Lies and Damned Lies!

Rory Hearne, Lecturer in Political and Economic Geography, National University of Ireland, Maynooth.
The government is misleading the Irish people and the EU about the reality of austerity and the debt crisis in Ireland so as to avoid admitting that they took the wrong approach with austerity, and their failure to get a meaningful debt deal. The truth is that austerity is based on flawed economics and it hasn’t worked in either Ireland, Greece or for the EU, and Ireland’s debt is unsustainable.
Austerity has devastated Irish society. For most people recovery is just a word being spoken by politicians and the media. The Central Bank and ESRI have highlighted that the much-lauded growth figures do not reflect the true health of the Irish domestic economy, because they are artificially inflated by multinational and financial activities that do not take place here.
Austerity has resulted in 1.4 million people, almost 31 per cent of the population, suffering from deprivation—which is up from 14 per cent in 2008; 37 per cent of children suffer deprivation (up from 18 per cent in 2008). The legacy crises are multiple, including mortgage arrears, rent, homelessness, child care, hospitals, and community services.
Unemployment figures are largely reduced, because of emigration and the use of unpaid- jobs schemes. Domestic demand remains static, and working-class communities, small towns and rural areas are devastated.
Austerity has not worked for the low- income and working people of Ireland. At the European level the euro area is mired in stagnant growth of 0.8 per cent, mass unemployment of 11 per cent, and a ratio of debt to GDP that that has risen from 72 per cent in 2009 to 92 per cent today.

The calculation of the economists Reinhart and Rogoff that austerity was required to reduce government debt levels below 90 per cent in order to return to growth was also found to be incorrect. The IMF has also admitted that it underestimated the negative impact of austerity’s higher taxes and spending cuts on economic growth and unemployment.
The government continues to peddle the myth that our national debt is manageable and sustainable. It is assuring the international markets that the Irish people will continue to pay all the debt accumulated from the crisis and bailing out the banks, irrespective of its impact. But why are we immiserating and impoverishing our population, and depressing our economy, in order to pay back this illegitimate debt?

In 2009 Ireland's "general government” debt was €104 billion. This year it stands at a staggering €210 billion. In 2009 the Irish debt-to-GDP ratio, the figure used to assess the sustainability of national governments’ debt levels, was 62 per cent. This year it has risen to 108 per cent. In 2009 we paid €2.5 billion in interest on the national debt. This year we are paying three times that figure: €7.3 billion.

How is an economy that has undergone such a deep recession to be expected to pay double in debt payments what it was paying during an economic boom? That €7.3 billion debt interest is 20 per cent of all taxes taken in by the government. It is equivalent to the entire education budget. But these repayments and the debt are going to get even worse in the coming years. The national debt will be €214 billion in 2018.
So what the government really means when it continues to argue to Europe and the markets that our national debt of €215 billion is manageable is that the Irish people accept that a fifth of all taxes collected will go to debt interest repayments. The interest on this debt will be paid each year through the massive diversion of resources away from the education system, social housing, employment creation supports, disability services, etc. Rural services will remain shut, and mental health services will remain underfunded. The waiting lists of the sick to get hospital treatment will lengthen, and more children will go hungry. The domestic economy will underperform as personal taxes are diverted to debt repayments.
Ireland’s debt-to-GDP figure is also misleading in a way that hides the true size of the debt relative to the economy. Ireland’s GDP figure is inflated by multinational economic activity, some of which is not real activity taking place here in Ireland. The GDP growth figures (which are used to claim that Ireland is in recovery) are also artificially inflated in this way. This means that Ireland’s debt-to-GDP ratio should be even higher and we have even less economic capacity than our GDP figures suggest to pay back this debt.
This is worsened by the fact that corporations pay low levels of tax in Ireland, which leaves a disproportionately higher burden of the debt with the general population. This is a major downside to the way in which multinational activity and taxation is organised in Ireland that is often overlooked.

What this shows is that Ireland’s debt crisis is being ignored and played down to the detriment of the economy and public services.
Yet the Irish government is now a leading opponent of a Greek debt deal, despite the fact that we could save up to €3 billion a year on our debt interest as part of Greece’s European debt conference proposals. But the Irish government and European elite are more concerned that a deal for Greece will boost anti-austerity politics in Ireland, Spain and Portugal. So their strategy is to try to isolate Greece now and beat it into submission before it is joined by like-minded governments. If Greece gets a deal, it will show in very stark terms to the Irish people that the last two governments’ strategy of savage austerity and passively accepting Europe’s debt was wrong and unnecessary.
The other real reason that the elite don’t want to ease austerity is that they have used the debt crisis to impose policies on the bail- out countries that the financial elite, the wealthy and big business have been trying to get in during the last thirty years of neo- liberalism. That is, to reduce the surplus value (wealth or profit) that is produced in society that goes to working people and the poor and increase that going to the rich and capital.
So taxes on corporations and the wealthy are reduced, and new flat stealth taxes are introduced, low and middle-income workers’ wages are reduced, working conditions are made “flexible” (i.e. precarious, such as zero- hour contracts), funding for core public services such as health, welfare and housing is reduced, state assets are privatised to provide more opportunities for wealthy business owners, and the cost of repaying the massive credit expansion of the boom years is loaded onto households.

Austerity involved a massive transfer of wealth from the lower and middle classes to global capital. This has given rise to a rapid rise in inequality within Europe and the US, pointed to by the economist Thomas Picketty. But it is not an accident: it is the purpose for which the European elite are pursuing austerity capitalism.
What the European elite have not realised, however, is that something has changed for ordinary Europeans. The emergence in Greece, Spain and now Ireland of new movements and political parties opposed to this elite has given them hope and confidence to stand up to the juggernaut of austerity. Europe has blocked a deal to alleviate the debt burden and austerity on Greece, but Syriza has indicated it will start to roll back on aspects of austerity.
What is clear is that Merkel’s mantra “There is no alternative to austerity and debt slavery and impoverishment for the PIIGS” is being fundamentally challenged. 

Euro-zone peripheral countries lick their wounds

The peripheral countries of the euro zone will have to pay more than €130 billion this year just to meet the interest payments on mounting debts, a burden almost three times as high as the rest of the euro area.

The figures—calculated by the Financial Times from data published by the International Monetary Fund—underline the deep wounds left by the euro-zone crisis, in spite of the high demand for peripheral euro-zone debt in recent months.

Although falling bond yields have eased borrowing costs markedly during the past two years, weak economic recoveries and still- extensive budget deficits mean that the interest bill is still climbing. But, even if their debt ratios stabilise, and even start to tick down, they will remain extremely high for a long time, which means they’re very vulnerable to any further shocks.

The figures show that the debt-servicing burden of the euro-zone periphery accounts for almost a tenth of the revenue received by governments. In the other thirteen euro-zone countries the same burden averages only 31⁄2 per cent, with the difference in the debt- servicing burden between the indebted periphery and the rest of the zone forecast to rise over the next five years.

 In the 2013 budget the Government estimated that expenditure on interest reached €6.3 billion in 2012 and is expected to rise to just over €10 billion by 2015. These numbers are put into perspective when we consider that the total tax take in 2012 was €36.6 billion, with income tax accounting for €15.2 billion.

In other words, interest on the national debt in 2015 is expected to be equivalent to two-thirds of the total income tax take in 2012. This is an unacceptable and unsustainable burden, to which there can only be one answer.

Incidentally, the Irish health budget for 2013 is €13.6 billion.

 

Red C poll: Irish public unaware of how EU makes decisions, unwilling to bail out Euro further

Link to poll report - http://cdn.thejournal.ie/media/2013/12/red-c-poll.pptx

Red C poll finds lack of public awareness of changes in EU decision making process and strong public resistance to pay more for survival of Euro currency

At the launch of a Red C opinion poll in Dublin today the Peoples Movement warned that Irish people were unwilling to make further sacrifices to ensure the future of the Euro currency and that they were unaware of forthcoming fundamental changes to the voting system in the EU Council of Ministers.

The Red C poll was commissioned by the EU Democrats; a Brussels based pan-EU political organization, for the People’s Movement in Ireland.  The President of the EU Democrats, former MEP Patricia McKenna , said that the findings of the poll show a lack of public awareness of forthcoming fundamental changes to decision making at EU level and also shows a strong resistance to any further suggested costs to taxpayers to help bail out the Euro currency. 

McKenna said it was notable that despite two referendum campaigns 69% of Irish people were still unaware of the most significant political change introduced by the Lisbon Treaty - which is that voting in the all powerful EU Council of Ministers will move to a population based system giving a huge increase in voting power to the big States at the expense of small States like Ireland. In 2014 Ireland will see its vote more than halved to less than 1% while Germany will see its vote doubled to 16%.

She said, these findings come as no surprise to members of the Peoples Movement because we have argued consistently that there was a deliberate policy by the Government and the political establishment to keep Irish people in the dark about this fundamental change to the EU law-making process. From November, under the new population-based system, the six largest EU States will increase their share of Council votes from 49% to over 70% while the combined voting share of the 22 smallest States will fall from 51% to less than 30%.

People’s Movement patron and artist Robert Ballagh said, the findings that 72% Irish people would be resistant to any cuts in pay, social welfare or pensions to ensure the survival of the Euro currency should provide a strong health warning to any further plans by Government for continued austerity measures.  It is significant to note that despite Irish people’s current attachment to the Euro a large majority will resist any further pain to ensure its survival.  Clearly Irish people’s generosity will only stretch so far.  The Irish taxpayer has already paid a high price for the Euro’s survival. It is now a well known fact that in order to protect the Euro project the EU and ECB put pressure on the Irish Government to provided the infamous 2008 blanket guarantee for all loans by Irish banks thus ensuring that these debts were transferred onto the backs of the Irish taxpayer.

People’s Movement member, Kevin McCorry pointed out that while Irish public opinion appears polarised in terms how concerned they believe the ECB is with Irish interests, the findings overall show a slight majority, 52% of people have little or no confidence in the ECB’s ability to take account of Irish interests. He said this is a significant finding, in that the main EU institution controlling the economies of all Eurozone countries including Ireland attracts little public confidence from Irish people.  Furthermore, it highlights yet again the serious democratic deficit at the heart of the EU structure because even if 100% of people distrusted the ECB it would be irrelevant as there is no mechanism to hold this vital decision-making institution to account.

For further information phone:

Patricia McKenna 087-2427049

Kevin McCorry 086-3150301

Robert Ballagh 016719075

Findings of Red C poll see at http://cdn.thejournal.ie/media/2013/12/red-c-poll.pptx

RED C interviewed a random sample of 1,003 adults aged 18+ by telephone between the 16^th-18^th December 2013. 

A random digit dial (RDD) method, using both mobile and landline numbers, was used to ensure a random selection process of households to be included – this also ensures that ex-directory and mobile only households are covered. 

Interviews were conducted across the country and the results weighted to the profile of all adults, by gender, age social class and region. The margin of error on this sample size is +/- 3.2%

Austerity stripping away Europe’s human rights: Council of Europe

“Austerity” measures imposed by international creditors on member-states are eroding the social and economic rights of people, says the Council of Europe.

Cuts in public expenditure and selective tax increases aimed at curbing public deficits have not achieved their stated aims. Instead the rights to decent work and adequate standards of living have rolled back, contributing to deepening poverty in Europe.

 The report notes that civil and political rights have also been eroded as some governments exclude people from having any say in austerity proposals, provoking large-scale demonstrations.

The latest twist is a revised draft law on public order in Spain that cracks down on civil disobedience. The law, if adopted, would mean that people could be fined up to €30,000 for insulting a government official, burning a flag, or protesting outside the parliament without a permit. Covering faces or wearing hoods at demonstrations would also be an offence. Judges would be able to impose fines of up to €600,000 for picketing at nuclear plants or airports or if demonstrators interfere with elections.

The EU Commission says it is unable to comment on the draft law because it is a national issue.

The Council of Europe in a report in October also condemned the Spanish police for their disproportionate use of force against anti- austerity protests. Undercover police at demonstrations are not held accountable for their actions, it says.

The report says that most national deficits did not result in unsustainable public expenditure from before the crisis but from the public rescue of financial markets. The rescue cost an estimated €41⁄2 trillion between 2008 and 2011. The economic downturn and historical unemployment rates means that the worst- affected member-states lost out on vital tax revenue. Those worst affected include children and young people, the disabled, the elderly with low pensions, and many women. 

EU Austerity kills!

EU Austerity kills! People’s Movement chair, former MEP Patricia McKenna, says:

‘The Government is understandably hesitant about marking “Europe Day” on 9th May with any great fanfare.
Two of the central assertions of the “Europeanism” that the day is supposed to honour – the EU as a “peace project” and that small states by “pooling” sovereignty increase their influence over larger ones and in the world – stand exposed as ideological cover for political and economic interests that have been the engine of EU integration.
There has always been a neo-imperial dimension to the EU integration project.
The establishment of the European Coal and Steel Community in 1951 was to facilitate German rearmament at the start of the cold war. In December the EU will discuss further militarisation. German chancellor Merkel and other EU leaders have compunction in presenting plans for a “European army” within wider EU integration.
In addition the EU which purported to unite Europe is now dividing its peoples and nations from one another in an unprecedented way.
The doctrine about “pooling” sovereignty is equally dubious. For EU members, most laws come from Brussels and the reality is that sovereignty “pooled” is in fact sovereignty surrendered.’
People’s Movement patron Robert Ballagh says:
‘As people face into years of misery and impoverishment to make the euro-currency work and keep the EU “project” on the road, EU President José Manuel Barroso has announced that the unelected EU Commission will set out a range of EU Treaty changes by early next year that will be of such a far reaching nature as to seem like “political science fiction” and that these changes “will be reality in a few years time, sooner than we might think”.
The vision of the unelected Eurocrats is that the peoples of the euro-zone countries must completely abandon their national independence and democracy, reversing centuries of democratic and social gains in order to try to save the euro. 

The prospect ahead is one of stagnation as the euro zone prevents peripheral member states like Ireland from dealing with the immense burden of debt which now rests on their governments, private citizens and business firms, imposing instead a continuous assault on living standards and a pro-cyclical austerity regime that is geared to ensuring that creditor banks, investors and governments are compensated to the maximum for their improvident lending during the bubble years.
“Europe Day” is part of an elite rather than a democratic project and should be marked as such.’ 

Ordinary Germans also suffer to pay the bankers!

Anti-German feeling is prevalent in Ireland. One hears it vehemently expressed in the most general terms at public meetings dealing with the economic crisis and even in everyday conversation.
A greater amount of caution needs to be exercised concerning such sentiments. The ordinary German citizen is not responsible for the actions of the German banks and their political representatives in government. Germany’s working people are not benefiting from the policies of Merkel and Co., even though many of them might gullibly believe the propaganda of their masters.
Visit Germany’s capital city, and poverty is plain to see—not just people begging on the streets and in the underground but also well-dressed individuals of both sexes and all ages rummaging through street bins in search of returnable bottles.
Supermarkets pay 8 cents for certain glass bottles, 25 cents for plastic ones. Germans are indeed resourceful. Many of these bottle-hunters travel the city on bikes, carrying a number of large bags for their glass and plastic booty.
There is an element of surprise when one first becomes aware of the poverty. Unemployment in Germany may be at a relatively low 6.6 per cent, but a recent study carried out by the the German Trade Union Congress, the DGB, found that of those in full-time employment 29 per cent of West Germans and 34 per cent of East Germans receive social welfare assistance to supplement their inadequate wages in order to survive. In total, this costs the German taxpayer €6 billion per year. In other words, many German employers are being heavily subsidised by the state.
There is no minimum wage in Germany, and the average wage in the low-wage sector is €6.50 per hour. Another study carried out by the German Institute for Economic Research (DIW) showed that 22 per cent of the work force is employed in this sector—7.3 million people in total. The report reveals that low wages inevitably means that these workers have to work long hours—an average of 50 hours per week—to earn a basic wage.
The authorities have made eligibility for unemployment benefit or social welfare extremely stringent. The unemployed are put under constant pressure to take on “mini-jobs” and part-time work at extremely low rates of pay or else face the loss of benefits.
As in Ireland, the ruling political class want the ordinary person to pay for the economic crisis. In late June the German parliament, the Bundestag, debated the ESM and Fiscal Pact Treaties in the one session. Only Die Linke (Left Party) opposed both treaties. The Green Party and the Social Democrats supported the governing coalition proposal to pass both.
Sahra Wagenknecht of Die Linke spoke against the treaties. She argued: “You are behaving like puppets. The puppet-masters are the bankers, and the result has been treaties in which citizens are short-changed in order to rescue the fortunes of the richest and keep the financial market casino rolling along . . . This is a project for the smashing of employees’ rights and a project for the reduction of wages and pensions. It is a project by Deutsche Bank, Goldman Sachs and Morgan Stanley for the plundering of European taxpayers.”

The Austerity Treaty (and its discontents)

One aspect of the voting pattern in the referendum on the Fiscal Compact Treaty on 31 May last that was strangely remarked upon by, among others, the Financial Times and the Economist was what the Financial Times called the “class divide” that it revealed.

Five constituencies voted No, three of them Dublin working-class constituencies—Dublin North-West, Dublin South-West, and Dublin South-Central—and the two Donegal constituencies. Academic gurus were cited as finding a growing “left-right” divide in Irish politics, caused by austerity.

Four major unions—UNITE, the TEEU, Mandate, and the CPSU—campaigned for a No vote, on the grounds that the Fiscal Compact regime would not create jobs and is in effect anti-worker.

The referendum clearly revealed an understandable measure of alienation among a section of the working class at the price that it is being forced to pay by the present economic crisis.

But that alienation was not a sufficient basis on which to mobilise a No majority in the referendum, much less to build a politics that can get the country out of the crisis.

The Yes campaign was based on the usual combination of patronage and blather but also skilfully used the fear that a No vote would cut the country off from access to economic recovery. A No vote would mean the country being barred from the European Stability Mechanism (ESM).

The No campaign emphasised austerity but largely failed to bring home the fact that there were significant issues about the European Stability Mechanism.

There was little understanding that constitutionally the ESM Treaty and the amendment to an existing EU treaty authorising the ESM Treatyrequire a further referendum in Ireland, and that politically the EU treaty amendment provides Ireland with a veto that is a powerful bargaining card with which to bargain for relief on the private bank debt.

Compliant media failed to tell the people that in fact the ESM was much more complex than what it was being portrayed as, and that in fact “best boy and girl in the class” behaviour can get us nothing but more and more austerity.

Enda Kenny’s reflections a couple of days after the referendum are very revealing about how he understands his role as head of the government of what its constitution still describes as a “sovereign, democratic, independent State.” He proclaimed that the Yes majority “strengthened Dublin’s hand in its negotiations in Europe over introducing measures to boost growth and in dealing with the tens of billions of euros of bank debt that Ireland had assumed during the crisis.”

He was probably not even aware of how ironic his statement was. In four years the state will be marking the hundredth anniversary of the 1916 Proclamation, which asserts “the right of the people of Ireland to the ownership of Ireland and to the unfettered control of Irish destinies.” The great and the good of the state will be dancing at the crossroads to mark the event.

Having to “negotiate” with others so as to be able to “introduce measures to boost growth” is clearly not the mark of “unfettered control,” nor is having to lay out 40 per cent of the state’s GDP to bail out banks on the instructions of others an assertion of “the right of the people of Ireland to the ownership of Ireland.”

But even more bizarre was the admission made a few days before the referendum by the Fianna Fáil leader Mícheál Martin about the blanket bank guarantee by the Fianna Fáil and Green Party coalition government on 30 September 2008, which shifted the debt of insolvent private banks onto Irish taxpayers: “We did it for the euro . . . We did it to prevent contagion across the euro zone.”

As a historian, Mr Martin would be aware of another act by Ireland as a small nation in the interests of a great-power enterprise. The price paid was of a different kind, but in both cases the action was not truly a self-determined one but rather that of a dependent.

On 20 September 1914, a little over a month after the outbreak of the First World War, John Redmond, leader of the Irish Party in the British House of Commons, made his call at Woodenbridge, Co. Wicklow, for Irishmen to fight for the British Empire “wherever the firing-line extends.”

Many answered his call, and nearly fifty thousand were killed.

EU austerity régime beginning to hurt German Economy

Germany is continuing to impose disastrous economic austerity measures all over Europe.


Senior German politicians and officials relentlessly plead for the continuation of the austerity policy, undeterred by the erupting recession in areas of the eurozone.


The policy became binding for almost all EU member-countries through the signing of the Fiscal Pact on 2 March. As the German Minister of Finance, Wolfgang Schäuble, declared on 6 March, by signing the pact Europe is on the “right path.” On 13 March the president of the Federal Bank, Jens Weidman, called for the southern euro countries, which are now slipping into recession, to apply “stiffer reforms” and additional austerity measures.


The austerity diktat is driving nearly all indebted southern European countries deeper into the recession, as shown by new data on the economic developments of Spain, Italy, Portugal, and Greece. 


According to this data, Portugal’s economy, for example, declined by 1.3 percent in the last quarter of 2011 and could shrink by up to 6 percent this year. Industrial production in Italy registered a sharp decline. In Spain, retail sales—an indicator of private consumption—declined by almost a quarter in comparison with 2007. Greece is approaching the economic level of countries in Latin America or south-east Asia, which up to now had clearly lagged behind European standards.


In the longer run the recession could have a backlash on Germany, because the massive slump is also affecting German exports. This could have serious repercussions. 


Where this austerity policy, imposed by the German government on Europe, will lead can be seen in Greece’s dramatic crash, which can simply be characterised as Greece saving itself to death. 


According to all predictions, in 2012 the country will remain in its fourth year of recession and continue to approach the economic level of the “Third World.”


The German business press predicts that if Greece’s economic contraction continues it will be bypassed by such countries as VietNam or Peru. A deeper recession could even saddle Greece with a GNP, in terms of buying power, lower than that of Bangladesh.


The German edition of the Financial Times speaks of a “historically exceptional” economic collapse.

"Some experts fear that the GNP for 2012 will again decline up to 8 percent, after an approximately 6 1⁄2 percent drop in 2011.”

This is “the worst recession that a western country has encountered since the war,” explains Barry Eichengreen, an economic historian at the University of Berkeley in California. 


In the end, Germany’s export industry will not escape the downward trend in the eurozone, despite its growing exports to so-called threshold countries. Orders from EU countries coming into German industry are dramatically diminishing. The business press reports, 

“Already since the middle of the year the quantity of new orders from countries of the monetary union has declined consistently, since the debt crisis resurged in the summer.” 

In other countries “a demand for German products has decreased also, because of their austerity measures.”


Berlin’s austerity diktat is ultimately threatening to push Germany’s export-dependent economy into a recession. Like the populations in Greece, Portugal, Spain and Italy today, the German population will most probably have to confront drastic austerity schemes. 

Austerity Bites: The poor get poorer - 115 million Europeans; 23 per cent of EU population

Recently released figures for 2010 show that 115 million Europeans, or 23 per cent of the EU population, live in households with less than the poverty threshold disposable income, in households where there is severe material deprivation (such as a lack of heating), or where the adults worked less than 20 per cent of their total work potential.

While 13 of the 25 member-states that provided information recorded an increase in the numbers affected when compared with 2009, Spain (23.4 per cent to 25.5 per cent) and Lithuania (29.5 per cent to 33.4 per cent) recorded the greatest leap from one year to the next.

The figures for deprivation were even higher among those under the age of seventeen, with 27 per cent of young people throughout the EU falling below the threshold.

In all, twenty countries recorded a higher rate of poverty and risk of social exclusion among young people than among the general population.

The poverty statistics come on top of unemployment statistics showing a record unemployment rate in the EU, with some 23 million people out of work.

The ghost of “Social Europe” returns

Remember Delors?

In speeches to mark the twentieth anniversary of the Maastricht Treaty, signed on 7 February 1992, which led to the creation of the euro, both Jacques Delors, former president of the European Commission, and José Manuel Barroso, in a fit of federalist zeal regretted the national “resistance” and “lack of spirit of co-operation” among the leaders of the twenty-seven EU countries.

Delors said that the Maastricht anniversary provided lessons for the future, and gave his support to Barroso for heralding the community approach in the face of the recourse to intergovernmental arrangements. “I would like to express my full support to the Commission, in a moment when others take distance from the community method,” he said.

Delors was asked by journalists to comment on the social dimension of the Commission’s action, which, they argued, was less present in the present Commission, headed by Barroso; but he dodged any mention of his vaunted concept of “Social Europe,” putting the markets first, saying that the issue today was to restore the financial situation of EU countries while maintaining economic growth. “On these problems, governments should do the effort to cooperate more and to listen more to the Commission in this regard,” he said.

Asked about the present trend towards austerity, Delors said: “I was the first to use the term when I was finance minister. When it’s necessary, I talk about it. And I remain popular. See, it’s curious.”

Perhaps he has always been delusional!

The EU Permanent Austerity Treaty

The Government seems determined to push ahead in the next few months with the ratification of two important treaties: the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” and the revised “Treaty on the European Stability Mechanism.”
The two treaties would make member-states of the euro zone into regimes of economic austerity, involving deeper and deeper cuts in public expenditure, increases in indirect taxes, reductions in wages, sustained liberalisation of markets, and the privatisation of public property.

It would really be more accurate to call the first treaty the EU Permanent Austerity Treaty and the second the Conditional Support Treaty. But whatever they are called, the two treaties represent a seriously dangerous threat, and democrats should be mobilising to resist them.

The cumulative effect of being bound by both treaties would be an obligation to insert a balanced-budget rule “through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes,” to put Irish budgets under permanent and detailed euro-zone supervision, to make the existing subordination of Ireland’s interests to those of the “stability of the euro area as a whole” even more systematic and pronounced, to impose conditions of “strict conditionality,” without limit, for ESM “solidarity” financial bail-outs, and to require Ireland to contribute some €11 billion to the ESM fund when it is established later this year.

The European Commission and the European Central Bank are obsessed with “economic governance,” which would require smaller euro-zone states in particular to make themselves permanently amenable to a regime under which Germany and its allies would regularly and permanently vet members’ fiscal policies and impose punitive fines on those failing to observe deflationary budget rules.

When politicians like Enda Kenny urge us to stomach a particular draconian measure while claiming that it would help us to ultimately “restore economic sovereignty” they conveniently fail to mention that this is the sort of “economic sovereignty” they have in mind. For them, permanent austerity plus the IMF is “national shame”; permanent austerity minus the IMF is “national recovery.” The latter is what is on offer through the EU Permanent Austerity and Conditional Support Treaties.

Of course it is totally irrelevant to this Eurofanatical mindset that the draconian fiscal measures imposed on Greece have only worsened the problems of that country. Also conveniently ignored in this version is that Ireland in the euro zone had to adopt unsuitably low interest rates in the early 2000s, because these suited Germany at the time. In the immortal words of Bertie Ahern, this made our “Celtic Tiger” boom “boomier.” It of course inflated the property bubble.

The former Taoiseach John Bruton and others have contended that the failure of the European Central Bank to supervise adequately the credit policy of the national central banks in relation to the commercial banks in Ireland and various other euro-zone countries was significantly responsible for the emergence of asset bubbles in those countries in the early and middle 2000s, and thereby contributed hugely to the financial crisis they are now in.

And the then head of the European Central Bank, Jean-Claude Trichet, was probably engaging in a variety of “economic governance” when he told Brian Cowen and Brian Lenihan on 29 September 2008, at the time of the criminally irresponsible blanket bank guarantee, that Anglo-Irish Bank must on no account be allowed to go bust and that the foreign creditors and bond-holders must be paid every penny.

When the Irish people ratified the Maastricht Treaty in 1992, setting up economic and monetary union, and when they ratified the Lisbon Treaty, establishing the European Union on a new constitutional basis in 2009, they approved membership of an economic and monetary union whose memberstates would follow rules that would be enforced by a system of Commission surveillance, formal recommendations, and warnings for delinquent states, followed by sanctions in the form of compulsory deposits and fines of an appropriate size in the event of member-states persisting in breaches of these provisions.

The EU member-states adopted the rule regarding 3 per cent and 60 per cent of GDP to ensure that member-states of the euro zone would avoid excessive deficits and consequent borrowing, for that would affect all euro-zone states using the same currency. But the excessive-deficit articles were not enforced once Germany, France and others states broke the excessive-deficit limits in the early 2000s.

Recommendations of measures to repair excessive deficits were made by the Commission to a number of member-states, including Ireland, in the early 2000s, but when in 2003 France and Germany found themselves in violation of the excessive-deficit criteria the Council failed to take any of the other steps set out in the rules to remedy their breaches.

No proposal to impose sanctions for breaking the rules was ever put by the Commission to the Council of Ministers, and no sanctions were adopted against countries violating the rules. As a result, several member-states ran up huge annual government deficits and national public debts that were near to, or in some cases well over, 100 per cent of GDP.

Is debt always a bad thing? Obviously not in the private sector, as corporations regularly borrow money for expenditure they don’t want to meet out of retained earnings, while most households aim to have a long-term mortgage.

Public debt is not a burden passed on from one generation to the next. The stock of public debt is a problem only when its servicing—i.e. the payment of interest—is unaffordable, such as when, in times of recession, growth is nil or negative, or when the interest rates demanded by the financial market are soaring.

The question is, when is the debt sustainable?

Sustainability means keeping the ratio of debt to GDP stable in the longer term. If GDP at the beginning of the year is €1,000 billion and the Government’s total stock of debt is €600 billion, the debt ratio is 60 per cent. The fiscal deficit is the extra borrowing that the Government makes in a year, so it adds to the stock of debt. But although the stock of debt may be rising, as long as GDP is rising proportionately the ratio of debt to GDP can be kept constant, or may even be falling.

The rule is that as long as the real economy is growing by at least as much as the real rate of interest on debt the debt-GDP ratio doesn’t rise. This holds true irrespective of whether the debt ratio is 60 per cent or 600 per cent.

But there’s a catch. In a modern economy the public sector accounts for about half the economy. If a country panics about its debt ratio and cuts back sharply on public-sector spending, this reduces aggregate demand and may lead to stagnation or even recession. When a country stops growing, financial markets decide that its debt ratio may rise and so become more cautious about lending and may demand a higher bond yield, i.e. interest rate.

The gloomy prophecy of growing public indebtedness becomes self-fulfilling. The way out cannot be greater austerity.

What works for a single household or firm doesn’t work for the economy as a whole. A household can tighten its belt by spending less, saving more, and thus “balancing the books”; but an economy cannot. If everybody saves more, national income falls. As no euro-zone country can devalue, to ask each member-state to balance the books by running an export surplus is empirically and logically impossible.

The way out of the “debt trap” is the same as the way out of recession: if the private sector won’t invest, the public sector must become the investor of last resort. It doesn’t matter whether new investment is financed by more government borrowing, quantitative easing, or redistribution (some combination of the three would be optimal). What matters is growth.

Why there must be a referendum

The contracting parties must apply the balanced-budget rule “through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.”

A majority of the Supreme Court in the Crotty case in 1987 (which found that a referendum was necessary to ratify significant changes to EU treaties) held that an organ of the state cannot agree to circumscribe or restrict any unfettered power conferred on it by the Constitution.

In the judgement Mr Justice Walsh said that the freedom to form economic policy was an aspect of the state’s sovereignty. This meant that article 3 (1) would have to be protected by article 29.4 of the Constitution, which ratified the Maastricht Treaty, if it was to be constitutionally valid.

However, article 29 refers to treaties of the European Union, whereas the proposed treaty will only be a treaty agreed between 25 of the 27 member-states, so it will not be covered by article 29.

These rules and policy conditions in turn provide considerable scope for financially hard-pressed member-states to be pressured to take steps against their national interest, including in relation to harmonising corporate taxes. Establishing this permanent enhanced fiscal architecture would be a major step towards an EU fiscal and political union—something that has been recognised in statements by leading EU politicians.

This implies a significant diminution of national state sovereignty, going well beyond the scope of the existing European Union and the monetary union that it embodies, which only the people themselves can agree to.

The absence of limitations on the “strict conditionality” that will mark financial disbursements from the proposed ESM fund—such as might have been set out in an accompanying protocol, for instance—emphasises further the dangers to the state’s interests that could arise from harsh or excessively onerous conditions attaching to financial assistance that might be offered to member-states seeking assistance from the fund.

From PEOPLE’S NEWS
News Digest of the People’s Movement
www.people.ie | post@people.ie
No. 64 18 February 2012

No cancer drugs for fiscal sinners

The reality of austerity

The European Commission has said that its austerity measures are not to blame for a decision by the pharmaceutical giant Roche to halt delivery of cancer drugs to Greek public hospitals. In a fresh example of how the EU austerity measures are having an acute impact on citizens, the Swiss firm has halted shipments of cancer drugs and other medicines to a number of public hospitals in Greece after years of unpaid debts. The company warned that Italy, Portugal and Spain might be next.

With Greek spending on health care accounting for 10 per cent of GDP, the EU, the IMF and European Central Bank have told the government to cut at least €310 million this year and an additional €1.43 billion in the period 2012–15. In February this year doctors and other health-care workers marched on the Greek parliament in protest over health cuts and scuffled with the police.

Meanwhile the European Commission is keen to wash its hands of the problem. “It’s a commercial decision from a company,” the Commission’s spokesperson on health, Frederic Vincent, said. “We would have to see if the countries make any specific request if this problem is conferred to Spain, Italy, Portugal,” he said.

It’s a question of budget management by the Greek authorities. “Greece has money,” he explained. “The financial assistance package decided one year ago covers the financial needs of the Greek state. Then how this is micro-managed is the full responsibility of the Greek authorities.” He added that the case would be the same if the drugs dry up in Spain, Italy, and Portugal—and presumably Ireland.

Greek government introduces household tax too

The Greek government has unveiled a fresh round of austerity measures, amounting to €2 billion, as pressure mounts on the country to deliver on its commitment to reduce its debt burden.

The minister for finance, Evángelos Venizélos, described the moves, which will involve a new two-year household tax and holding back a month’s pay from all elected officials, as a new “national effort.”

“We know that these measures are unbearable,” he said. “Our immediate priority is the full respect of the budget targets for 2011.” The European Commission, naturally, welcomed the announcement.

EU Commission demands even further austerity

EU countries under market pressures must be prepared to swallow even stronger doses of austerity.

Most states have slashed tens of billions from their public spending plans already, but this may not be enough, according to an annual report from the EU Commission on the state of public finances in member-states.

http://ec.europa.eu/economy_finance/publications/european_economy/2011/pdf/ee-2011-3_en.pdf

The head of the Commission’s economy department, Marco Buti, wrote in a gloomy “editorial” that, “despite the fact that a return of GDP growth, a gradual withdrawal of the temporary support measures and the start of consolidation is starting to reduce deficits, debt is still expected to continue increasing for the next year or so in most cases.

“Once it has reached its peak, the issue is not over. It will not be sufficient to stem the increase; rather, additional consolidation measures will be required to reduce it from its new level .” He argues that Europe’s ageing population will add still further pressures on public finances in the coming decades as a result of the higher costs of ageing and lower growth as a result of the smaller number of people of working age.

Despite multiple rounds of austerity already imposed, Greece for its part will see its debt burden climb to 166.1 per cent of GDP in 2012, up from 157.7 per cent this year, while our own may reach 104 per cent.

The document goes on to say that while governments can reduce debt levels through spending cuts or increasing taxes or a mixture of the two, they should embrace cuts in preference to tax increases, as “evidence from the past shows that cuts have greater success, in terms of the effect that they have on the overall public finances.”

The future in the EU does indeed look gloomy.