Ireland is the success story of austerity, the figures prove it. According to the IMF, the domestic economy grew 2.38% over 2010-2012. The bitter medicine is working. Soon we’ll be able to borrow on the markets again.
But even the IMF admits it got it wrong in Greece. Severe austerity there has only deepened recession and dashed any hope of quick recovery. Yet somehow the very same policy seems to have worked in Ireland. Mysterious.
Hold on. Is this not the same Ireland that was recently called a tax haven in the US Congress? A country that – there is no secret to this – encourages transnational corporations to declare their profits here instead of in
other, higher-taxing jurisdictions. How much of our apparent growth, touted by our EU partners as the fruit of prudent austerity, is actually owed to what we might call the Tourism For Your Taxes sector?
Every damn bit of it.
Discounting the money-shuffling activities of transnationals, the domestic economy in Ireland declined by 5.2% between 2010 and 2012 (Source: Dr. Constantin Gurdgiev). The real economy – the one in which people who actually live here have to work and buy things and pay their (much higher) taxes – is one of closing businesses, joblessness, emigration, debt. Austerity as it actually works.
This presents an interesting conundrum for our EU partners. They wish both to use us as proof that austerity works, and to condemn taxation practices that are patently ripping them off, all the while maintaining the cognitive dissonance necessary to avoid acknowledging a causal connection.
It was strangely reminiscent of that military coup where the signal to attack was, of all things, the Portuguese entry in the Eurovision Song Contest. With coded announcements, the President snatched away from a diplomatic mission, an emergency all-night sitting of the house, and plenty apparently deliberate misinformation, “Project Red” saw Ireland taken over – though not by the military.
If you went by the news coverage, you might be forgiven (a special offer, today only) for thinking that we just escaped the jaws of disaster here. On the contrary – Ireland avoided an acute short-term problem by making an awful long-term commitment. A very, very, very long-term commitment. We were forced into it at what might be termed fiscal gunpoint.
On September 30th 2008 in the wake of the collapse of Lehman brothers in the US, the Irish government pledged to guarantee the banking industry here. Not just the banks’ deposits but all their liabilities – including the vast amounts they’d borrowed from banks overseas to fuel the country’s property speculation bubble. That figure turned out to be truly mind-boggling – over €400 billion. That is more, even after inflation, then all of Germany was forced to pay in reparations after World War I.
You might fairly ask how the government of a small country could hope to come up with €400 billion. They couldn’t of course. It was a bluff, a confident front designed to ward off market chaos and speculation. But if you’re bluffing, you don’t bet the house. The government exposed the country to a liability that beggared belief. Indeed, beggared the lot of us.
It’s been argued in their defence that the industry lied to them, directly, about the scale of their liabilities. That’s true, but they knew damn well that there was something seriously wrong anyway. These banks had been making staggering profits for a decade mainly by lending people money on excessively easy terms, thereby boosting the price of housing, thereby creating demand for bigger loans… Banks had been enjoying a prolonged bonanza, but it was a bonanza of debt raised against assets that no one could seriously argue were not grossly overpriced.
Why had banks not simply raised the price of borrowing, to profit more from less lending – and at the same time moderate demand? Because there was no limit to the amount of money they had to offer. Other banks, in the US, the UK, but mainly in continental Europe, were lending them as much as they could shift. There was a global credit boom going on of course, there was an (originally) quite genuine boom in the Irish economy, and to cap all this there was no longer a national currency to wildly inflate and so damp things down as had happened in booms gone by. Ireland represents perhaps 1% of the Eurozone economy, so even incandescent levels of overheating here were not going to drive up the cost of money. Money was, as odd as this may sound, too cheap. Yet keeping inflation down was the main – indeed about the only – guiding principle of the European Central bank. It, or rather its political masters, chose to pursue a policy which might have been reasonable for the Eurozone as a whole, but which was utterly unsustainable for Ireland.
Some people, mainly politicians eager to share out their responsibility, have blamed the population for borrowing too much, as if economic meltdown is caused by sudden outbreaks of cupidity. Those who borrowed more than they should have did so in the main because banks were quite literally pushing money on them. Like many, I opened my post one morning to find I’d been approved for a loan I hadn’t asked for. Certainly far too many got into property, but the housing boom was not only driven by speculation. Another major factor was that thanks to all this cheap credit, house prices were rising far faster than incomes. People worried – not unreasonably – that if they didn’t buy a house soon they would never be able to afford one. Lenders fuelled the fear with the marketing image of the “property ladder”, the idea that if you wanted any chance of owning a good home in the future you needed to buy a bad one now. Many, many awful houses and apartments were sold – and even more built. The entire Irish banking industry had in effect become a Ponzi scheme, profitable only as long as there was new investment. When the market fell it fell like a lift with the cables cut. In doing so, it called the government’s bluff.
At which point they could and should have said “You got us. Of course we can’t possibly afford to pay that much money. Ever. It’s an insane figure.” And they would have been right of course, we can’t. Even after realising the assets of the collapsed banks and throwing in the national reserves, we’re still left something like 70 billion short. They even had an excellent excuse to renege on the guarantee when it came to light just how much these banks had been lying to them about their assets. They should have known better, sure, but officially they didn’t.
Unfortunately however government needed to pay more than just the billions in bank debt. This Ponzi scheme had essentially become the tax base. Not only was a lot of revenue raised on property sales, a simply ludicrous proportion of the population was by then employed in building buildings that no one would ever actually want but which existed solely to be traded on the bubble market. Without this income the exchequer couldn’t even keep public services going, pay doctors and teachers and police and pensions. But the fact that our economy looked to be (and indeed, was) on the point of collapse meant that the country couldn’t borrow cash on the market at anything approaching an affordable rate. The only institutions with both the money and the motivation to lend to us affordably were those of the Eurozone, the very ones who were to a large degree responsible for the collapse. In return, they held us to the untenable: The undertaking to pay back all the money our failed banks had borrowed to fuel the property bubble. The fear being that if we didn’t, the banks that lent to our failed banks would in turn fail, and so on.
So the Irish government’s gamble didn’t save our banking industry; virtually ever lending institution in the country (honourable exception: the Credit Union movement) went bust. But it probably stopped the European banking system going down like the world’s most expensive set of dominoes.
This is what really rankles. Instead of being punished by the market for poor – indeed, reckless and harmful – investment decisions, these institutions are going to be rewarded just as if they had made profitable decisions. They’ll probably give themselves bonuses. And these rewards will be paid not willingly by the market but unwillingly by the taxpayers of Ireland whose jobs and lives they so damaged. And the taxpayers’ children. And their children, if there’s anyone left here by then. Those of us who had the willpower to resist the easy credit have to reward them, just as if we’d taken it. Those who lost their homes because they could not afford the repayments to these institutions, still have to reward these institutions. Those who now own homes worth a fraction of what they owe on them but who are nevertheless still making repayments to these institutions, will see their taxes go to these institutions. The injustice of it is barely conceivable. Ireland is paying roughly 42% of the cost of Europe’s banking crisis. We can’t possibly do it of course. That’s why the Eurozone governments and ECB cut the deal that all the fuss has been about. To help us.
To help us pay back the money we didn’t borrow.
You may have seen the headline figure, that this is meant to save us €20 billion. Are they writing off some of the debt? No. On no account are we to even contemplate not paying any of that money. The twenty billion is just the difference between the “easy” interest we’ll get from them and a rate we might have paid otherwise. They’re giving us easy terms to repay the debt we don’t owe. Some deal.
This explains why we had to shut down the Irish Bank Resolution Corporation – formerly Anglo – literally overnight. While most of the bad debts of the various failed Irish institutions were still being held by this “zombie bank”, there lingered some remote possibility that a government would have the guts to say “Look, the state has no moral duty to pay back failed private investments. Goodnight.” We almost certainly would have negotiated a deal rather than just pulled the plug of course, but we had that bargaining chip. Instead we’ve cashed in our last chance for freedom. Whereas repudiating Anglo’s debts would not have been technically or morally a loan default – indeed, might have been seen favourably by the markets as the shedding of a liability – there is no way out of our commitment to the ECB. Short, that is, of crashing out of the Euro in flames.
So now we are committed to this vast payment. That still doesn’t mean we can pay it of course; indeed, attempting to will just drive us deeper into recession. We will inevitably default on this, as Germany defaulted on the onerous Versailles treaty terms. It will just be later rather than sooner. The only achievement will be a few more years – perhaps decades – spent impoverishing ourselves to enrich those irresponsible lenders.
The “deal” won yesterday was quite the opposite – a scared and desperate government buying time and in doing so, condemning their country to indefinite economic servitude. Death of the Republic would hardly be an exaggeration. Democracy is effectively suspended; the government we elected to overturn the errors of the last has repeated and even amplified them. We are being dictated to – not by the military, not by a despot, but by an industry.
It’s often remarked how little Irish people are protesting, despite the cruelty of the cutbacks and the blatant injustice of much of the debt foisted upon us. You could come up with a variety of deep psychological explanations for this, but in doing so you might be overlooking one major factor: The lousy coverage that public resistance gets in the mainstream media.
Case in point, the brave folk of the Ballyhea Bondholder Bailout Protest have been marching every Sunday for two years now. But even when they brought their protest to the ECB in Frankfurt (you’ll remember, I went with them) they hardly won a mention from the press or TV.
Until last Sunday! Finally, they got on RTÉ main evening news. Why now all of a sudden? I think I know: Al Jazeera got wind of it. Would’ve been more than a little embarrassing for the national broadcaster if a story from their own country went big internationally and they didn’t even have footage.
You can see me there in the first few seconds. I’m on international TV! Don’t we look all brave in the January weather? In the Middle East they must think we’re downright superhuman.
But there are ways you can protest without risking pneumonia, with help of Contact.it. Yesterday a judge rejected a challenge to the legality of the government piping money directly from poor to rich, on the grounds that a private citizen does not (somehow) have the standing to take such a case. In his findings though, the judge did mention that a TD would.
So we’re looking for one brave TD. Contact.ie provide an email that will be sent to all of them, it’s just up to you to sign it. A suggested text is provided, but of course you can use your own.
Or you can use the one I wrote, which puts the case a little more starkly:
We need someone to take a stand. The lending bubble, and subsequent channelling of the nation’s remaining wealth to the very institutions responsible for it, has sent one message and one message only to the people of this country: That we exist, that we live and work, not for ourselves or for the ones we love but purely for the further enrichment of these institutions and their owners; that they now effectively control our lives – and control you, our supposed representatives – as surely as if we were goods or livestock. We are being owned.
We need to reassert the purpose – indeed the existence – of democratic government. For once, a single TD could make all the difference.
This is weird. I’m going to sunny Germany tomorrow, but I’m sitting here with nothing to do. For once I packed well in advance. This is as unlike me as it is possible to imagine, and must basically have happened by accident.
So tomorrow we’re driving to Knock, which should take about an hour, flying with Ryanair to Frankfurt, which should take two hours, and then getting from there to where Frankfurt actually is, which will be the longest leg of the whole trip. You know the usual way.
Hahn airport – “Frankfurt-Hahn“, as Ryanair have the nads to call it – is actually nearer Luxembourg. The tickets were fantastically cheap though, it must be said. We are going to Frankfurt basically because we can afford to. Oh, there will be some research and meetings and stuff. This is the home of the European Central Bank, the institution that is handling our currency in such a profoundly wrong-headed way, so there is much to learn. Perhaps we will even have a little protest. I plan to stand opposite the ECB with my arms folded, frowning really hard.
I’ve been planning this trip for a few weeks though, you think I found time to refresh my German? Did I hell. But then, do I need to now? My phone can speak German for me. Even the free Google Translate is very good – though bear in mind that to use an online translation service you have to pay for data at roaming rates. Right now I’m just getting it to say things like “How many cars may I eat?”, “This shop sells millions of ducklings in a box”, and let’s not forget that old favourite, “My wombat is constipated”.
Sixty percent – the haircut that lenders to Greece may have to take if Europe is to avoid bailing their economy out to the tune of half a trillion. Maybe the powers that be – the ‘troika’ of the IMF, the commission, and the ECB – are finally coming to terms with the idea that crushing all life out of a country with punitive austerity makes about as much sense as treating traumatic blood loss with leeches. If the eurozone economies are to be saved then the continent’s major banks are going to have to take some of the pain too.
For Greece only, you understand. The same logic doesn’t apply to us for some reason.
A patient at Our Lady of Lourdes Hospital in Drogheda, Louth, just spent five days on a trolley in the Accident and Emergency department. In better days that would have constituted a horror story in itself, but today it barely raises an eyebrow. Wait till you find out what he had. TB. Tuberculosis. There in public, with a constant flow of sick and injured people around him.
The devastation that TB wrought on this country, that’s still a living memory. It was one of the primary forces that led to the creation of what social health provision we had. Which is now in danger of being sacrificed to expediency – and banks. Banks that lent recklessly into our economy because they were out to make a profit, yet somehow must not be allowed to take a loss.
So the reason they won’t burn the foreign banks that over-served the Irish industry is the hope that they’ll lend us more in the future. Isn’t that a lot like alcoholics always making sure to pay the bar tab, even as the children go hungry? Credit is what we got too much of.
But to cheer us up, we are to get two ‘universal pillar’ banks. I do like that; we should have more financial institutions that sound like they’re out of pre-Christian mythology. A Department of the Great Sky Serpent, maybe a Unicorn Interest Rate. In fact it sounds a lot better than the names we have for them now, BoI and ABBoI. The new banks should actually be called Universal Pillar 1 and Universal Pillar 2. No wait, Alpha and Omega. “I save with Universal Pillar Omega.” Surely that will restore confidence in the Irish banking sector.
But I don’t really get the idea behind stress-testing the banks. They are already dysfunctional, loss-making, unable to keep their doors open without State and ECB constantly pumping in raw cash. In what way exactly could that get worse?