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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Laughing All the Way to the Bank Bailout

At last something has come out of Ireland that gives you a reason to smile, if only wryly. Campaign Group Debt Justice Action has made an application to the Guinness of Book of Records on behalf of the Irish government. The category: most expensive bank bailout per head of population. As the video tells, since Iceland refused to allow its citizens to carry the weight of private bank failure, 'plucky little Ireland' has enforced on its citizens more private debt than any other country - including Greece. The cost is €16,500 for every man, woman and child in the country.

According to the Irish Independent, Ireland is the only country currently suffering from a banking crisis so serious as to rank in the top ten worst banking crises of all time. The country has already won the dubious accolade from the International Monetary Fund of being the costliest since the Great Depression. The study by IMF researchers compares the severity of 147 banking crises between 1970 and 2011.

Debt Justice Action tells us that:

'It is estimated that at least €67.97 billion has been poured into Irish banks so far, representing 45% of GDP, which came to €156.4bn in 2011 though DJA argue that the nature of Ireland’s economy makes the figure of 56% of GNP, €123.9bn in the same year, more relevant.

Of the €70 billion, one single institution, the infamous Anglo Irish Bank, accounts for over €30 billion of socialised debt. When the interest is factored in, this will cost Ireland €47 billion, or the equivalent of €26,000 per person working for pay or profit in the country.'

Two conclusions seem worthy of note. First, and most obviously, a global financial system that is so crisis-prone, and whose costs are so immense, is clearly in need of major structural reform. But secondly, the loss of the Irish people is the gain of the financiers, hence the general paean of praise for Ireland's politicians while they beat up on their old, sick and vulnerable citizens to pay their corrupt bankers.
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Just Say 'No'

The Irish State faces a historical moment. In keeping with its tradition of courageous struggle for freedom and justice and the unique role that Irish people and culture have played on the world stage, Ireland can now be the country that stands up against the bullying forces of the financial markets. The morally unacceptable terms it is being offered mean that any other response is unthinkable.

The bond traders responded to Merkel's attempt to constrain their profiteering by downgrading Irish debt - thus raising the income they gain from it - increasing the costs imposed on the Irish state, and crucifying the Irish people. It is time for a proud nation to say no: default is better than humiliation.

Such a strategy will also turn the tide. Since the break-up of the euro nwo appears inevitable Ireland could be a player in the end-game, rather than a victim. The plan of the financial interests is to pick off one Euro country after another. This is similar to the financial contagion that began in South-East Asia in the 1990s, but with the added appeal that, as each country falls, Germany will pay off the traders. Ireland's default would signal the end of this process and force a political solution on the Eurozone. If Ireland does nothing Germany will come under increasing pressure itself to abandon the euro and create a new currency, leaving the smaller nations of Europe in turmoil.

And here is one I prepared earlier. All EU states should simultaneously suspend trading in their national debt. They should then agree interest rates that they are prepared to pay on their national bonds over a 10-year period. These rates would vary to reflect the nature of the economies involved, but only within narrow bands, and at much lower rates than are being paid today. New dated bonds with fixed returns would be issued up to a percentage of current holdings.

States would thus retake the power over their national economies. Traders could accept the terms or lose everything. Their game of extorting the value of national economies through pressurising their politicians would be finished.

This radical political move would clearly have serious implications for the other global currencies, and especially the dollar. But it would bring the interests of citizens back into play and increase the pressure for urgent negotiations to establish a new global financial architecture which serves people rather than financial interests.
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Vultures Circle Dying Tiger

Today we are likely to witness the death of what Richard Douthwaite once called 'De Valera's Dream'. The dream of an Irish people in control of their own destiny, proud of their culture and their bountiful resources, confident in their ability to follow a different and better path to that of their erstwhile coloniser. But while the Irish were smart and brave enough to escape English military domination they misunderstood the dangers of the more subtle currency colonialism to which they are now subject.

At last Ireland's politicians are talking about sovereignty, but they are 20 years too late. Sovereignty was lost when the country opened its border to US finance and when it allowed its domestic economic policy to be controlled from Germany by joining the euro. As in Iceland, the policy was driven by a tiny 'business' elite who benefited most from the inflation in asset prices and the development boom. The masses were lured into support by cheap money and tawdry consumer goods: a poor price for the loss of independence.

It is tempting to ask how many of Ireland's politicians really believed that they could control that beast whose misnomer is of epic proportions: the Celtic Tiger. An economic policy designed in corporate America, driven from Frankfurt and labelled by Baudrillard was always going to end in tears. The finance-driven model of economic development led, as it always does, to social instability, inequality and ill health, as documented in Feasta's 2004 volume Growth: The Celtic Cancer. A model of growth based on uncontrolled, undirected growth in this way can never be either socially or environmentally healthy.

De Valera's model of development came with a narrow parochialism and stifling Catholicism that would be unacceptable today. But in its focus on indigenous resources, the agricultural sector and cultural specificity it has much in common with a bioregional approach to economic development. The vision of a self-reliant economy that uses its own resources for the benefit of its own people may now seem more appealing than a turbo-charged boom-and-bust model, especially when that automatically implies a loss of democratic control and environmental sustainability.

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Irish Tribe Buck the Markets

It seems that finally, a developed country has reached the point of saying ‘enough is enough’. Enough of transferring bank losses onto public balance sheets and destroying the public services that a civilised society requires. Enough of allowing the financial sector to create fictitious wealth at our expense. That country is Ireland and the outburst of discontent with the hegemony of the financial markets is emerging from the main opposition party Fine Gael.

Fine Gael Spokesperson on Enterprise, Trade & Employment, Leo Varadkar TD argues the banks took on the risky loans so it should be the shareholders who take the consequences, not the taxpayer. Under the party's so-called Good Bank policy, the National Assets Management Agency 'will pay the banks up to €54 billion for €77 billion of property loans. If the losses on these loans turn out to be very large, as many experts predict, our proposals could save the taxpayer up to €15 billion.' Given the much greater size of the UK banking sector, if we had adopted a similar policy it could have reduced the money paid to banks by a sum similar to this year's public sector borrowing requirement.

Refusing to respond to the shotgun demands of the banks that they receive their next fix of capital at the public expense is a bold but inevitable strategy in a country whose public borrowing is now ten times the size it is permitted by Eurozone rules and which has been on the verge of banktruptcy for at least a year. So much for bank debt, but what of the state? When the governments of Latin America got their people into excessive debt in the 1980s eventually they reached a point of refusal. The result was that the debts were ‘rescheduled’—either extended over a longer term or reduced so that credits got a proportion of their original loans back. Similarly, following Argentina's financial collapse in 2001, a solution was eventually negotiated where creditors received only 70% of their original loans.

In the case of Irish national debt, Fine Gael has been very careful to make the distinction between the debts of banks that are based in Ireland, and therefore backed up by the Irish government, and the debt that the government itself has taken on in the name of the Irish people to pay for its services. This was predictable, since Varadkar knows that the government will be turning to the market to sell more debt and its credibility must be maintained.

The UK government has taken a different tack through its Quantitative Easing policy. This has enabled it to wipe out chunks of our national debt on the sly. Money is created from thin air inside the bank of England and then used to buy bank national debt from the financial organisations who hold it. My assumption is that, since all such debt is time limited, it will quietly decay inside the bank's 'vaults' until it reaches its sell-by debt and goes to 'bank heaven' or perhaps--to keep my metaphor consistent--the rotten-money skip round the outside the back door of the bank. The banks are happy, since they now have 'real' capital that they can use to fill the black hole on their balance-sheets; the government is happy because its debt-to-GDP ratio looks more respectable than otherwise. We should be happy since this is less debt for our children to pay back.

Two questions remain: why are we not negotiating with our banks and their shareholders over how much of their fictitious wealth we agree to take responsibility for; and why should we not use the Quantitative Easing policy more creatively instead of seeing our public services decimated? Tweet