Economy

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Closer to the Bottom than to the Top

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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.

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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.

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Here We Go Again – Blaming Workers Again

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Previously, I discussed the assertions that rising housing costs were caused by over-paid construction workers.  It wasn’t true but that never stops some commentators from trying to find blame – and finding it in workers’ pay packets.  It’s been going on since the start of the crisis.  And it still goes on.

The Irish Times reported that consumer prices in Ireland are still much higher than in most other EU countries:

‘Even after six years of austerity, consumer prices in Ireland are on average 18 per cent higher than the European Union norm, prompting renewed concern about the country’s competitiveness.’

Why should this still be the case?  Costs associated with being an island on the periphery (transport and import costs?).  Oligopolistic price-setting in key sectors?  Alan McQuaid, economist with Merrion Stockbrokers, believes he has part of the answer:

‘The other key issue which these figures highlight is the underlying cost for retailers – eg rents, insurance and wage costs – are higher than elsewhere. You cannot look to have one of the highest minimum wages in Europe, and then not be surprised that prices are more expensive than the rest of the bloc.’

Oh, my, it comes back to those darned over-paid workers, this time in the in the retail sector where workers are undermining our competitiveness by getting an average weekly income of €512 a week (and this includes management salaries; weekly income for shop floor workers are bound to be much lower).

Let’s look at this claim about high wages in the retail sector and see how we compare with other countries, using the National Accounts here and here.  We will use the Wholesale / Retail sector (there is little data at the retail sector only) but this sector as a whole would impact on costs for  consumers.  First up, employee compensation.

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Ireland is below the mean average of other EU-15 countries (no data for Sweden) and well-below most other countries.  We’re only higher than other peripheral countries and low-paid UK.  This shouldn’t be surprising.  Unite the Union examined employee compensation using the Eurostat Labour Cost Survey and found pretty much the same picture.

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Scapegoating During a Time of Crisis

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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.

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Championing the Affluent

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The affluent are blessed in their champions.  They have a myriad of commentators fighting their corner.  In the Sunday Independent Colm McCarthy, discussing the benefits or otherwise of a third tax rate on high incomes, stated:

‘In order to raise meaningful amounts, it (the threshold to enter the third rate of tax) cannot be pitched at a level much higher than the €100,000 indicated, but that pulls into the high-tax bracket many people who do not consider themselves exceptionally well-off.’

€100,000 not exceptionally well-off?  Ok, maybe, but they certainly are ‘well-off’; very well-off.  In fact, they are in the top 3 percent of income earners in the state.  If these high-earners don’t consider themselves exceptionally well-off, what would they think if they were part of the 50 percent of income taxpayers who earn below €29,000 a year?  Or the 25 percent of the population who live in official deprivation.

These kinds of comments are part of the don’t-tax-high-earners-too-much-because-then-they-will-leave-in-a-tax-huff argument.  Thomas Molly, writing in the same newspaper, puts it this way when discussing the wealth tax:

‘Any other sort of wealth tax is likely to bring in very little money as the cash moves overseas at warp speed but is guaranteed to scare away many of the people who create wealth and jobs in our society.’

Ah, tax flight – the phenomenon whereby high taxation causes people to leave the jurisdiction.  How valid is this?  Not very.  The US is a good place to study.  Individual states can set their own income and wealth taxes in addition to Federal taxes.  And moving from one state to the next is not nearly as challenging as moving from one EU country to the next.  So what happens when states like Maryland or New Jersey or Oregon raised taxes on the highest income groups?  This study – ‘Tax Flight is a Myth’– found:

‘Attacks on sorely-needed increases in state tax revenues often include the unproven claim that tax hikes will drive large numbers of households — particularly the most affluent — to other states. The same claim also is used to justify new tax cuts. Compelling evidence shows that this claim is false. The effects of tax increases on migration are, at most, small — so small that states that raise income taxes on the most affluent households can be assured of a substantial net gain in revenue.’

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Making Work Pay Requires More Social Protection Expenditure

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What are we to make of the two headlines this morning?  First, from the Irish Times:

‘Work pays better than welfare for most unemployed, ESRI finds’

And then there’s this from the Irish Independent:

‘Why families are better off staying on social welfare’

Both stories refer to a study that will be launched today by ESRI researchers, using the institute’s Switch tax-benefit model that allows a detailed examination of households’ financial situation both in work and out of work.  I will be going into more detail once this report is published but in this post I want to address a broader narrative: namely, to ‘make work pay’ requires more social protection spending and more public intervention into key markets.

The Irish Times reports two findings:

  • Nearly six out of seven people would be financially better off in work than on welfare (or nearly 85 percent)
  • Among those people in employment or unemployed facing a situation where work pays less than welfare, more than 70 per cent chose work rather than welfare.  So much for ‘life-style’ choices.

The Irish Times report goes on to state that:

‘The finding appears to debunk the myth that Ireland’s relatively generous social welfare system gives no incentive for people to work.’

Of course, we don’t have a relatively generous social welfare system but that’s another story.

The Irish Independent, however, focuses on the small numbers who would be better off on social protection.  They report that 45,000 workers would not receive any benefit from taking up work, of which 22,000 would actually lose money.  However, even the Indo report admits that most people still take up work, regardless of the financial impact.

So to the degree that people are not better off taking up work, what is the reason?

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Basic Income Summer Forum

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This article originally appeared on Ian Maleney’s Tumblr page, Interstate808.

On Saturday afternoon I attended the first half of the Basic Income Ireland Summer Forum in Dublin. I went along for the talk by Yannick Vanderborght, a leading campaigner for Basic Income in Europe. He spoke for about forty-five minutes or so, just giving a brief overview of the theoretical and political sides of the argument for and against Basic Income. Unfortunately I couldn’t stick around for the discussion afterwards.

The first part of the talk related to the “theory” side of Basic Income, the justifications for it and challenges to it, and it’s on this part that I would like to focus here. There’s plenty of information available online about the political side, with organisations all over Europe (and further afield) all engaged in pursuing the BI agenda and attempting to raise awareness for it. The Basic Income Earth Network is a good place to start.

Vanderborght outlined three main challenges to the idea of a Basic Income Guarantee.

—The Migration Challenge:

This argument says that any state that enacts Basic Income would instantly become a “welfare magnet”, attracting huge numbers of migrants looking to avail of it. EU law says that each EU state is required to provide social security to any EU citizen resident there. So, if Ireland were to enact BI, any citizen from any EU country could come here to live and the state would have to provide them with the same BI as they would someone born here. The argument suggest that such potentially high inward migration would make the scheme unfeasible.

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The Long Term Deceleration of the US Economy

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This chart shows the dominant long term trend in the US economy – gradual deceleration. A 20 year moving average is used to eliminate all cyclical or short term trends. The deceleration from 4.4% in 1969, to 4.1% in 1978, to 3.5% in 2002, to 2.5% in the first quarter of 2014 is clear. The temporary recovery in the late 1990s and beginning of the 21st century proved unsustainable and was followed by a sharper fall.

This trend shows that the most enduring feature of the US economy, which must be explained by any analysis, is not any analyses of business cycles, particularly those of a ‘manic-depressive’ type, but this very long term slowdown of the US economy.

Furthermore, as this deceleration has been going on for 40 years, it clearly has extremely deep roots which are very difficult to reverse. Unless dramatic changes in US economic policy take place, therefore slow deceleration should be built into projections for the US economy.

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The Cost of Our Health

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Do we spend too much on healthcare?  The EU Commission seems to think so.  In their country-specific recommendations for Ireland they state:

‘Even though Ireland has a relatively young population, public healthcare expenditure was among the highest in the EU in 2012 at 8.7% of GNI, significantly above the EU average of 7.3%.’

The implication is that our spending on healthcare is 16 percent above EU average levels.  What more justification does the Government need to continue cutting our health services than to get a recommendation from the EU?

There’s only one problem.  The EU Commission numbers are wholly unreliable and not a proper representation of health spending in the EU.

Before getting into the EU numbers, let’s see if we can discover just how much Ireland and other EU countries spend on health care by referring to the OECD’s Health at a Glance.

There are two measurements that can be used; first, health spending as a proportion of economic output.  The latest year they have data for is 2011.  To compensate for the fact that GDP is not a good measure for Ireland, I have used the Irish Fiscal Advisory Council’s hybrid GDP which measures fiscal capacity.  This hybrid measurement stands between GDP and GNP.

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Ireland is just below the average expenditure of other Advanced European Economies (i.e. EU-15) – but there is a major caveat which I will refer to below.  It should be noted that if we used a straight health spending as a percentage of GDP, Irish spending would be 8.9 percent of GDP.  Of course, benchmarking any expenditure against GDP has its problems, especially when a Government has been pursuing austerity policies that actively reduce the GDP.

For an alternative view, we can turn to the OECD’s measurement of healthcare expenditure per capita, using purchasing power parities to account for differences in currency and living standards.

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Housing Action Ireland Manifesto Launch: 12th of June, @6pm, Teachers’ Club Parnell Sq

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Housing Action Ireland

Housing Action Ireland has been working away quietly for some time, but on the 12th of June we’re launching our Housing Manifesto. This is a public event so we hope to see as many of you there as possible. The manifesto will be available one week before the launch – watch this space to get a copy. Full details below and more to follow.

Housing Action Now

in The Teachers Club Parnell Square

On Thursday June 12th 2014 at 6pm.

Screening of the 15 minute film Scattered by Joe Lee

and O’Devaney Gardens Residents and Workers.

Aidan O’Halloran and Raymond Hegarty will play some music.

A short version of the Housing Manifesto for online sharing is available here. The full version is available here.

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Economics and the Debate on Immigration II

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This article was originally posted on Socialist Economic Bulletin on the 6th of June.

The now notorious UKIP poster which suggested the entire population of the EU might come to Britain for work is designed to whip up racism. But it contains two fallacies that are unfortunately shared by many people who are not racists, and are therefore worth rebutting.

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The first myth is that Britain is a uniquely attractive place within Europe in terms of pay or workers’ rights, or social security entitlements. The graphic below was produced by the UNITE union in Ireland in their argument for higher pay. But it is such a good graphic it is worth reproducing as it stands.

Graphic 1. Private Sector Hourly Compensation in Western Europe, € PPPs

Graphic 1. Private Sector Hourly Compensation in Western Europe, € PPPs

Compensation includes both pay and social wages such as pensions and other benefits. The data is in Purchasing Power Parity terms, so that they account for price differentials between European countries. The data is drawn from Eurostat database here.

The compensation for British workers is among the lowest in Western Europe. Britain is not a uniquely attractive destination for economic migration within the EU. Therefore it should come as no surprise that Britain has one of the lower levels of immigration of the Western European economies.

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Basic Income – An Idea Worth Exploring

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Basic Income is being discussed more and more.  It will be discussed at this weekend’s Basic Income Ireland seminar.  Basic Income is a weekly payment from the state to every resident without any means test or work requirement – a payment sufficient to afford a decent living standard.  It would work like this:  I receive a weekly payment from the state of approximately €200 per week (if that’s considered to afford me a decent living standard) whether I work or not.  Any income I earn above that is taxed.  If I choose not to work I still receive the €200 weekly payment.   In essence, BI breaks the link between work and income.

There have been considerable criticisms.

First, it has been dismissed on grounds of cost.  It certainly would be expensive, requiring very high tax rates on income from work.  Tax rates of 40 to 50 percent on all income have been proposed to pay for the programme.  And given the need to fund public services, additional social protection payments and investment it is hard to see how this could be introduced in the short-term.

Second is the impact on the labour market and work behaviour.  In short, if you give everyone an adequate income would they choose not to work?  This could create labour shortages in key sectors which would hamper growth and undermine the ability to fund BI.

Third is the inflationary impact.  Boosting incomes could put pressure on prices and drive up imports which in turn would require increasing the BI as it struggled to maintain value.  This could result in an inflationary spiral (of course, we could do with a little spiral to get us out of this deflation).

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Dude, Where’s My Anglo-Irish Promissory Note Dividend?

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Remember back to the renegotiation of the debt repayments on the Anglo-Irish promissory note last year?  Amidst the sound of champagne corks popping we were told we would get a budgetary dividend of approximately €1 billion.  Overnight, our deficit was projected to fall from an estimated 3 percent in 2015 to 2.2 percent.  Less tax increases, less spending cuts.  Of course, we had to be quiet about all this – for fear of frightening the monetary-financing horses over at the ECB.  But what it meant was less fiscal pain.

So what happened to the dividend?  In short, it’s disappeared.   Under the latest Government projections, the deficit has quietly but firmly gone back up again.

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After the deal, the deficit in 2015 was projected to fall to €3,955 million (prior to the deal it was projected to be €5,325).  However, in the Government’s latest Stability Programme Update, the deficit has increased – back up to €5,235.  In percentage terms, the projected deficit yo-yoed – falling from to 2.9 percent of GDP to 2.2 percent after the deal, only to bounce back up to 2.9 percent.

So, instead of facing into a budget that needs to find €2 billion in fiscal adjustments, we should have only needed an €800 million adjustment.  And when you factor in the ESRI’s claim that, apart from water charges revenue, we wouldn’t need any more fiscal adjustments, then we should be facing into a budget where the Government could run expansionary policies (increase spending, cut taxes) and still meet the EU budgetary targets.

So what went wrong?

Three things happened.

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Greek EU Elections: A Clear, Historical, But Still Not Decisive SYRIZA Victory

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The Greek EU elections have produced what is clearly a historical result, not only for Greece but for the European Union as well. SYRIZA won by a clear margin of almost 4% (3.8% to be more precise), scoring 26.5% against 22.7% of ND, the governing right party. Moreover, in the municipal and regional elections SYRIZA gained an impressive victory in Attica district with Rena Dourou, though it failed to elect Sakellaridis in Athens, who lost by a small margin to Kaminis.

SYRIZA’s victory is widely discussed by the European mass media, together with Marine Le Pen’s impressive first place in France, as the two most striking and weighty EU elections results. But while important on a general level, SYRIZA’s success is even more important for the European Left. It is the first time in recent history of Western Europe that a party of the Left gains first place since 1984, when the Italian Communist Party had achieved the same, just after Enrico Berlinguer’s death. However, SYRIZA’s victory comes at a much graver occasion, when the specter of fascism, racism and reaction hangs heavily over the continent. In this connection, it is crucial in showing that there is another road for Europe apart from the turn to the ultra Right, observed not only in France but in several other EU countries (Austria, Denmark, Sweden, Hungary, etc.) as well.

Yet, precisely because it is historical, SYRIZA’s victory must be analyzed in a serious way and not be idealized or overestimated. This is not only because it was accompanied by a new rise of the neo-Nazi Golden Dawn party, but also because, if closely viewed, it points to some weaknesses of SYRIZA, without which it could have been even larger. Moreover, the Greek EU election results show some interesting tendencies with regard to the other parties as well, reflecting underground social trends which may be relevant for other EU countries too.

We will proceed therefore to a commentary of the Greek EU elections, hoping to highlight some of these aspects. But first of all let us give the results themselves (we also cite the May and June 2012 parliamentary elections results for the sake of comparison).

Party

%

Seats

May 2012

June 2012

SYRIZA

26.5

6

16.8

26.9

ND

22.7

5

18.9

29.7

Golden Dawn

9.4

3

7.0

6.9

Elia

8.0

2

13.2

12.3

Potami

6.6

2

-

-

KKE

6.0

2

8.5

4.5

ANEL

3.5

1

10.6

7.5

LAOS

2.7

2.9

1.6

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European Elections 2014: 2020 Hindsight

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The results of the European Union’s Parliamentary elections are just in. They are twofold: first, there is a clear disinterest in the European Parliament as expressed by very low voting turnouts and second, of the few Europeans that did bother to vote, many have decided that it is time for a change.

Non-voters in the European Parliamentary elections are the majority in those nations without compulsory voting. The European turnout was 43% with 57% not voting or spoiling their vote. In Germany 48% voted, 46% voted in France, 36% in the UK and 35% in Portugal. There was extreme disinterest in the European elections in much of Eastern Europe: with 24% turnout in Croatia; 23% in Poland, 19% in The Czech Republic; and the Slovakians with a 13% turnout.

Christoph Hasselbach of Deutsche Welle’s Europe desk noted: “As for turnout, the picture is mixed: in some countries more people voted than before, but those votes often went to Euro-skeptic parties.” “All in all”, he added “the general public’s interest in the EU is shockingly low”.

As to the changes in voting patterns, highlights of the wave of political change include the rise of the German anti-EU AfD party (Alternative für Deutschland) which gained their first seats in the European Parliament; France, where Marine Le Pen’s party was the overall winner of 24 seats with more than 25% of the vote; Spain, which now has a new fourth party called “Podemos” with an anti-EU/Troika and an anti-capitalist stance which may have taken many of the PP and PSOE’s 17 lost seats; and the UK where non-finalised counts indicate that the right-of-centre anti-EU party UKiP (United Kingdom Independence Party) has won the election gaining, for the first time ever, more MEPs than either the Tory or Labour parties; finally there is Greece, where the “SYRIZA” far left alliance has come out on top with 27% of the national vote and seven MEPs.

On a national level Europe’s political structure has been reasonably stable since the Second World War and more specifically since the first waves of growth of the Common Market in the 1970’s. This has been broadly reflected in the European Parliamentary party groups since the Parliament began in 1979. Until today the main groups in the European Parliament reflected two broad nation political categories. The centre-left grouping in the European Parliament is the S&D “The Group of the Progressive Alliance of socialists and Democrats” which includes the German SPD, the PSOE in Spain, the French Socialist Party and Labour in the UK, among others. The large centre-right grouping in the European Parliament is called the EPP “The Group of the European People’s Party (Christian Democrats)”, it includes Germany’s CDU party, the Spanish PP and the UK Tory party. Provisional results at 11:00AM/CET on Monday, May 26 show the S&D lost seven seats since the last (2009) elections falling to 189 MEPs but the EPP did even worse, losing 60 seats to 214 seats. There are 63 new ultra-left-wing MEPs and 63 new ultra right-wing MEPs who have not yet aligned themselves to European party groups. This change is a clear demonstration of the radicalization of European politics.

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