Economy

Euro Finance Ministers Michael Noonan and Yanis Varoufakis

Government Misleading Europe about Austerity and Ireland’s Debt Crisis

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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.

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Grexit or Compromise: Which Way for the Greek Left?

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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.

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How the Austerity Con Works

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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.

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Greek Reforms Submission as Presented to the President of the Eurogroup Today

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The following are the package of Greek reforms sent to the President of the Eurogroup, Jeroen Dijsselbloem at midnight Greek time, last night. 

Dear President of the Eurogroup,

In the Eurogroup of 20 February 2015 the Greek government was invited to present to the institutions, by Monday 23rd February 2015, a first comprehensive list of reform measures it is envisaging, to be further specified and agreed by the end of April 2015.

In addition to codifying its reform agenda, in accordance with PM Tsipras’ programmatic statement to Greece’s Parliament, the Greek government also committed to working in close agreement with European partners and institutions, as well as with the International Monetary Fund, and take actions that strengthen fiscal sustainability, guarantee financial stability and promote economic recovery.

The first comprehensive list of reform measures follows below, as envisaged by the Greek government. It is our intention to implement them while drawing upon available technical assistance and financing from the European Structural and Investment Funds.

Truly

Yanis Varoufakis Minister of Finance Hellenic Republic

I. Fiscal structural policies

Tax policies – Greece commits to:

  • Reform VAT policy, administration and enforcement. Robust efforts will be made to improve collection and fight evasion making full use of electronic means and other technological innovations. VAT policy will be rationalised in relation to rates that will be streamlined in a manner that maximises actual revenues without a negative impact on social justice, and with a view to limiting exemptions while eliminating unreasonable discounts.
  • Modify the taxation of collective investment and income tax expenditures which will be integrated in the income tax code.
  • Broaden definition of tax fraud and evasion while disbanding tax immunity.
  • Modernising the income tax code and eliminating from it tax code exemptions and replacing them, when necessary, with social justice enhancing measures.
  • Resolutely enforce and improve legislation on transfer pricing.
  • Work toward creating a new culture of tax compliance to ensure that all sections of society, and especially the well-off, contribute fairly to the financing of public policies. In this context, establish with the assistance of European and international partners, a wealth database that assists the tax authorities in gauging the veracity of previous income tax returns.

Public Finance Management – Greece will:

  • Adopt amendments to the Organic Budget Law and take steps to improve public finance management. Budget implementation will be improved and clarified as will control and reporting responsibilities. Payment procedures will be modernised and accelerated while providing a higher degree of financial and budgetary flexibility and accountability for independent and/or regulatory entities.
  • Devise and implement a strategy on the clearance of arrears, tax refunds and pension claims.
  • Turn the already established (though hitherto dormant) Fiscal Council into a fully operational entity.

Revenue administration – Greece will modernise the tax and custom administrations benefiting from available technical assistance. To this end Greece will:

  • Enhance the openness, transparency and international reach of the process by which the General Secretary of the General Secretariat of Public Revenues is appointed, monitored in terms of performance, and replaced.
  • Strengthen the independence of the General Secretariat of Public Revenues (GSPR), if necessary through further legislation, from all sorts of interference (political or otherwise) while guaranteeing full accountability and transparency of its operations. To this end, the government and the GSPR will make full use of available technical assistance.
  • Staff adequately, both quantitatively and qualitatively, the GSPR and in particular the high wealth and large debtors units of the revenue administration and ensure that it has strong investigative/prosecution powers, and resources building on SDOE’s capacities, so as to target effectively tax fraud by, and tax arrears of, high income social groups. Consider the merits of integrating SDOE into GSPR.
  • Augment inspections, risk-based audits, and collection capacities while seeking to integrate the functions of revenue and social security collection across the general government.

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The Politics of Breathing Space – or Why the Irish Government Can’t Let Syriza ‘Win’

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It is difficult to make sense of the EU governments’ attitude towards Greece – not if we’re using rational measurements.  There was a deal on the table – as reported by Paul Mason of Channel 4 news.  The Greek government was happy enough with it, the EU Commission was happy enough with it, it didn’t cross all the t’s but it provided the necessary breathing space to allow a more sustainable and beneficial deal for both creditors and debtors to emerge.  So what went wrong?

One of the problems with writing about the current crisis is that by the time this gets posted, events have moved on – such is the speed at which events, and rumours of events, are moving.  So let’s just hit some highlights.

You’d think Greece has been lethargic in applying its austerity programme, resulting in comments like – ‘Why can’t Greece be more like the virtuous Irish?’  But as Kevin O’Rourke states, pointing to the comparative fall in the structural deficit between Ireland and Greece:

‘So, to summarise: the Greeks have done more “reform” than we have, have endured a lot more austerity, and live in a country where the costs of austerity are likely to be higher than here. Perhaps the Irish government might want to tone down its assertions of relative virtue, and display a bit of solidarity with Greece. Is a less deflationary and less creditor-friendly Eurozone  not in Ireland’s long term interests, assuming that we remain a member of the single currency?’

What the new Greek Government wants is very reasonable:  a few weeks to draw up an agreed programme.  Claims that ‘we don’t know what they want’ (made consistently by our Finance Minister) are misleading and insulting. They are not asking for extra money, they are not seeking transfers from, or additional liabilities to, other members states.  From the outset, Greek Ministers has been asking for what can be called a ‘bridging loan’ which would only last a relative few weeks – in order to negotiate a new programme.  In other words, they are asking for time – a reasonable request for any new government.

And that is exactly what was almost agreed – or at least was on the table.  Paul Mason quotes from a draft agreement was drawn up by EU Commissioner Pierre Moscovici

‘The above (the proposed agreement) forms a basis for an extension of the current loan agreement, which could take the form of a (four-month) intermediate programme, as a transitional stage to a new contract for growth for Greece, that will be deliberated and concluded during this period.’

This coming from the EU Commission which is not known for its debtor sympathies.  Nonetheless, it was a constructive intervention – even if some officials from the EU Finance Ministers’ meetings tried to insist it didn’t exist.

This got nowhere even though Greece was willing to sign.  So why the opposition to what could be seen as a face-saving compromise for all involved?

Quite simple – the Syriza government cannot be seen to ‘win’.  Never mind debt write-downs (which Syriza is not looking for – Alexis Tsipras has made it clear they will honour all contracts, all obligations); the ‘win’ here refers to breathing space and the political momentum that such space might encourage throughout Europe.

The breathing space would give time to construct an alternative to austerity.  The breathing space would provide momentum, not only in Greece, but in other countries (and not just the periphery) to those forces who have been arguing for an alternative to the current deflationary regime.  The breathing space would create the danger that the initiative could be wrested away from the controlled-rooms of Minister meetings and taken up by popular forces.  The breathing space could be a very dangerous space – dangerous to the current elite.

What might happen if the new Greek Government constructed a programme whereby relaxation of arbitrary budget surplus rules (which would cost nothing to anyone but would allow for a humanitarian and investment programme), coupled with an authentic reform that tackled the corruption and tax evasion imposed on Greek society by the oligarchs?  A programme that met all EU fiscal targets but did so in a different way than what is being demanded by EU member-states?  This wouldn’t put some folk and some ideologies in a good light.

This helps explain why only a matter of hours after they were elected, the new Greek government was subjected to a torrent of demands to continue the Troika, extend the current bailout deal, maintain the current course – no deviation, no relaxation.  Even now, the bottom line from the Eurogroup is that Greece must apply for a bail-out extension – even though this is unnecessary and gratuitous given the EU Commission’s intervention.

Syriza raised hopes and expectations throughout Europe in the aftermath of their historic victory.  They continued those with the new Prime Ministers’ first address to the Greek parliament.  They swept through Europe in the person of the Finance Minister Yanis Varoufakis and his support team.

That had to be shut down – and shutdown quickly.  If Europeans got similar ideas, all manner of problems could arise for domestic governments who have a more grim agenda in mind.  The last thing the Syriza government should be allowed is to carry on all this hope and expectation-raising.  Normal business must be resumed and seen to be resumed.  Immediately.

This explains the Irish Government’s attitude of ‘no breathing space’.  This might give time for progressive voices here – in concert with other European groupings – to critique and propose alternatives to a deflationary programme of squeezing public spending, cutting taxes and obsessing over a balanced budget while labouring under incredible debt levels.  Give the Greeks breathing space and we might get ideas about getting one of our own– and that can’t be allowed.

The Irish Government’s position is unconscionable and unreasonable.  Their opposition to the Greek Government’s reasonable request should be highlighted at every opportunity, opposed at every turn; and not only for the sake of the Greek people.

For, like the Syriza Government, the next Irish Government – hopefully the first progressive government elected in this state – will be demanding the same thing:  breathing space.  Let’s hope it is not too late – for Ireland, for Greece and for Europe

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Sacrificing Our Young

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It is often stated that everyone has made sacrifices during this crisis.  Whatever about ‘everyone’, there are certain groups that clearly have ‘made sacrifices’; or, rather, have been sacrificed. And one of these groups is young people.

We have seen emigration rates rise substantially, high levels of unemployment, substantial cuts in social protection payments and even insults (the infamous ‘unemployment as a life-style choice’).  Let’s look at another grim metric – Eurostat’ssevere material deprivation rate.

As stated before, this benchmark is particularly dire.  Severe material deprivation is defined as enforced inability to pay for at least four of the following items:

To pay their rent, mortgage or utility bills * to keep their home adequately warm * to face unexpected expenses * to eat meat or proteins regularly * to go on holiday * a television set * washing machine * a car * telephone

Eurostat looks at the plight of young people throughout Europe, aged 15 and 29 years.  For 2012 this is the percentage of young people suffering severe material deprivation.

Youth Deprivation 1

Unsurprisingly, Greece leads the league.  But there’s Ireland right there at the top.  More than 13 percent – or more than one-in-eight young people live in severe material deprivation conditions.  This is more than double the average of other non-Mediterranean countries (a particular comparison given that our Ministers continually claim that we are not Greece or Italy, etc.).

The growth in severe material deprivation among young people over the course of the crisis has been alarming to say the least.

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The French Elephant in the Room

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How do EU countries manage to provide better public services and income supports than us?  And are the Irish willing to pay for European-style public services (the implication being we are not).  These were the two questions posed by the Claire Byrne Live show which compared life in France with our lives here.  It was both provocative and frustrating; frustrating because it did not answer the first question.  Had it done so, we would have realised the second question is irrelevant.  

Provocatively, we learned that in France:

  • Children receive full-time education from the age of three, totally free
  • A visit to the GP costs €7 and the waiting times for medical procedures can be measured in days – not months or years
  • If you become unemployed, you get 80 percent of your last wage in unemployment benefit for up to two years.

In other words, the French social model is far, far advanced compared to ours. 

How do they do they achieve this?  Do they tax their citizens more?  The programme provided a couple of statistics in a video introduction that should have alerted the discussion.  They compared a French two-earner household with an Irish one – both on €80,000.  The Irish household paid higher personal taxes (income tax, USC, PRSI). 

The second stat showed French government spending at 57 percent of GDP; Irish government spending is well below that at 40 percent.   So, if Irish personal taxes are higher, but spending is much lower – well, somewhere in there is the answer.  Let’s see if we can find it with the help of Eurostat and the EU’s Ameco database.

Claire Byrne 1

When it comes to personal taxation on employees and household consumption tax (VAT and Excise), Ireland and France are pretty close with both trailing the EU average.  So the reason can’t be found here.

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Solidarity with Syriza: Challenging Austerity at Home

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An article by Brendan Young and Eddie Conlon

The election of Syriza has sparked a rash of speculation on the possibility of a left government in Ireland at the next election. Contributing to this were the recent inferences from SF sources that they would not go into a coalition with the Troika parties – in particular FF or FG. Such a commitment would be welcome.

This note addresses three issues:

  • there is little prospect of a left government coming out of the next election, so what should the anti-austerity movement do to build a political alternative in the light of the Syriza victory;

  • the movement against the water charge is the source of a new political alternative and new, anti-austerity candidates in the coming election; any slate of anti-austerity candidates must therefore champion the non-payment demands of the movement because otherwise it will remain isolated from it;

  • should any new political formation accept the rules laid down by the defenders of wealth and privilege – or be prepared to lead a challenge to those rules?

No to Coalition with the Right

Explicit rejection of coalition with the Right – FF and FG – is a pre-requisite for discussion of a left alternative in Ireland. We cannot develop an alternative to the ravages of capitalism by forming a government with parties committed to the preservation of the wealth and privilege of the capitalist minority. But as yet, no clear statement has come from SF on this matter. Nor is it clear that SF would not do something analogous to what Syriza has unfortunately done: formed a coalition with a party of the Right, in this case ANEL – a populist right wing, anti-immigrant party – rather than form a minority government and demand the support of the KKE on concrete issues. The fault in this lies with the refusal of the KKE (Greek Communist Party) to support a Syriza government.

Hopefully this coalition deal will not derail the pre-election promises by the Syriza leadership – or become an excuse for not implementing anti-austerity or socially progressive measures. Socialists across Europe should support the actions of the Syriza government against the continued imposition of debt and austerity in Greece and build active solidarity with Syriza. The best way to do that is to actively challenge the austerity regime at home.

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Celebrating the election of Syriza

Syriza’s Historic Victory and the Prospects of the Left

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The Greek elections of January 25th have given a decisive victory to SYRIZA. It is a victory not only of the Greek but also of the European Left, which can prove of historical consequences for the further course of Europe.

SYRIZA gained 149 seats in the Greek parliament, just falling short of the required majority of 151 to form a government of its own. However, it achieved a clear preponderance, with an 8.5% margin, against the hitherto ruling conservative party of ND, and was able to form a government with the support of ANEL, a small Right party.

The result of the elections was hailed by the Greek laboring people with relief as opening a prospect of escape from their sufferings, the austerity measures, unemployment and poverty, deriving from the Memoranda imposed by the Troika after 2010. It was these laboring people who gave victory to SYRIZA against the ruling parties of the establishment. These parties, PASOK and ND, had followed faithfully all directions of the Troika, resulting in an unprecedented fall of wages by almost 30% (and even more in some categories of workers) and record unemployment of about 25-30% (more than 50% in the youth). There is now broad expectation within the people that at least some of the burdens and misfortunes they suffered during the last years will be raised and that they will achieve a betterment of their condition. At the same time, besides a willingness to fight for their interests, there is also some anxiety and uncertainty about the next day. SYRIZA’s result has given hope to the people but has not completely eliminated fear, as everyone here in Greece knows that, in view of strong pressures and blackmail from the EU, it will not be easy for the new government to effect the promised changes.

SYRIZA’s victory and the formation of the new government have aroused great interest in the rest of Europe as well, provoking reactions from all sides. Conservative forces have hastened to “remind” that Greece must implement the obligations ensuing form the Memoranda – German chancellor Merkel, minister of Finance Schaeuble and French president Francois Hollande have already made such statements. On the other hand, Left parties, activists and intellectuals all over the world hailed the result as a great opportunity and spur to the fight to end austerity policies.

The elections have shown some other significant, even if secondary, trends too with regard to all other parties and the rest of the Greek Left. They witnessed the smashing up of intermediate “center-Left” parties, the formerly mighty PASOK and DIMAR, being replaced by the colorless Potami (the Greek word for “The River”), the firmness of the Golden Dawn Nazis coming out as the third party, a mediocre rise of the Anti-capitalist Left formation ANTARSYA and the relative stability of the neo-Stalinist KKE[1].

All these aspects have received extensive commentary in Greece from analysts on the Left and the broader political spectrum. In the present article we will commend on the result and the course taken, hoping to throw some light on the issues involved – issues that are crucial not only for the Greek but for the European Left as well.

 1. The result of the elections

Seven months ago, commenting on the result of the Greek EU elections in an article in this site, the present writer had called it “a clear, historical, but still not decisive SYRIZA victory”. The same thing may be said in an even stronger sense about the result of the present parliamentary elections. It was a still more imposing and great victory for SYRIZA but yet still not decisive.

Throughout the election campaign, SYRIZA’s leadership persistently called the electorate to give SYRIZA a parliamentary majority (i.e., at least 151 seats) in order to be able to fulfill unhindered its program. During the last days before the vote, polls showed this to be a realistic possibility. Yet, after a thriller lasting almost all the elections night, SYRIZA failed to acquire the majority needed by the narrowest margin.

The fact that there was something lacking in SIRIZA’s result in both contests cannot be considered purely an accident and some explanations have been offered.

SYRIZA’s momentous rise in the 2012 elections was due chiefly to the big social movements of “Aganaktismenoi” that developed in Greece during 2011-12. However, after ND won the 2012 elections and was able to form a coalition government with PASOK (and, initially, with DIMAR too) the movements subsided. Despite occasional outbursts, there was a general mood of weariness within the people, who saw their previous big struggles being defeated and, in an immediate sense, remain ineffective.

To this natural reaction may be added the fact that SYRIZA adopted, to a bigger or lesser extent, a tactic of waiting, expecting power to fall in its hands like a ripe fruit after the inevitable decline of the ND-PASOK rule. This does not mean, as a number of Leftists imply in their criticisms, that SYRIZA should be regarded directly responsible for the decline of the movements, or that it acted as a barrier to their revival. The retreat of the movements was to a certain extent inevitable and SYRIZA could not have reversed it at will. The point is however that during the last two years its stance was somewhat passive and inactive, consisting of excessive “realist” adjustments and failing to strengthen its ties with the people in the new situation.

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The Wrath of Kane: Banking Crisis and Political Power

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While his whole testimony requires examining in a little more depth, I think this is a good standalone clip from evidence to the banking inquiry given by Prof. Ed Kane on Wednesday 28 Jan 2015.

He was asked by Deputy Pearse Doherty to elaborate on the statement below which was made in a paper that Kane co-authored in 2004:

Realistically, every government-managed disaster relief program is a strongly lobbied tax-transfer program for redistributing wealth and shifting risk away from the disaster’s immediate victims. A systemic crisis externalizes – in depositor runs and in bank and borrower pleas for government assistance – a political and economic struggle over when and how losses accumulated in corporate balance sheets and in the risky portfolios of insolvent financial institutions are to be unwound and reallocated across society.

Professor Kane’s analysis is that the way a crisis plays out in terms of who pays for the crisis is an issue of power – that is, it is related to the nature of political and economic power in a state and the relationships between the worlds of finance and politics.

Anyway, the official transcript is below, with a video clip of the ecxhange. You’ll notice that the official transcript differs slightly from the actual exchange, but not in a significant way. The meaning is still captured and essentially stays the same.

the 2004 paper referenced is available here.

Deputy Pearse Doherty: [your] 2004 paper says that while policy-making during a crisis may be of the seat of the pants variety, the policy itself is informed by a political and economic struggle over who pays for the losses. How important in the view of Professor Kane is that dynamic, namely, the political and economic struggle of who pays for the crisis in terms of framing the terms of the resolution?

Professor Edward Kane: I think it is terribly important. I define a crisis as a battle over loss allocation. There are firms with losses and no one wants to hold them. People are contracted to take the losses, by writing insurance or lending money or bonds, but they do not want to pay and they have the political power, in many cases, to see that they are paid. My superficial understanding of Ireland is that many foreign creditors were paid off with Irish taxpayers’ money and it is astonishing to me how good politics, the way a republic or a democracy is supposed to work, would ever lead to that solution.

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Debt? What Debt?

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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.

Debt 1

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.

Debt 2

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. 

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Tsipras versus Cameron: people versus bankers

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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.

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Photo credit: Euronews

Syriza’s Victory: Turning Hope into Reality

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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.

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risingineq

The Very Real Cost of Rising Inequality

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Inequality is one of those concepts that for many people remain somewhat abstract and amorphous.  There are few that are against equality, but it has difficult gaining traction in the popular debate.  When you’re trapped in deprivation, debt, or low-pay then income or more hours of work becomes the measure of the solution.  Equality, however framed, remains detached.

It shouldn’t be.  For all of us are paying a real Euro-and-cents cost for rising inequality.  Inequality has many facets – economic, social, cultural, gender, sexual.  Let’s just look at one aspect – rising income inequality with the assistance of a valuable database:  the World Top Incomes Database.

Equality 1

In 1977, the top 10 percent income group’s share of national income was 27 percent.  By 2009 this had increased to 36 percent – a rise of 9 percentage points.  Two years into the recession saw a drop in this share as income from the speculative bubble fell faster than the national average.  However, don’t worry – Eurostat shows that since 2009 it has started rising again.  While the data isn’t directly comparable (the World Incomes Database is based on tax revenue data, while Eurostat which is based on a survey of households shows little medium-term movement), an indicative number would be that it has risen to 37 percent in 2012.

Another way of looking at this is that the lowest 90 percent saw their share of national income fall from 72.7 percent in 1977 to 63 percent in 2012 (using the indicative number).

Again, this graph is abstract.   So let’s play a little game.  What would be the impact on households if the share of the lower 90 percent had remained the same; that is, how much more money would the lower 90 percent have today if their share of the income was the same as in 1977?

The bottom 90 percent of households would have €10.975 billion more.  Nearly €11 billion spread out among approximately 1.5 million households.

  • For each household, this would mean approximately €7,400 more income

Of course, there would be differences given the variations in household types (single, couple with children, single parents, etc.).  And this is just a suggestive estimate.  But imagine the improvement in their fortune if a low-paid couple (on €30,000 per year) were receiving an extra €140 or more per week.  And compare this to the €4 weekly increase from the tax cuts, which won’t even keep pace with inflation.

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