After the burst of the property market bubble, following the post-2008 credit crunch, the EU Central Bank demanded that the government shift the losses of five Irish banks, worth €60 billion, onto the shoulders of the taxpayers— citizens who had neither a legal nor a moral duty to bear the burden of that load.
Why? To shield the German banking system from the repercussions of taking large losses and to prevent “contagion,” which had the potential to derail the political project dearest to the hearts of all Europhiles: the euro.
We took our wrath out on that government and elected another one that nonetheless saw as its priority the full implementation of the savage “austerity” policy that came attached to the huge loans the government accepted in order to repay the banks’ losses. The result was a catastrophic downward spiral for Ireland’s economy and the well-being of its people.
Now the media are full of the “good news” that this “fiscal consolidation” scheme has succeeded: that Ireland has returned to the markets; that we now have the first tangible proof that the bail-out worked; that Ireland is about to regain its sovereignty, and Irish people can once more look the Germans, the French and the Dutch proudly in the eye, restored to the land of the free and the creditworthy.
So the EU elite have decided to declare victory, with Ireland as exhibit A, to declare that the combination of bail-out loans and severe austerity works. And if that requires being economical with the truth, so be it.
For those who don’t wish to be economical with the truth, and those who are bearing the burden, let’s look at some numbers:
• Number of people employed: Down by 13 per cent since January 2008.
• Number of people unemployed: Up from 107,000 in January 2008 to 296,300 today.
• Annualised domestic growth rate: –1.2 per cent.
• Net emigration: The number of people leaving the country is higher than the number coming in by 35,000. Gross emigration was more than 80,000 last year alone. In six years it went from the highest net immigration level in Europe to the highest emigration, overtaking the Baltic states and Kosovo. Meanwhile a group of students and other young people in Dublin has launched a campaign called “We’re not leaving” after the Government sent out letters encouraging young people to seek jobs abroad.
• Government deficit as a proportion of GDP: 7.3 per cent.
• Public debt: 121 per cent of GDP in 2013, up from 91 per cent in 2010 and 105 per cent in 2011.
• Household debt: 200 per cent of GDP. There are people living on €50 per week or less after paying their bills. We have had eight austerity budgets since 2008; in the community sector there have been cuts of 35 to 40 per cent.
• Value of assets underpinning household debt: –56 per cent since the crisis began.
•Mortgages in arrears for more than six months: 17 per cent of all mortgages.
How can anyone claim that this constitutes a “success story” and a cause for celebrating the end of the debt-deflationary spiral?
There are two arguments on which EU triumphalism is built: firstly, Ireland’s spectacular export performance (annual exports exceeding GDP), and secondly, the collapse of its ten-year government bond yields to levels that make it possible for the country’s return to the money markets, rather than a return to the ESM for more bail-out loans.
When we turn to exports we find that Ireland is the largest floating tax haven on the planet. Companies like Google and Apple famously launder their income through the International Financial Services Centre in Dublin in a manner that massively reduces their tax payments while at the same time bolstering Ireland’s GDP to ridiculously fictitious levels. (Anyone who disputes this must offer an alternative explanation of the fact that each of Ireland’s Google employees produces €4.8 million annually!)
All this means that the wonderful export statistics translate neither into corporate taxes nor into a significant number of jobs from which the government could claim income tax and indirect taxes so as to service its debts.
Turning to the government bond yields, an interesting question arises: Why are they so low when the data above reveals that Ireland, in view of the sluggish domestic economy, remains quite incapable of refinancing its gargantuan public debt? Why are bond dealers no longer dumping Irish government bonds?
The answer is simple: because they have concluded that the ECB and Germany will never let Ireland default, given the EU’s desperate need to proclaim the country as “proof” that their policies are working. Bond dealers, put simply, trust that the European Central Bank, either by means of Mario Draghi’s “outright monetary transactions” (a scheme under which the ECB makes purchases in secondary, sovereign bond markets, under certain conditions, of bonds issued by euro-zone states) or otherwise, will find ways of allowing Ireland to redeem its bonds, even if the Irish people and their government remain firmly lodged in debt prison.
Ten-year government bond yields were at approximately 5 per cent in Ireland until early 2010, before the 2010 bail-out. They then spiked about the beginning of 2011, because of the bail-out and the uncertainty surrounding that action. But they quickly came down as investors realised that the country wasn’t going to go bust, thanks to its access to the said bail- out funds.
By 2012 the interest rates were close to 6 per cent. And with the announcement of the “outright monetary transactions” that year they crawled down to below 4 per cent at the beginning of 2013.
Now investors are convinced that (a) the Troika and ECB would back the country so long as it adheres to the rules and (b) Ireland would indeed adhere to those rules. If we assume that these two hypotheses are true—which they probably are—investors are looking at a 4 per cent yield for almost no risk in an environment where yield generally is completely dead.
This has nothing to do with “recovery,” as the government is falsely proclaiming—quite the opposite, in fact. The recent growth figures, for what they are worth, are totally skewed by foreign profits being laundered through the country. (Have a look at the “Fixing the Economists” blog: http://fixingtheeconomists.wordpress.com/ )
The claim of a successful Irish programme is complete rubbish. The government has got its interest rate down through a mix of Troika-ECB backing and confidence in the government’s ability to follow the rules; but all the underlying economic problems are still there, and will not go away. The Irish debt-to-GDP ratio will continue to rise in the foreseeable future.
Since the 1980s Ireland has tried to run its economic policy essentially by appealing to the rest of the world—that is, by “sucking up.” Whatever everyone else is saying, the Irish government will do with gusto. Mix this with a little bit of clever behind-the-scenes diplomacy and you have Irish economic policy.
After the crisis the Fine Gael and Labour Party government essentially followed the formula that is supposed to have worked so well in the 1990s and 2000s. So when the Troika said, Get your bond yields down through compliance ... the government did exactly that.
There is a widespread belief that this will automatically lead to economic growth. This belief is entirely irrational, but that matters little. The politicians have convinced us that, as long as they achieve this target, all else will be well.
There is a profound sense of injustice but also a feeling that we can’t do anything about it: that we’re a small country on the periphery of the EU, powerless against the EU Commission, the ECB, and the IMF. And as long as we avoid the fundamental questions of membership of the euro and our continuing relationship with the EU, it will remain so.
A national debate on these issues would be a first but necessary step to empowering the Irish people once again.
No comments:
Post a Comment