The government is misleading Europe 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 austerity is based on flawed economics and it hasn’t worked in either Ireland, Greece or for Europe 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% of the population, suffering from deprivation – which is up from 14% in 2008 and 37% of children suffer deprivation (up from 18% in 2008). The legacy crises are multiple – from mortgage arrears, rent, homelessness, childcare, 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 a European level the Euro area is mired in stagnant growth of 0.8%, mass unemployment of 11%, and a debt-to GDP ratio that that has risen from 72% in 2009 to 92% today.
The calculations of economists Reinhart and Rogoff that austerity was required to reduce government debt levels below 90% 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.
Read Post →
The last 10 days, from February 11th to February 20th, saw some critical developments in Greece. After a number of clashes in the Eurogroups of 11th, 16th and 20th February, an agreement was reached extending the “current arrangement” with the Troika for 4 months. This agreement, as is generally agreed, was a heavy compromise on the part of the Greek SYRIZA-ANEL government, putting into doubt the possibility to carry out its program, i.e. SYRIZA’s Thessaloniki program. There was another serious compromise too, when, on February 18th, Prokopis Pavlopoulos, a representative of the conservative camp and leading figure of the ND party, was elected President of the Republic.
The same period witnessed, on the other hand, some big demonstrations in Greece and other European countries too, centered round the task of cancelling debt. Although not as massive as those in the 2011-2012 period, they show some real hope of a new rise of the movements and their possible intervention in the scene. Significantly, these demonstrations, which begun as acts of spontaneous support to the Greek government, seem likely to continue after the compromise made – a new one was announced for February 26th in various facebook pages.
Taken together these developments pose some serious questions. Does SYRIZA relinquish its promises of a substantial change with regard to the previous austerity ND-PASOK regime? Is such a change feasible within the EU through an acceptable compromise reached after a negotiation? Or is it impossible and Greece should head instead for a payment default and exit the EU – the prospect broadly known as “Grexit?”
In this article we will discuss these questions, with an eye to the coming solution of the Greek drama when the four month prolongation of the Memorandum ends.
Read Post →
This article originally appeared on Socialist Economic Bulletin on Monday the 23rd of February.
‘The Austerity Con’ is the title of a recent article in the London Review of Books. It is written by a leading Keynesian economist Professor Simon-Wren Lewis, who is also a fellow of Merton College, Oxford. The article is available to non-subscribers here. It deserves to be widely read because it contains two important arguments against austerity.
The first argument nails the lie that austerity was necessary because of an immediate crisis of government funding. The second argument exposes the myth that austerity has been responsible for an improvement in government finances. Both of these arguments will be familiar to regular readers of SEB and Prof. Wren-Lewis will give them a far wider airing. Given that averting the crisis in government finances is offered by the supporters of austerity as its main justification, the title of his piece is fully justified.
However there is a difference of view among opponents of austerity about the nature of the current crisis. It is important because it underpins both the overall analytical framework and the suggested policy prescriptions. Prof. Wren-Lewis says, “The place to begin is 2009. By then the full extent of the financial crisis had become apparent.” He goes on, “The financial crisis was leading consumers and firms to spend less and save more. That made sense for individuals, but the problem was that because everyone was doing it, the total amount of demand in the economy was falling. As demand fell, firms produced less, so they reduced their workforce.”
This is not entirely accurate. Demand is comprised of two components, consumption and investment. By taking a step back to 2007 it possible to see more clearly how the crisis arose. Regarding the industrialised countries as whole grouped in the OECD it is possible to see that only one of these experienced a sharp fall. This was investment not consumption.
Fig.1 below shows the level of real GDP and its key components, consumption, investment and net exports. The data is presented in both in constant prices in constant Purchasing Power Parity exchange rates and is itemised in the box below.
Read Post →
With the Dail to debate a private members motion from Catherine Murphy, TD calling for support for a European Debt Conference, it is worth looking over Ireland’s debt numbers; especially as we will get a flood of claims from some quarters that our debt level is fine, its’ sustainable, we don’t need debt relief, etc. etc. etc.
The starting point in such debates is the question: is Irish debt sustainable. This can, however, descend into a black hole of formulae. Simply put, just about any debt can be considered ‘sustainable’ if the debtor is willing to starve the kids and live under the railway bridge. ‘Sustainable? Sure, but there will be sacrifices’ (which, in Ireland are never inventoried). If you believe this is an exaggeration, consider the EU elite’s attitude towards Greek debt levels.
Let’s go through some bald numbers.
Irish debt is among the highest in the 19 Eurozone countries. Officially, it is at 110 percent of GDP; when measured against our fiscal capacity as suggested by the Fiscal Council, it rises to 122 percent. We’re placed fourth though look out for Cyprus and Belgium in the next few years.
When we turn to what some call an ‘illegitimate’ debt – that private banking debt that we all ended up paying for – Ireland remains league leader.
While banking debt makes up a quarter of our GDP, in the Eurozone the total debt is less than 2 percent. And for Ireland, this doesn’t count the nearly €20 billion taken from the National Pension Reserve Fund for recapitalisation – since this is categorised ‘investment’ and not debt. Were it not for the official banking debt, our overall levels would be close to the average Eurozone level.
Read Post →
This article originally appeared on Socialist Economic Bulletin on the 1st of Feb 2015.
David Cameron became the first elected politician in Europe to criticise the election of the Syriza government in Greece and was quickly followed by George Osborne. This might seem odd as Britain is outside the Eurozone and has limited direct influence over its policies. But the urgent and unrestrained nature of the criticism is very revealing about what is at stake in the anti-austerity struggle and specifically the very different roles being played by the British and Greek governments.
The Syriza government represents the popular will to end austerity. Only the parties of the left increased their vote in the recent election, and that was overwhelmingly to Syriza’s benefit with a rise of 9.4%. But entirely new parties and even parties of the traditional right adopted similar anti-austerity rhetoric in an effort to shore up their vote. The election showed the Greek popular majority wants to end austerity.
In Britain the banks have an extraordinarily large weight in the economy. Consequently, this dominance is felt through all areas of political and social life. A recent Global Financial Stability Reportfrom the IMF (pdf) demonstrated the dangerously lop-sided nature of the British economy by focusing on ‘shadow banking’, the artificially created networks of companies and vehicles to disguise the real liabilities of the banks. In Britain shadow banking accounts for over 350% of GDP. The next highest exposure of all the industrialised areas or economies is the Eurozone at less than 200% of GDP. The phrase ‘too big to fail’ is insufficiently grave to convey the threat posed by the outsized level of British bank liabilities.
This explains the sudden and intemperate Tory interventions against the newly-elected Greek government. The British government represents the interests of British big businesses and the most important of these is the banks. The banks have sharply reduced their loans outstanding to Greek borrowers. As Martin Wolf the Financial Times’ chief economics commentator explained recently, the banks in general were the key beneficiaries of the bailout, not the Greek economy or its population. Since the €254bn bailout organised by the Troika just €27bn was to support the Greek economy. The rest went to creditors with British, German and Dutch banks at the head of the queue for the taxpayer-funded bailout. But the huge debt is incurred by Greek taxpayers, and so the debt burden is unbearable.
Read Post →
This article by Michael Burke and John Ross was originally posted on Socialist Economic Bulletin on Monday the 26th of January.
The Greek people have inspired every progressive force in Europe, and beyond, by electing the first anti-austerity government in Europe. Syriza has similarly inspired every progressive person with the great political skill with which it outmanoeuvred the forces in Greece and Europe who attempted to scare the Greek people into not voting for it. As Alexis Tsipras said immediately after its victory Syriza has opened up hope for the Greek people – and many others as well.
The key question now is how to turn hope into reality.
Syriza has outlined clearly its orientation – which should be supported by every progressive force. Syriza has said it is not seeking to exit from the Euro. It wants Greece’s unpayable and unjust debt renegotiated. The immediate priority of the left throughout Europe must be to organise support for this demand of Syriza during the coming negotiations. It is to be welcomed that not only the political left but also far wider groups arguing for a rational economic policy support this course – including eminent figures in their profession such as Nobel Prize winners in economics Joseph Stiglitz and Chris Pissarides. All efforts must be redoubled across Europe to gain support for the renegotiation of Greece’s debt – a course which corresponds not only to the interests of the Greek people but to the interests of rational economic policy across Europe, and therefore to the interests of the people of Europe.
Whether or not these negotiations succeed, however, the new Greek government is faced with key choices in economic policy. This is even more the case as, if the economic policies of the new government do not succeed, sinister forces that failed to win this election will seek to turn Greece backwards.
The first and immediate priority, of course, is to reduce and eliminate the appalling humanitarian suffering imposed on the Greek people by the austerity policies. Creating jobs, raising wages, restoring pensions, recreating the best possible social security are the top priorities. As always politics must take precedence over economics.
But to sustain the improvement in the living standards of the Greek people it is necessary to relaunch economic growth. And the key to economic growth is necessarily investment. Without rising investment an economy cannot grow.
Under the conditions of Greece it is even more unrealistic than normal to rely on the private sector for investment. It is the collapse in private investment which has driven economic collapse in Greece and economic recession across Europe. Since 2007 Greece’s GDP has fallen by €57bn of which the bulk is the fall in investment at €36bn. The only way to secure economic growth is therefore to embark on a programme of state investment. Those countries which have used state investment as their key instrument to promote growth have enjoyed outstanding success – for example Ecuador, Bolivia and China.
In a country such as Ecuador, which has enjoyed 5% GDP annual average growth over 10 years, real incomes per capita have risen by over 2% a year, and 10% of the population has been lifted out of poverty. This has been driven by state investment which has now reached 15% of GDP.
Economic growth, led by state investment, will in turn create the conditions under which the private sector will begin to invest again.
Read Post →
This article was originally posted on the Trade Union Left Forum on the 14th of October.
A new kind of trade unionism is emerging and consolidating itself within the right2water campaign, led by Mandate and Unite and supported by OPATSI, the CPSU, and the CWU. These unions are bringing the broader social and economic interests of their members to the fore and committing resources, time and effort to support mobilisation not only of members, but also the working class and communities more generally.
By viewing their members as workers (as opposed to people paying a subscription for work-place representation services) these unions are placing the workers’ immediate social demands alongside, and equal to, their immediate work-place concerns. This is crucial if the trade union movement is to really represent its members and to recover its power and leverage in society. Wage increases alone will not improve the lot of workers while the political economy of the country is being restructured from one made up of citizens to one of customers in a toll-booth economic and political structure.
The TULF on many occasions has suggested that the trade union movement has a unique position in Ireland in having the resources and channels of communication to support the mobilisation of working people in a way that no left party can. And now it seems that some unions are realising this potential, which is both necessary and welcome.
The right2water alliance is a genuine alliance of union, political and community groups, making a clear demand and statement, “calling for the Government to recognise and legislate for access to water as a human right. We are demanding the Government abolish the planned introduction of water charges.”
As well as the five unions mentioned, community groups and parties have signed up to the campaign. Some 40,000 people have signed a petition calling for the scrapping of the water charges, close to 100,000 marched at the demonstration on 11 October, and more local actions are planned for 1 November.
The right2water campaign is not dictating tactics to communities or individuals but is building and growing a broad campaign of groups and people based on the principle of water as a human right and as a publicly owned utility and resource. Some on the left have attacked the campaign for not demanding non-payment; but at this moment building the biggest, broadest alliance against water charges and privatisation is the priority. A turn towards direct non-payment may be necessary in the future, but right now the campaign’s strength is in growing and building the alliance rather than splintering over tactical matters.
Read Post →
This article was originally posted on Critical Legal Thinking on the 29th of September.
The American abolitionist Frederick Douglass once observed that if you find out ‘just what any people will quietly submit to … you have found out the exact measure of injustice and wrong which will be imposed upon them’ and that such injustices ‘will continue till they are resisted with either words or blows, or with both’. In Ireland, after six years of austerity and regressive tax reforms that have punished Irish working people for the benefit of Irish and European bond holders, it seems the Irish establishment may have finally discovered the measure of injustice that the people will not tolerate.
The Irish government is currently implementing a plan to install water meters, so that people’s domestic water usage can be monitored and they can be charged for the amount they use. In this way they are abandoning the traditional funding model for water provision in Ireland, which saw it paid for out of general taxation. This move by the Irish government is consistent with a global trend over the last twenty years towards the increased commodification of essential services, with water seen as a particularly lucrative market. Taking advantage of the economic crisis, as most governments in Europe have, the Irish government has accelerated a broad neoliberal policy drive (privatisation of services, cuts to public sector jobs, regressive taxes) under the well-worn mantra that “There Is No Alternative”.
However, this new tax–this commodification of an essential public good–is being met with trenchant resistance from working class communities throughout the island. From Crumlin to Togher, Edenmore to Caherdavin, communities have mobilised to prevent the installation of water meters in their areas. In these protests the community activists have remained resolute in the face of attempts at intimidation from both the company established to commodify the water service, Irish Water, and the police. As well as engaging in direct action to prevent the installation of meters, the bourgeoning movement is also encouraging a boycott of the attempts by Irish Water to enrol residents as “customers”, and calling for non-payment of any future bills.
Read Post →
Stag-covery (n): a situation where statistical recovery occurs within a persistent economic stagnation
The CSO’s new release shows a statistical recovery and a stagnant economy – a state of affairs that can be described as stag-covery.
The headline rates show a GDP quarterly increase of 2.7 percent. This might seem solid enough but all this is driven by net exports. The domestic economy remains mired in stagnation.
The worst of the economic crash ended in 2010. Since then it’s just a matter of bouncing along the bottom. In 2013 consumer spending fell, spending on public services bumped up marginally while investment fell marginally. We can debate the swings and roundabouts (impact of the pharma cliff, aircraft leasing, etc.). But the narrative remains the same – the ship sunk to the bottom and is struggling to get back to the surface.
The first quarter of 2014 didn’t get off to a hectic start. On a quarterly basis:
- Consumer spending fell, though this shouldn’t be too surprising given that it was coming off a quarter that contained Christmas spending.
- Spending on public service resumed its long-term fall – by over 2 percent.
- Investment fell by a substantial 8 percent.
It is this inability of the latter to generate any momentum upwards that is particularly worrying.
This represents is a potential problem for the Government. In the last quarter investment fell by 8 percent. Yet the Government has pencilled in investment growth of over 15 percent this year. Of course, the game isn’t even half over but this is an especially poor start.
Read Post →
Irish living standards are now closer to the bottom of the EU-15 countries than to the top; they are closer to Greece than to Germany or Belgium or the UK or most other EU-15 countries.
Eurostat has just released its annual estimates of household living standards. To measure this they use Actual Individual Consumption (AIC). According to Eurostat:
‘In national accounts, Household Final Consumption Expenditure (HFCE) denotes expenditure on goods and services that are purchased and paid for by households. Actual Individual Consumption (AIC), on the other hand, consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit organisations. In international volume comparisons, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organisation of certain important services consumed by households, like health and education services differs a lot across countries.
For example, if dental services are paid for by the government in one country, and by households in another, an international comparison based on HFCE would not compare like with like, whereas one based on AIC would. . . Actual Individual Consumption per capita is an alternative indicator better adapted to describe the material welfare of households.’
In short, AIC captures goods and services bought by households and by Governments on behalf of households.
The following table shows the relationship of European countries’ living standards to the EU-15 average, with the EU-15 equalling 100.
Ireland is approximately 11 percent below the average EU-15 living standards. We rank 12th in the league table. What’s noteworthy is that we are closer to Greece than to most other countries. We are 14 indice points above Greece but 15 points below the UK. There are eight other countries above the UK.
Read Post →
The following piece is based on a much longer article ‘Scapegoating During a Time of Crisis: A Critique of Post-Celtic Tiger Ireland’, co-written by Micheal Flynn, Lee Monaghan and Martin Power. It is available here.
Austerity and Scapegoating: two sides of the same coin
Class war is in large part a propaganda war; it is in no way confined to formal political life, but
works its way through all the institutions of society. For the most part it is the ruling class that is advancing – most obviously through the commercial media, which so often serves to divide, disempower, demoralise and dis-benefit the working class.
Only a few years ago it was generally accepted that bankers, developers and speculators destroyed Ireland’s economy. In the wake of the collapse, Brian Lenihan’s claim that ‘we all partied’ was rightly understood as an attempt to deflect blame from those actually responsible. Most understood that it was the recklessness of the investing classes, coupled with the political decision to socialise private bank debt that had forced hundreds of thousands on to dole queues and/or through airport departure gates. For a time, the anger of the population was focused squarely of those that had destroyed the economy.
Yet, notions of collective responsibility have been carefully fostered ever since. The idea of a specifically Irish lust for property (or even a ‘property-owning gene’) appears to have become the common-sense of our time. The commercial media, with the help of the trendy economists elevated to celebrity status, such as David McWilliams, reason that everything went askew because of a ‘cult of property’. We Irish gave in to a ‘mass delusion’ – or as Indakinny so eloquently explained ‘we all went a bit mad with borrowing’.
Consequently, and very conveniently, the role of developers, speculators and politicians – their systematic destruction of alternatives to crippling mortgage debt, the role of section 23 tax breaks, the endemic planning corruption revealed by the Mahon tribunal, are all put out of sight as blame is socialised. This makes it far easier to justify the on-going socialisation of debt, which in turn helps to rationalise the ‘tough decisions’ that government insists are unavoidable. The subsequent apportioning of blame to specific targets is likewise done in a manner consistent with the distribution of austerity.
As expected, cuts to the public sector have gone hand-in-hand with attempts to demonize public sector workers. With the public sector now on the chopping block, ‘over-paid’ and ‘under worked’ public sector workers have been identified as unbearable burdens on the public finances. Rather than remain focused on where the billions are actually going, attention is paid to a ‘privileged’ public sector. This cultivation of resentment gives licence to savage cuts and softens the public up for privatisations. Even better, damage done to the highly-unionised public sector also damages the trade union movement, which when weakened makes for more effective attacks on pay and conditions down the line.
Read Post →
Do you really believe that 2015 is the last year of austerity? If you believe that fiscal pigs will fly, then, yes, 2015 will be the last year of austerity. However, if you are even just a tad sceptical then read on. For 2015 is not the end – it is just the end of the beginning. After 2015 we will be into a new phase of real austerity.
The Government has produced a budgetary scenario up to 2019. They emphasise that this is just a scenario. They even underline it.
‘Again it must be stressed that this is purely an illustrative scenario.’
So this is one possible future that the Government is considering. However, given that they have published it twice means that this scenario is being serious considered – especially as they have not produced any other scenario.
The key to understanding why real austerity will continue up to the end of the decade is the premise of this scenario:
‘Expenditure is assumed to increase by 1 per cent per annum.’
Ok. And how much do they expect inflation (GDP deflator) to increase by? 1.4 percent per annum. So each year the increase government expenditure will not match the increase in inflation. Therefore, each year it will be cut in real terms – that is, after inflation.
Let’s run through some basic numbers – focusing on primary expenditure, which excludes interest payments. This means we’re looking at expenditure on public services, social protection and investment.
Read Post →
1,230,000. This number should be burned into the debate. This the approximate number of people included in the CSO’s enforced deprivation rate. This is the number of people who suffered two or more deprivation experiences in 2012. This is more than one-in-four – 26.9 percent – of all people in the state. This is a number that should drive the debate from here on.
The CSO sets out eleven enforced deprivation experiences:
Without heating at some stage in the last year * Unable to afford a morning, afternoon or evening out in the last fortnight * Unable to afford two pairs of strong shoes * Unable to afford a roast once a week * Unable to afford a meal with meat, chicken or fish every second day * Unable to afford new (not second-hand) clothes * Unable to afford a warm waterproof coat * Unable to afford to keep the home adequately warm * Unable to afford to replace any worn out furniture * Unable to afford to have family or friends for a drink or meal once a month * Unable to afford to buy presents for family or friends at least once a year
Those who suffer two or more of these experiences are officially categorised as deprived.
Deprivation has been rising since the beginning of the recession. In 2007, 11.3 percent were categorised as deprived. In 2012, it rose to nearly 27 percent – more than doubling. In absolute numbers, it has increased by nearly three-quarters of a million.
In this overall number there are approximately 375,000 children, aged 17 and under. Since 2007, this number has increased by 180,000.
There are sections of society that are under severe pressure. The following is the deprivation rate for particularly vulnerable sectors:
- Social housing tenants: 50.7 percent
- Lone parents: 49.5 percent
- Unemployed: 49.4 percent
- Not at work due to illness or disability: 48.5 percent
In these groups, one-in-two people live in deprivation.
Read Post →
We urge all trade unions, community and campaigning organisations to march with their banners on May Day to drive home to government that there is another way.
March and Rally
6.30 p.m. Thursday 1st May 2014
Garden of Remembrance
Parnell Square, Dublin
Read Post →