Irish eyes are no longer smiling

I was outside Leinster House, the home of the Irish parliament, the Dail, along with a small group of demonstrators and all the TV cameras with their presenters queuing up ghoulishly to pick over the bones of the Irish economy.

Across the road, the troika of IMF, EU and ECB officials were ensconced in the most expensive hotel in Ireland (400 euros a night plus 30 euros for breakfast etc) preparing to go through the books of the Irish government, looking for any nasty black holes in the country’s now insolvent banks.

In Leinster House, the Irish government presented 160 pages of sheer horror for the Irish people in its four-year fiscal austerity plan, designed to put Irish capitalism back on its feet.  The taoiseach or prime minister Brian Cowen says no one would be sheltered or escape from the plan.  Of course, this is rubbish because the shibboleth of Irish capitalism’s success as a ‘Celtic Tiger’ over the last ten years has been to offer foreign multinationals a ridiculously low corporate tax rate of just 12.5% to attract them to Ireland.  At the same time, the rich will still pay very little in tax, as the capital gains tax of 20%, halved under the current government, is not being changed, while the ‘non-doms’ Irish rich who stay ‘offshore’ will continue to avoid paying Irish taxes.

And nothing is being done about cutting the ludicrously high salaries and pensions enjoyed by the politicians and heads of the banks, local government, schools and other private and public services.  The prime minister is the best paid in the OECD while local service heads are paid even more than they are in the UK.  You see, the ‘corporate ethos’ of the private sector must be applied to public services.  All these characters escape the axe.

Instead, it is the average family that will be screwed under the four-year plan.  The 45% of very low paid workers who pay no tax at present are to be brought into the tax net, while VAT will be hiked to 23%.

But even more horrific than these measures are the direct attacks on the living standards of the lowest income earners.  The minimum wage is to be slashed 12% to E7.65 an hour.  Billions are to be cut from welfare benefits; 27,500 public sector workers are to lose their jobs; the public pension scheme is to be reduced in value by 10% for new entrants; students are to pay fees for higher education.  And there will be no protection for the health service as supposedly there is in the UK: 10,000 health workers are to lose their jobs.  The austerity programme will take 11% of national income out of the pockets of the Irish people; that’s even more than in the UK’s recent budget cuts.

This draconian plan aims to get Ireland’s government budget deficit down from 12% of GDP to 3% by 2014 and to stabilise the gross public debt burden at something like 120% of GDP.  How did this huge debt burden come about?

It is the result of the public sector having to rescue the private sector after a great credit boom and bust, driven by a massive property price bubble, recklessly pursued by Ireland’s banks.  With the connivance of the politicians, the bankers and property developers went on a crazy binge.

Irish banks grew to an enormous size relative to the small Irish economy – some five times larger than annual national output!  And just like the Icelandic banks on another small island, they went on buying up assets with cheap money all around the world.  They borrowed more and invested more and more in crazy property schemes.  And of course, there was only ‘ light touch’ regulation employed on bank activities by the authorities.  The credit party never seemed to end, so the banks kept on dancing, taking the Celtic tiger with them.

The hard work and long hours of the bulk of Irish workforce had provided the income and profits for foreign companies attracted by cheap, but educated, young Irish workers and, above all, by corporate tax rates that were the lowest in Europe, bar Bulgaria.  But all this hard work was pissed away by the banks and property developers.  When the global crisis struck, Ireland’s commercial and residential property market collapsed, with prices falling 50-60%, way more than in the US or the UK.  Exports were decimated in the global downturn and the banks were left exposed to huge bad debts that they could not absorb.  They went bust.

The government had to step in.  What did it do?  It guaranteed the deposits of the banks’ customers.  Fair enough – that protected Irish family incomes being lost.  But it also guaranteed the banks’ bonds held by banks, insurance companies and hedge funds around the world.  In doing so, the taxpayer was now burdened with a huge new debt.   The government reluctantly realised that it would have to nationalise part or all of the banks in order to provide them with the capital to survive.  As a result, the public sector’s debt to GDP ratio rose from 28% in 2006 to 100% this year!  And the budget deficit rose from 1% in 2006 to 32% this year (including the cost of the bank bailout).

But the terrible property slump continued and foreign investors who own 85% of Ireland’s government debt were worried that the Irish banks were still not ‘clean’ and more money would be have to be found by the government.  The banks were unable to raise any funds themselves and increasingly relied on the ECB to give them emergency funds.    The cost of borrowing for the government  then rose to unsustainable levels and eventually the government has had to ask other European governments to bail them out.

Was all this really necessary?  Is there no alternative to the four-year austerity plan?  We are told daily in the papers that there is no other way out.  But that is because Ireland’s foreign creditors must be paid back in full, the banks’ bondholders must also get their euro of flesh (because they are just other European banks who would lose billions if the Irish government did not pay its banks’ debts).

So the cost of this disaster must be met by the taxpayer or in other words, Irish working class and middle-class households.  The people who did the damage escape, while those who have no blame must pay.   The aim of the government is to impose a huge devaluation of average living standards through the fiscal package, then as soon as possible privatize the banks by selling them off to some foreign banks with all creditors paid in full.  And then it’s business as usual.

But there is an alternative:  don’t pay the bondholders, default on the debts to the foreign banks and reach agreements on a ‘haircut’ or discount on the value of those bonds.  The bond investors take a risk when they buy a bond; they should take a hit if it goes sour.  After all, even the Germans are now considering imposing haircuts on future restructured sovereign debt. So such action by Ireland would not necessarily mean having to leave the euro.

Most important, the fiscal austerity package is likely to do more damage to the economy now that the bankers have finished with it.  Even capitalist commentators (including the IMF) are worried that the government plans could keep the economy from recovering sufficiently to meet the fiscal targets.  The forecast growth assumption is 2.75% a year for real GDP to 2014.  The cuts themselves could make that impossible.

The key to economic growth is more investment in industry and services.  Increased investment will allow employment to recover too.  But at a time when Irish private sector is unable or unwilling to invest, the four-year plan aims to reduce government investment by 40% in real terms!

Expanding public investment would be the way out of this crisis and instead of taking EU money to fund bank bondholders, Ireland could obtain loans for investment in the economy.  This could be done through the EIB , the pan-European investment bank (see http://yanisvaroufakis.eu/2010/11/19/how-would-our-modest-proposal-help-ireland/).

Also, now that the Irish people own their banks (at the cost of one-third of their annual income), they should keep them and not sell them back.  From here, the state banks should be used to provide lending for investment and growth.  The old speculation in property, stocks and bonds with crooked developers and bankers can be ended once and for all.  State-owned banking would then become a public service.  There would be public investment through state-owned banks with a plan for public works schemes instead of a bailout for banks and the rich.

The Irish coalition government is set to fall.  But it will not be replaced by one that aims for an alternative policy.  The opposition parties who will form a new coalition probably in early 2011 will continue with the austerity plan and try to implement it.  So the cost of the credit boom and bust and the ensuing Great Recession that turned the Celtic tiger into a sick cat will be paid for not by those who caused it but by those who were the victims of it.

One Response to “Irish eyes are no longer smiling”

  1. john throne Says:

    We will all be familiar now with the death of the Celtic Tiger. This seemingly unstoppable and vibrant creature seemed to be the wonder of the European economies over the past years. But as some of us said it was kept going on an entirely artificial basis. Debt was a central feature. Debt can keep a capitalist economy going outside its limits. That is if enough people and entities can keep borrowing and spending then the economy can be kept growing and things can look good for a while, even very good. This was to a great extent what happened in Ireland.

    Much of this debt went into building homes. Of course as we all know if we borrow more than we can afford to pay back then there will be a day of reckoning. This is what is happening in Ireland now. The economy which was able to grow outside its own limits through debt is now being snapped back inside those limits as this debt demands to be dealt with, both on the home money markets and the international money markets.

    Another factor that allowed the Irish economy to grow as it did was the low tax rate it gave to the corporations. This also pushed the government deficit to a higher level. This low tax rate plus a well educated and English speaking workforce attracted many multi national corporations, especially US based multi national corporations and this added to the Irish economic growth, to the Celtic Tiger’s temporary growth. All seemed to be for the best for a while in the best of all possible worlds. Of course for those who knew a bit about history and especially about Marx’ view of capitalist economics they could see that this could not last. And it has not. The party is now over. the wreckage that capitalism has wrought is there for all to see. Capitalism as we say does not work.

    Along with the economic crisis and the suffering this is bringing to so many people in Ireland there are other sides to what is happening. The union and labor party leaders continue to stand in the way of a fight back that could solve the problems. Token gestures and speeches is all they can manage. However the unions and also the labor party, definitely the former, will be factors in the struggles that will develop in the future as Irish workers seek to fight against having to pay for this crisis that was caused by Irish and international capitalism and their political representatives. Organized opposition has to be built inside the unions and the workplaces. This cannot be avoided by setting up other fight back organizations.

    One of the other sides I am referring to is the development of the United left Alliance (ULA) in Ireland. This is a grouping of left and activist groups that are seeking to prepare themselves to organize a fight back against the cost of the capitalist caused crisis and wreckage being unloaded on to the backs of the working class. We should all be very excited about this development of the United Left Alliance in Ireland and congratulate all the groups involved for taking this step and standing against the left sectarianism that we have all been guilty off over the decades and which has done so much harm. I hope Comrades will not mind if I make a few comments. First on left sectarianism.

    If this threatens this new movement, and it is unlikely it will disappear over night, then I feel it should be openly identified for what it is, left sectarianism, that we should openly admit that we all practiced it, that it is very damaging to the workers movement, and that it and all these aspects of it should be discussed and the struggle against it made explicit, and workers and activists in all groups and none be asked to take an open stand against it. It should be explained that the struggle against the attacks on workers living standards which is being waged by Irish and international capitalism is also a struggle against left sectarianism. Workers and activists in all groups and none have to take an open stand against this damaging method of organizing. It damages the workers movement.

    While entirely supporting the unconditional opposition of the ULA to any and all attacks on the working class and unconditional opposition to cooperation with the parties that support solving the crisis on the basis of capitalism I am wondering if the ULA is possibly being insufficiently concrete about the steps that would deal with the crisis in Ireland and which would at the same time connect with the existing consciousness of the working class. I wonder if the ULA is sufficiently considering the actual consciousness of the working class. Not that this consciousness is right wing or anything like that, I believe it wants to fight. However I also believe that working class consciousness tends to be very practical and so I would think would very much want to have a clear view in its head as to how this financial and political crisis can be successfully dealt with. Such a crisis that exists now can motivate workers if they can see a way to fight and have clear goals, but if they cannot see a way to fight and do not have clear goals they think can be achieved then such a crisis can also scare the working class and tend to paralyze the working class.

    I think that the ULA should put more emphasis on the ULA being a united Front. Explain what a united front actually is. that is a coming together of forces which agree on limited goals and also agree to fight together for these. In this case come together to prevent the crisis being put on to the backs of the working class. come together to make the rich and the corporations pay. The ULA does not have to be socialist. I do not know the mood sufficiently. But I am inclined to think that maybe it is better that it not be explicitly socialist, rather a united front around a few basic demands which make clear that the rich and capitalism must pay for the crisis and along with this and crucially a concrete plan of action to act to fight to win.

    I very much think the ULA has to spell out where the money is to come from, how the crisis is to be solved. How about taking the oil and gas that is in the country’s boundaries and paying no compensation. This is very concrete. This is very easily understood and envisaged. Take the oil and gas over with no compensation and use this wealth to begin to tackle the country’s problems. Or if the consciousness is not there for taking the oil and gas into public ownership under working class control and management without compensation then at the very least a meaningful extraction tax that would yield the country a large income and help deal with the debt crisis. Give the facts and figures on this, at what rate would such an amount be collected and how much this would yield. This approach would make things concrete and the working class would have a clear view of their objective. These are the kind of ideas and facts that would make things concrete and convince the working class that it can fight and win.

    We need to see the importance of how and why the right has used their TINA weapon over the years. That is the idea they push that There Is No Alternative. TINA. the right’s use of TINA. There is no alternative. This is what they hammer away at. It has had a very big affect. But there is an alternative. We have to answer There Is An Alternative. TIAA. We have to spell this out in the most concrete way. In relation to oil and gas this approach was raised in the struggles to defend education and the public sector in California last year. California is the only major oil producing state in the US which does not have an extraction tax on oil. We demanded that one should be immediately put on and back dated, and deal with the State’s budget crisis at least partly in this way. Workers could concretely see where there was big sources of money and how it could be used to solve the crisis. Not TINA but TIAA.

    Back to Ireland. I feel we should also raise that all the financial houses be nationalized and that all bank accounts over a certain amount, perhaps 100,000 euros and up, perhaps much less, that are held by Irish citizens at home and abroad be examined to see where the money came from and what taxes are being paid. That is we demand the opening of the books of Irish capitalism and the rich. Along with this we also demand that corporate tax rates be put on a level which are comparable at least to other capitalist companies and that all bank accounts and incomes over a certain amount, again say the 100,000 level, Irish Comrades would have a better idea what the actual figure should be, again would have to pay a higher rate of tax. Again I am raising the need to concretely explain in facts and figures, in numbers how to solve the crisis. The concept to be made clear. TIAA.

    In this way the ULA can explain how a large capital fund can be established, not by taking from the working class but by taking from the oil and gas sector, by increasing the tax on the corporations, by increasing the tax on the rich. I think we have to establish this idea in workers heads. That is the idea that the country is loaded down with money or money in off shore bank accounts and this must be accessed and brought together in a large capital fund under public ownership and democratic working class control and management and that this is the basis for solving the crisis. This capital fund idea must be established this way, and made concrete in the minds of the working class, made the center of the discussion as to the way forward. Workers know that something has to be done. If they cannot see any other way they will acquiesce to the IMF and the EU attacks and the idea that there is no alternative. That is TINA. Again we have to show that there is an alternative. TIAA. We need to explain there is an alternative to making the working class pay and that is by establishing a large capital fund which would be taken from the corporations and the rich instead. In this way the working class will be able to see a concrete solution and a concrete target to fight for.

    We should propose that this capital fund be used for the following purposes. If the consciousness exists we should raise the need to and campaign to cancel the debt to the banks. If it does not this fund can be used to deal with the debt in a selective manner. That is working people who have debts and shares and bonds and holdings can be compensated but the corporations and swindlers and their pals not. One way or another this capital fund should be used to move the country’s finances into the black. Take over the banks and make these publicly owned banks which would be part of the capital fund. At the same time selectively look at the situation of the banks and the ordinary working people protect and compensate them, the swindlers and shareholders and bond holders – again not.

    At the same time use this capital fund to invest in infrastructure, new energy sources etc to create jobs and so on and put people back to work and able to earn an income again. Part of this would be to use this capital fund to deal with the housing crisis. There are huge numbers of empty houses in the country. Many others that the owners want to sale and cannot. Yet there are large numbers of people needing good homes. Part of this capital fund could be used to take over these homes, look at paying for these where they are family or personally owned and begin to house the people who need homes in this way and at the same time begin to deal with the crisis of empty homes. Where the homes or apartments are owned by the swindling developers, banks and corporations then take them over without compensation.

    Now to the issue of consciousness where there might be the biggest challenge but one which I feel there is no option but to confront and struggle with. This is the issue of who would be in charge of these steps. I feel that we have to pose the challenge to the working class. It is us the working class who have to be in charge. The working class is held back I feel by a number of factors. The worst is the role of the union and labor leaders. There is also the role of the left and its left sectarianism and ultra leftism. But there is also, and this is related to the previous issues, the fact that the working class itself is not confident that it itself can do the job, can run things. We have to face up to this. Even in spite of seeing the catastrophic mess that Irish and international capitalism, that the capitalist class and politicians have made of things, even seeing these scum, this class to have proven conclusively that they cannot run things, the working class in my opinion are still not sure they can run things themselves.

    The ULA will have to campaign in my opinion for the concrete economic steps I outline above as this would increase the confidence of the working class in its own ability and power. These are concrete simple steps which would increase the confidence of the working class. Increased understanding that these basic simple steps can lead forward would begin to have an effect in increasing the confidence of the working class as a whole. If you know what has to be done and what you want to do then you are naturally more confident.

    And at the same time as campaigning for these measures it would be necessary to campaign for and actually concretely build and struggle through and link together working peoples committees in the workplaces, the communities, the unions at all levels, the places of business, the schools and colleges and in this way help the working class become more confident and convinced that it can actually carry out and over see these measures by the establishment of democratic working peoples committees. We would have to actually struggle to build these on the ground, struggle through them, have victories through, them fill these out. In this way help the working class gain confidence in its own ability and power. The tactics used would have to include occupations, strikes and general strikes, boycotts, mass mobilizations of all sorts, which taken together with explaining how the economic steps that can and have to be taken can transform the consciousness of the working class to where it believes it can become the class in charge, instead of a a class in itself, a class for itself and the class in charge.

    We should study and explain about the committees that were thrown up in France in 1968, and in Argentina a decade ago when the working class faced the attacks on their living standards and set up independent centers of organization and power. I feel we need to do this in order to help the working class believe in itself, believe that it can actually do the job. Such a movement developing would begin to move the struggle forward into the big leagues.

    I think this raises other major issues. Such a movement would have to build real links and action with the British working class and the working class in the North. Not just propaganda but building real links. Move the struggle on to an internationalist level, this is what is essential. Unite the working class North and South , in Ireland and Britain against the attacks on living standards which workers in all these areas are suffering. Link with the French workers, the Portuguese, the Spanish, the Greeks, it is a sign of the blindness of nationalism that at a time when working class people throughout all of Europe are under attack and fighting that Sinn Fein takes this issue up in a nationalist manner. This is where I am worried about the nationalist tone of the Sinn Fein protests. If this struggle of the Irish working class is waged in a nationalist manner it will be defeated. This is as sure as night follows day.

    We must not be too narrow in our view when we approach this crisis in the South or Ireland. First I think we have to make sure we are connecting with the existing consciousness of the working class, and doing so in such a way as to help that consciousness move forward and the working class become stronger. I think crucial to making sure this happens is a program of a few basic demands that are seen as practical and achievable by the working class in struggle at this time, and also explaining that these can only be won through struggle and what the nature of that struggle has to be. I believe the ULA does not have to be explicitly socialist but it does have to be most concrete in explaining that There Is An Alternative. TIAA. The alternative must be concretely explained. That is where the money can come from, how the economy can be saved from wreckage. How the rich can be made to pay and not the working class. If this explanation is not made the property of the consciousness of the working class then it will be very hard to win this struggle.

    I also think that if ULA has to see that if we can help bring such a movement into existence it must not be confined to, it would not be confined to, the borders of the south or the shores of Ireland. As I say we would have to see that we would begin to be entering the big leagues then. With all this would mean to the way the enemies would move to take us on? We have to always try and be aware and know when we are moving into different leagues and new territory. The capitalists are not totally stupid. Spreading the movement internationally on a program and that makes concrete sense to working class people and using a strategy and tactics that can win, this is what can avoid the catastrophe which Irish and international capitalism is serving up for the Irish and international working class at the moment.

    Sean

    Visit us at:
    http://www.weknowwhatsup.blogspot.com
    http://laborsmilitantvoice.org

    __._,_.___

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