For many the detail about the pressure which was widely reported to have been applied by the ECB for Ireland to enter the 2010 Troika bailout has coloured their understanding of the original blanket guarantee. The extent of the guarantee and the large sums being poured into our failed banks ensured that a bailout would be required. It was hardly a coincidence that the bailout occurred in the months after the blanket guarantee ran out on the 29th of September 2010.
The ECB’s insistence that the promissory note for Anglo Irish Bank and other unsecured unguaranteed bonds should be paid have led people to think that it was ECB pressure that led to the 2008 – 2010 guarantee in the first place. I have tried over the previous posts to unravel this myth and show that it was an Irish decision alone put in place for very local reasons. In fact, the ECB warned the Irish government that under Maastrict (where the cost of borrowing is dependent on maintaining a good credit rating in the financial markets) the guarantee could cause substantial funding problems for the sovereign. Other events disprove it, including the fact that an attempt by the Greek government to also bring in an unlimited guarantee immediately after the Irish made their announcement was rescinded due to pressure from EU Commission. Neelie Kroes, EU competition commissioner at the time said “A guarantee without limits is not allowed”.
Of course, the myth has its own political uses and it’s not surprising that there has been very little examination to date of the guarantee. But even any future Public Accounts Committee examination and its ‘who said what in the room on the night’ scope will not provide much clarity. Looked at from the perspective of class and power, however, examining the guarantee reveals much about how both work in Ireland. Such a focus would not fixate on the technical detail of whether dated subordinated bonds should have been included, or whether Dermot Desmond was there behind the curtain throwing his voice in to the mouth of Brian Cowen. Instead, the focus should be on the decisions made in the context of how the Irish government behaved in the past when other Irish financial institutions went into freefall. We tend to see 2008 as a rupture, but in terms of understanding why certain decisions are made it’s more useful to examine the continuities. After all, this was not the first time that Ireland provided a blank cheque for Irish banks.
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Here’s an extract from an article on Gom’beenism by Conor McCabe, which Rabble published in their great community print magazine and have now provided online. To help keep Rabble magazine in print please support their fundit campaign.
Gombeen (g?m ‘bi:n). Anglo-Irish. Usury. Chiefly attrib., as Gombeen-Man, a money-lender, usurer; so also gombeen-woman. Hence gom’beenism, the practice of borrowing or lending at usury.
The 19th-century term Gom’beenism, the practice of borrowing or lending at usury, is increasingly referenced in relation to Ireland’s domestic economic practices. Conor McCabe takes a look at the history of the Irish middleman and argues that they haven’t gone away.
On Tuesday 3 January 1882 the nobility and landed gentry of Ireland met in Dublin to discuss the future of the island. Among those present was R.J. Mahony, a landowner from Kerry. He stood and said that the recently-passed land act would be the ruin not only of the landlords but of the small farmer as well. He explained that as soon as the landlord class was put out of the way, another would come along to take their place.‘The merchant, the trader, the usurer, the gombeen man,’ said Mahony, were ‘the future rulers of the land.’ Mr. Mahony called these the middlemen, and although he may have had his reasons for defending landlordism, his warnings were not without foundation. Forty years later the middleman were in the ascendancy and set about carving the newly-independent free state in their image – and we’ve been living with the consequences of that ever since.
Just who were these middlemen? In an article published in 1982 Michael D. Higgins wrote that the mainstream image of the period – and the one taught at secondary level – was one of poor small farmers fighting against perfidious, foreign landlords. However, what was glossed over in such a black and white analysis was that there was another struggle – a class struggle – going on, one that involved small farmers and the rancher/grazier families. These large rancher farmers fattened cattle for export, and occasionally they were the local shopkeepers, the arbiters of credit in the community, and the dispensers of loans. It gave them significant societal influence and power. Not all shopkeepers were graziers, of course, but neither one was the friend of the smallholder. The social relations which underpinned Irish rural society were not only framed by land, but by credit: those who needed it, and those who profited from it. And in the north and west of Ireland, it was the Irish entrepreneurial spirit of the middleman and his gombeen cousin that held sway over credit.
Read the rest here.
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This post originally appeared on Unite the Union’s Croke Park Report blog on the 17th of April.
66 percent of public sector workers voting on the Croke Park 2 proposals rejected the deal. Of the 20 unions participating in the ballot, 14 rejected the deal and 5 accepted (we don’t have information on the vote from Veterinary Ireland). The result was overwhelming and conclusive.
There is one argument going around that says if four percent of public sector workers in SIPTU had switched from rejection to acceptance, then Croke Park 2 would have passed.
However, this overlooks the fact that two-thirds of public sector workers rejected the deal. A small change in any particular union would make no difference in the overall vote.
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The unions opposed to Croke Park 2 have launched an Equality Audit of the proposals. It focuses on the impact of changes in working conditions – issues which have not received as much attention as the pay-cut elements of Croke Park 2. Which is unfortunate as this audit shows is that these proposed will have a profound impact on women in particular, and family carers in general. This is why Croke Park 2 has been rightly labelled as anti-women and anti-family.
The Equality Audit is written by Niall Crowley who, as former head of the Equality Authority, is particularly well-placed to assess the impact of Croke Park 2. His key points are:
- The provision for additional hours will have a higher impact on women – and for women and men with caring responsibilities. This could force women and carers out of the workforce.
- There will be a similar impact of the provision regarding work sharing which will be reduced. Women and carers will be disproportionately hit. Furthermore, there will be a negative impact on productivity.
- Flexi-time arrangements, again, will impact more negatively on women and carers. That the Croke Park 2 rules out any reference to family circumstance or the right to appeal to a third part means employees will have even fewer rights to maintain family-friendly working hours.
- There is a potential loss of productivity arising from the proposals as the loss of work-sharing opportunities and flex-time, combined with more working hours will reverse the gains that these working practices produced in the past.
The effect of all this will be a management driven by spurious and highly misleading balance-sheet considerations which will disguise the loss of productivity in the public sector, impose costs on to workers, drive many women and carers out of the workforce, and end up with a degraded public service. This is quite an achievement for a ‘deal’ that pretends to drive efficiencies.
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April addition of Socialist Voice is now out. It can be viewed online here
- Time for a radical departure [EMC]
- Cypriots paying the price [EMC]
- Growing threat of NATO membership
- The state of bourgeois political economy [NL]
- William Thompson: political economy and co-operative communism [NL]
- The new pope [MA]
- The question remains: when are we going to talk about class? [PD]
- Can we learn from Cuba? (or where to go from here?) [TMS]
- Financialisation, the euro, and the crisis [NC]
- A modest exposure
- The family, private property, and the state [SOD]
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As reported today, “[Eamon Gilmore] did not believe that multinationals having headquarter operations in Ireland that used offshore locations as part of their tax avoidance strategies, put the country in a difficult position when it came to the subject of tax havens”.
The Tax Justice Network has made a point in recent years of replacing the term ‘offshore’ and tax haven with ‘secrecy jurisdictions’. This is their reason for creating the Financial Secrecy Index which lists Ireland at 31.
“The Tax Justice Network has estimated, conservatively, that about $250 billion is lost in taxes each year by governments worldwide, solely as a result of wealthy individuals holding their assets offshore. The revenue losses from corporate tax avoidance are greater. It’s not just developing countries that suffer: European countries like Greece, Italy and Portugal have been brought to their knees by decades of secrecy and tax evasion.
These staggering sums are encouraged and enabled by a common element: secrecy. Secrecy jurisdictions, a term we often prefer instead of the more widely used term tax havens, compete to attract illicit financial flows of all kinds, with secrecy as one of the most important lures. A global industry has developed where banks, law practices and accounting firms provide secretive offshore structures to their tax dodging clients. Secrecy is a central feature of global financial markets – but international financial institutions, economists and many others don’t confront it seriously”.
Irish politicians don’t take it seriously either, for the obvious reason that it remains good business for the Irish executives who operate the subsidiaries of foreign banks here, and who work in the law practices and accounting firms that advise large multinational firms on the international tax strategy. For a relatively small economy Ireland has a disproportionately large number of experts on international taxation.
So it’s unlikely, when talking about the need to attract foreign direct investment, or saying that that the Irish economy has to become more competitive to boost the export sector as a means of reducing the deficit that Eamon Gilmore or Enda Kenny would say that as a means of doing that we have to build on our excellent relationship with our largest trading partner: Bermuda, the off-shore the tax haven.
Taken from Mary Everett, The statistical implications of multinational companies’ Corporate Structures, Quarterly Bulletin, Central Bank of Ireland, April 2012
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The following extract is taken from The Making of the Celtic Tiger: The Inside Story of Ireland’s Boom Economy. Dublin. Mercier Press. (2000). It is Padraic White’s own account of the development of the Irish Financial Services Centre.
In the middle of 1973, the IDA launched international services as its latest product. At the time, this category included both technical consultancy services and computer services. However, within the IDA’s own research unit, work continued to identify and analyse other service products, including those n the financial-services area. One of the economists engaged in this task was Ken O’Brien, who later, as founder of Finance magazine, would provide specialist coverage of the Dublin financial centre. Our New York office befriended a Wall Street lawyer, Bob Slater, who was familiar with the then-exotic world of offshore banking – the reasons why banks set up in specialist offshore centres, the kind of financial activities undertaken there and the nature and number of jobs created in this developing sector.
As manager of the planning unit, I agreed to take on Bob Slater, both as a financial consultant on financial services to IDA and to produce a study of offshore banking systems. His report examined the success of Bermuda in creating jobs in financial services, and he was satisfied that Ireland could emulate its achievement. And so in 1978 – innocently, in hindsight – we set out to promote international financial services to the world, and did so on a pilot basis to test-market the reaction. The IDA executives embarked on their selling mission, armed with the expert conclusions of the Wall Street expert.
During the year the IDA team soon landed some big fish in the form of two US banks that had developed specific job-creating proposals. However, the agreement of the Central Bank was first needed. Michael Killeen* considered the proposals sufficiently important for himself to go with Jerry Kelly, who was negotiating the projects, and myself to make the case for Central Bank authorisation. The reaction was not encouraging and we left the Dame Street offices feeling rather dejected. We could not give the required assurances or promises of authorisations to our foreign bank clients. The projects died and we ceased to do any more financial-services promotion. Subsequently, it emerged the bank no stomach for the projects and would not approve them. However, the IDA could never get a clear reason for this. The most authoritative word which came back indirectly was that the Central Bank believed the offshore financial projects ‘smacked of a banana republic.’ (pp.323-4.)
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This post originally appeared on Unite the Union’s Croke Park Report blog today. It is a follow-up to the previous post War on Wages.
Francis Byrne of OPEN made an excellent point in a tweet regarding the previous post on the war on wages:
‘Which will also of course inevitably provide a rationale for reducing weekly SW (social welfare) payments.’
This is a crucial point. Cutting wages hits social protection recipients – unemployed, old age, single parents, the invalid and sick – in two ways.
First, there is a reduction in tax revenue. In the private sector when pay is cut by €100, the state loses nearly €42 ((nearly €63 if the employee is in top tax rate). In the public sector the loss to the state is even higher given the pension levy and pension contributions. This leaves the Government with less revenue and, so, puts pressure on spending.
Second, wage cuts can drive down workers income towards social protection levels. Using the ‘incentive-to-work‘ argument, some will argue that social protection must be cut so that work ‘pays’.
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The latest growth data confirm that Ireland went back into recession at the end of 2012. Despite all the talk about corners being turned, we find that economy is going backwards. GDP is lower than it was in 2009. GNP, which does not include the effects of movements in profits by multinational corporations, is back to where it was in the middle of 2010.
The ability of the Irish government to return to bond markets is being promoted as the main or even the sole criteria for the success of government policy. Strange that it is simultaneously said that this is a government debt crisis, and yet its resolution is measured by the ability to add to government debt.
The purpose of all economic policy should be the optimal sustainable increase in the well-being of the population. Instead, a return to the bond markets has become the overriding objective of economic policy. But this is itself unsustainable if the economy is contracting as the debt burden rises and the deficit widens once more.
On growth it is clear that the fall in investment remains the overwhelming source of the Irish Depression. GDP and GNP have contracted by €13.3bn and €11.9bn since the end of 2007 respectively. Investment (Gross Fixed Capital Formation) has fallen by €21bn. It is an investment strike which is responsible for the slump.
The national accounts are shown in the chart below from the end of the boom in 2007 to the end of 2012.
While investment has collapsed by €21bn, the fall in personal consumption has been about one third of that, at €7.1bn and the fall in government spending slightly lower at €5.6bn. It is repeatedly asserted that the performance of exports proves the validity of current economic policy. But while the increase in net exports has been very significant, this owes more to falling imports (which are treated as a negative in the national accounts) rather than rising exports. Recorded exports have risen by €11.7bn over the period while imports have fallen by €15.8bn – and there are question marks about how real these exports are.
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This post was originally published on Unite the Union’s Croke Park Report blog today.
It is interesting that the big news of yesterday made so little news. The CSO revealed that the economy fell back into recession in the latter half of 2012 but you will have to look hard to find much reporting on that. Maybe it’s because this inconvenient fact cuts across the official narrative. And while there was growth in three out of four quarters in 2010 and 2011, there was only one quarter of growth in 2012. That, too, didn’t get much coverage. That, too, may be inconvenient.
So what does this tell us about Croke Park 2? It tells us that it is irrational to cut wages and, so, spending power with an economy falling back into recession. Consumer spending and domestic demand has been stagnating for the last three years.
The domestic economy has flat-lined, suffering under a weight of austerity measures. This year alone there is the impact of the PRSI cuts, the property tax along with cuts in Child Benefit, investment and public sector employment – which will reduce disposable incomes further. Now the Government is proposing to cut the incomes of nearly 300,000 workers. Would anyone be surprised to see this stagnation continuing?
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This was originally posted on Unite's Croke Park Report blog today.
Let’s take a step back from the details in order to see what is happening in the wider economy – which has now fallen back into a double-dip recession according to the CSO report today. The real game plan is to suppress wages in order to boost profits.
This strategy was first announced Budget 2009 under the Fianna Fail-led government which claimed there was no alternative to wage reduction. The current Government has maintained that strategy. We have seen a restructuring of Joint Labour Committees which has removed much of the protection accorded to low-paid workers in sectors such as retail, restaurants and hotels. And we know what the Government wants in the current Croke Park 2 proposals.
Further, the Minister for Finance has called for cuts of 6 to 10 percent in the banking sector, even though the Mercer Report showed that over 40 percent of all staff in the three covered banks (Bank of Ireland, AIB and PTSB) has an average wage of €30,000.
Profits, meanwhile, have been on the increase. In 2010 and 2011 combined profits rose by 11 percent. If we take a longer view – and compare wage and profit growth projections with the Eurozone average – this is what we find, courtesy of the EU Commission’s AMECO database.
There are two things of note in this:
First, Irish profit growth greatly exceeds that of average Irish wage growth. Irish wages per employee in 2014 is projected to be below what they were in 2008; Irish profits on the other hand will have grown by 30 percent. In the Eurozone wages and profits is projected to grow in tandem.
Second, Irish profits are growing at a faster rate than the Eurozone average while Irish wages are lagging far behind.
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The paradox of the hot bath is symmetrical: it draws the blood to the periphery, as well as the humors, perspiration, and all liquids, useful or harmful. Thus the vital centers are relieved; the heart now must function slowly; and the organism is thereby cooled.
(Foucault 1961 [1965: 169–70])
The following essay is an attempt to answer a question of critical importance to the history of the Irish State’s development; Namely, in light of the IMF’s recent disciplinary stance toward the Irish State, and in consideration of the key role played by a number of inter- and supra-national financial institutes in stimulating Ireland’s period of unprecedented economic growth, can the IMF’s stance in the post-crisis period be deemed an attempt to legitimise the institute’s technocratic claims to authority; and what are the implications of Ireland’s bailout within the wider context of Europe.
The essay will be two-pronged in its approach; in the first section, we will seek to offer a revisionist interpretation of the negative consequences of Ireland’s economic growth having been characterised largely by external exigencies. Ireland of the Celtic Tiger era was heralded as a “successful model for small and peripheral states in this era of globalization.” The factors culminating in its dramatic demise thus merit closer attention within the wider context of development (or indeed post-development) studies.
In the latter section, we will seek to contemporise the discussion by focusing on the EU-IMF bailout in 2010. Here we will attempt to offer a political economic approach to the IMF’s intervention and authoritarian stance in Ireland, by contrasting the Fund’s economic surveys prior to and following the financial crisis. We will offer two readings of this: first, we will consider if the Fund’s authoritarian stance can be read as part of the institution’s bid to continued legitimacy– in its failure to prevent the crisis, and in light of its crisis of legitimacy prior to this. Secondly, we will consider how the Fund’s stance toward Ireland relates to its roles as part of a wider international economic system, acknowledging that the IMF and the World Bank function as “twin intergovernmental pillars supporting the structure of the world's economic and financial order.” In so doing, we will seek to offer an alternative reading to the “sovereign” debt crisis.
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The March issue of Socialist Voice is out now.
Can be viewed as a PDF here or view it online.
Table of contents:
- Workers continue to pay the price [EMC]
- The passing of a hero
- Austerity hits local services [MA]
- Theft by stealth—the solution of the rich [MA, JA]
- The super-rich dine at our expense [NL]
- Women written out of history [PD]
- Launch of the Peadar O’Donnell Socialist Republican Forum
- Democracy and the crisis—Part 2 [FC]
- Spain swings to the left [TMS]
- Western commentators shocked by their own darling [BG]
- New abusive measure against one of the Cuban Five
- The hunt for truth [RCN]
- Belfast’s working-class troubadour [RH]
- A fantastic sixty minutes of drama [PD]
From the lead article: Workers continue to pay the price
We need to constantly keep to the fore the following question: What is austerity designed to do?
It is for shifting the burden of crisis onto workers and away from capital, through pay cuts, redundancies, and the socialisation of corporate debt where necessary. Austerity is capitalism’s response to the crisis: to recover growth through increased exploitation and provide state-led guarantees to private investment.
Croke Park I and II are an extension of “social partnership.” Mentally, the ICTU still sees things in terms of giving away rights to placate the interests of the bosses.
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This was originally posted on Unite's Croke Park Report blog.
The Government claims their proposed pay-cut deal is ‘fair and equitable’. They must have a strange idea of fairness and equity because when you drill down into the Euros and cents you find that the lower paid will be hit harder.
Let’s take the example of single person who works 10 Sundays a year. Currently they receive double-time. The proposed pay cut would reduce this to 1.75. The impact on gross incomes is the same across the income categories.
However, once you factor in the impact on disposable income (that is, after tax) the situation changes dramatically.
Those on lower pay will find they suffer a much higher impact on their take-home pay – a hit that many lower paid cannot afford or absorb. The reason for this is the interaction between the standard rate of tax and the top rate of tax. The Government, of course, is aware of this impact.
This trend will persist with couples – whether it is one or both spouses working. Those on the standard rate of tax will suffer a higher impact on their net income than those on the higher tax rate.
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