachs to create a CDO with bad subprime mortgages, so that he could bet against it. Goldman Sachs agreed 2010 to pay $550 million to settle with the SEC and a former vice president of Goldman Sachs, who was responsible for the deal inside of Goldman Sachs was found liable for fraud in front of a jury. With that single deal Paulson earned around $1 billion and never had to justify himself in front of a court. And now he tells the whole world, that he owns shares in two Greek banks, Piraeus Bank and Alpha bank. Reuters cites from a statement: ‘They have good management and we think the Greek economy is improving, which should benefit the banking sector.'


What does this management looks like? In Greece after the haircut the banks are more or less bankrupt and need to be recapitalized. Officially they are solvent thanks to the $50bn. they received from the troika, but most experts still estimate that the non-performing loans are still higher than the injected capital. Normally nobody would like to give capital to such banks. Here is the explanation the owner of Piraeus bank found for this situation: Reuters reported in summer 2012, that he used credit in his own bank to buy shares of his bank (read the full story here). In this New York Times article from June you can read even more of what the president of Piraeus bank did to make his bank grow during the crisis to become the biggest bank in Greece:


If you think you get into trouble if someone finds out about such business practices, you are wrong. Mr Salinas is still the President of Piraeus bank and the Greek Central Bank, which investigated all allegations, could find no evidence of wrongdoing. And they have the ideal informant: the president of the Greek central bank is a former vice president of Piraeus bank. So what happens to people who report about such practices in Greece? It isn’t pretty.

We might also ask how the troika did everything possible to make the buying shares of Greek banks as lucrative as possible? For each Euro someone invests in banks like Piraeus the troika pays an additional nine Euros, and if the share price aises to a certain level, the investor gets the right to buy this additional 90 per cent of shares, not for the then actual much higher price, but for the low price at which they made their first investment. Hurrah for the troika for making such lucrative deals with taxpayers’ money. Read the full explanation of the Paulson deal in todays blogpost of Yanis Varoufakis.

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