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. 

"Ireland is not Greece"

Speaking in Luxembourg on 4 October 2011, Michael Noonan insisted that “Ireland is not Greece.” Now, in April 2014, the graph below by David McWilliams proves that Noonan was correct—to the detriment of us all.

The fact that the Greeks can raise money shows that the markets have absolutely no memory. Two years after the biggest sovereign default in history they are back at it—though it should be noted that their balance sheet is immeasurably better after the default than before.

Greece’s debt is still almost 180 per cent of GDP. But the bulk of the debt is owed to other

euro-zone governments, as a result of its two “bail-outs.” Not only do these loans pay a low interest rate of a little over 2 per cent, but Greece doesn’t need to begin repaying them until 2022, and then it has another twenty years to complete the job.

Greece shows just how quickly things can turn about. Note also that its ten-year bond yield, which hit 30 per cent after the debt default two years ago, is now 6.2 per cent.

Two of the country’s big four banks— Piraeus and Alpha—have raised €3 billion of equity between them in recent weeks, and Eurobank, another big lender, is planning to follow with a €3 billion issue later this month.

So it was just more bragging from Noonan when we should have been planning to emulate the Greeks, if not surpass them, by repudiating the debt. Instead we have water charges, another austerity budget ... and so on.

Doesn’t it make your blood boil? 

Greek president rejects German interference

Relations between Germany and Greece, strained since the beginning of the economic crisis in 2009, appeared to reach a new low point amid the exchange of barbed comments between the two countries.

President Károlos Papoúlias was uncharacteristically blunt in his response to repeated criticism about the Greek economy and politics. He accused the German minister of finance, Wolfgang Schäuble, of making insulting comments, including the suggestion that Greece should not hold elections now, because its politicians are incapable of keeping to the terms of a new bail-out. “We all have a duty to work hard to get through this crisis,” he said during a visit to the Ministry of Defence. “I will not accept Mr Schäuble insulting my country. I don’t accept this as a Greek.

“Who is Mr Schäuble to insult Greece? Who are the Dutch? Who are the Finns? We always had the pride to defend not only our own freedom, not only our own country, but the freedom of Europe.”

The comment that appears to have sparked Papoúlias’s response was a suggestion by Schäuble that Greece should follow Italy’s example by forming a “technocratic” government. He also cast aspersions on the record of Greek politicians in the past.

“After [the technocrats have completed their work] the democratic process can resume with the effects that we have all seen over the last few decades.”

"How can one speak of default in future tense when we’re already bankrupt?"

Greece saved for an uncertain fate!

How can one speak of default in the future tense when we’re already bankrupt? . . . Don’t you see the people scouring through refuse and sleeping on pavements? Those who led us to bankruptcy—the troika and the government—now claim they want to save us from bankruptcy. It’s incredible!”

—Míkis Theodorákis, Greek composer and songwriter.

If Greece’s latest €130 billion loan was to be used for fiscal stimulus, it might be worth the commitment. Because that kind of money could put a lot of people back to work and kick-start the economy fast.

But the loan isn’t going to be used for stimulus. It’s going to be used to recapitalise the banks and pay off creditors, neither of which will do anything to boost activity or create jobs.

So, why bother? Why dig an even deeper hole if it achieves nothing?

If that’s the case, Greece should just default now and begin rebuilding the economy ASAP. There’s no point in putting it off any longer.

The “troika” (European Central Bank, European Union, and International Monetary Fund) demanded another €3 billion in spending cuts, even though unemployment is tipping 20 per cent and the economy shrank by 7 per cent in the last quarter.

What sense does that make? You don’t have to be a genius to see that Greece won’t reach its budget targets if tax revenue continues to fall, because everyone’s either been sacked or taking a pay cut.

It will just make a bad situation even worse. But the troika doesn’t worry about these types of things.

They don’t care that their economic theories have failed miserably so far, or that their “austerity” measures have been a complete flop.

They just keep plugging along, making the same mistakes over and over again, impervious to the criticism of reputable economists, oblivious to the abysmal results.

They remain steadfast in their commitment to belt-tightening, convinced that a strict diet of breadcrumbs and water is the best way to nurse an ailing economy back to health. It doesn’t bother them that the facts prove otherwise.

The Fitch ratings agency isn’t convinced that austerity will work; in fact it lowered Greece’s rating, saying that they now think a default is “highly likely.”

Similarly, a “confidential report” that was given to euro-zone finance ministers suggests that there’s a high probability that the slump in Greece will get worse and that the country’s debt-to-GDP ratio will still be 160 per cent by 2020, a full decade after the implementation of austerity measures.

So even if Greece sticks with the hairshirts and follows the troika’s diktats to the letter, its debt could still be at “unsustainable” levels eight years from today.

Why? An article in the high-circulation German weekly Der Spiegel puts it clearly:

Of course, the €130 billion would not solve the problem. It is only intended to buy time. Time until the financial markets have stabilised to the extent that they can handle the actual bankruptcy of Greece without a chain reaction. Without bank failures, no knock-on effects through the loss of credit insurance and no interest for the remaining problem of explosion of the Euro-zone countries.

They’re all heart!

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.