Ireland - The Nature of the Crisis
Ken Livingstone’s Socialist Economic Bulletin has a piece by Michael Burke on the Irish Economy (Ireland – the Nature of the Crisis). It is written for a non-Irish audience, but it provides a thorough left-wing analysis of what has happened in the Irish economy, the government’s response, and suggestions about how they can be resolved. There are plenty of reasons for an Irish audience to read it though, as we tend to get caught up in the news cycle and forget or are unaware of the broader structural aspects of our economy and its history. Here he is on the structural weakness of an economy which was dangerously exposed to a bloated Irish banking sector:
“When the new gombeen men* began to chart this course for Ireland’s economy, not only were they flying in the face of economic logic, but also of history. Ireland maintains a structural deficit on its investment income account. This is a function of Ireland’s economic history.
He continues…
Unlike the G7 countries, Ireland has no net stock of foreign assets it has acquired over a great number of years. Instead, there is a tendency for net economic assets in Ireland to be owned by overseas capital. This ownership entails payments, either through debt interest or via equity dividend payments. It is this permanent net outflow of capital which is one of the chief characteristics which is common to countries without an imperial past. This is irrespective of the relative wealth of an economy, say, measured by per capita GDP (and Ireland’s was well above the OECD average). Instead, it is related to Ireland’s historically-determined relationship to the global economy and to global capitalism.
The bloating of the Irish banking sector has necessarily been accompanied by a huge outflow of capital overseas. Ireland, unlike countries such as the US, Japan, Germany Britain and others, has no historically accumulated stock of assets that it owns overseas. A rapid rise in speculative lending had to be financed by foreign borrowing. So, a build-up of foreign indebtedness accompanied the surge in the size of the banking sector. At the end of the first quarter of 2009, Ireland’s gross external debt amounted to Euros 1,693bn [7], over 10 times the size of GDP. Of this total over 79%, Euros 1,343bn were the liabilities of the monetary financial institutions and other private sectors.
Now, it is quite true that liabilities alone do not give a true picture of any balance sheet, including that of a whole economy and its balance with the rest of the world. And the latest available data, for end-2007 shows that, including assets and liabilities, the net position is that Ireland’s external debt is a less eye-watering Euros 31.4bn [8], which was at that time 16.5% of GDP. (Data showing the position at the end of 2008 will be available later this year). Crucially, though, the assets for this net assessment are valued at banks’ and other financial institutions own estimate of their worth, which is now well-known to have been wildly over-optimistic. As a result, the foreign indebtedness of the Irish economy seems set to rise dramatically under the impact of the collapse in the value of banks’ overseas assets. The only mitigating factor will be the simultaneous collapse in the value of Irish assets owned by foreigners. The Irish Independent, in a series of reports, has shown that of the assets that may be bought by the proposed National Asset Management Agency (NAMA), Euros 32.3bn are loans for property developments in the UK, US, Russia, France and Germany [9].”
On the Irish Government’s response to the Crisis Michael also pulls no punches:
The coalition government of the Irish Republic, comprised of Fianna Fail and the Green Party, has set out its policy response to the economic and banking crisis. Perhaps it is the catastrophic scope of recent of events which has led policy in a Biblical direction. Whatever the cause, the government’s stance is summarised in Matthew 4:25, “For whoever has, to him more shall be given; and whoever does not have, even what he has shall be taken away from him.”
The thrust of policy is to bail out bank shareholders and large-scale property developers by using taxpayer funds. This represents a transfer of wealth from the poor to the rich, on a very large scale. The two planks of the policy have been an austerity Budget and the proposed establishment of the National Asset Management Agency (NAMA). This Agency will purchase banks’ bad debts owed by property developers and speculators, paid for by issuing bonds, ultimately covered by Irish taxpayers.
The two aspects of the government’s stance are clearly linked. Their main aim is to rescue the greatest possible amount of private capital from the economic and financial wreckage, with Irish taxpayers picking up the bill. At the same time, the enormous levels of debt associated with NAMA (at least Euros 54bn in bond issues have been suggested) are offered as justification for large-scale cuts in government spending, including on social welfare and other provisions.
Read the full article here.
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