Ireland – economic crisis escalates

FRFI 218 December 2010/January 2011

The economic and political crisis in Ireland is the latest expression of the global crisis of capitalism, with a bail-out package being put in place which is intended to stop the crisis spreading to the rest of Europe. The consequences are devastating. The Dublin Fire Brigade report that they are now more often called out to rescue attempted suicides from the River Liffey than to put out fires, and attribute this to the growing anxiety people are experiencing as the crisis deepens. Commenting on the four-year austerity plan announced on 24 November, David Keeble of Credit Agricole told the BBC: ‘It looks vicious, predictably vicious. There is going to be enormous social uprising against this one, undeniably’.

PAUL MALLON reports.

On 22 November 2010 the Irish government accepted a bail-out package worth over €85 billion (£72 billion) from the International Monetary Fund and the European Union. These latest developments mark an intensification of the class war which was declared against the Irish people at the start of the crisis. In response, on 27 November up to 150,000 people marched in Dublin in opposition to the plans. No matter what the ruling class does, the crisis gets deeper: first it was a banking crisis, then a financial crisis. We are now in a political crisis not limited to Ireland but, increasingly, one that is spreading throughout the Eurozone.

Social crisis

Even before the latest bail-out was agreed, the living standards of Irish people were being driven down sharply. Unemployment stands at 13.6%, or 284,500, of Ireland’s two million workforce.[1] The number of people on the Live Register now stands at 429,553; this includes workers entitled to Jobseeker’s Benefit or Allowance.[2] These figures are partly offset by a rise in emigration of around 50,000 in the past year; the Economic and Social Research Institute estimates that 100,000 people will move abroad in the next two years. Around 100,000 men formerly involved in the construction industry are among the long-term unemployed, while youth unemployment stands at 30%. An average 15% pay cut had already been imposed across the public sector.

Previous austerity budgets have hit the poorest and most vulnerable first - as one commentator put it: ‘the Irish have given a new meaning to the concept of women and children first’. Homelessness is rising. Around 100,000 new homes remain unoccupied, many complete, but unable to be sold.[3] It has been reported that many will be demolished as they are seen as contributing to the downward spiral of house prices. Villages and towns are littered with flashy new unoccupied office and retail units. Focus Ireland, a charity for the homeless, says that there has been a massive increase in the number of unemployed people seeking help. Joyce Loughnan, chief executive of the charity, said: ‘There are men coming in to our Coffee Shop who last year or the year before were working on building sites, but then lost their jobs and got into debt’. She added: ‘It’s sadly ironic that despite the thousands of surplus houses that were built in recent years, up to 5,000 people are still homeless due to the lack of social housing.’

Meanwhile 100,000 households are already facing difficulties repaying their debts. 34,000 households are more than 90 days behind with mortgage repayments. The Electricity Supply Board has entered into ‘special repayments’ with 100,000 customers. Across all utility suppliers, disconnections are running at a rate of 2,500 per month. In 2009 alone, 4,800 people were sent to prison for being unable to pay fines.

The bail-out

Ireland was the first Eurozone country to go into recession in the first half of 2008. The government responded by socialising private bank debt, nationalising the banks and implementing a punitive austerity programme.[4] However, far from resolving the enormous contradictions and difficulties facing the Irish economy, these measures in fact accelerated the crisis. The dilemma faced by the Irish economy was expressed on 9 September 2010 by The Wall Street Journal: ‘Until recently, Ireland was thought to be on course for tackling its financial problems, thanks to an aggressive programme of spending cuts to reduce the deficit, the biggest in the Eurozone. But as Ireland’s problems have persisted, its credibility with investors has been eroded.’

In late September 2010, the government revealed that the full cost of the January 2009 bank bail-out to the Irish taxpayer was €50 billion, or 32% of Ireland’s GDP. This sparked a Europe-wide crisis as the cost of Irish borrowing on the international bond markets rose to around 9%. Germany was forced to intervene and assert its dominance within the European Union by calling for a new bail-out mechanism for those countries facing economic ruin. In November it was confirmed that corporate customers with Irish banks had been withdrawing money, significantly undermining bank balance sheets and further forcing EU and IMF intervention for fear the crisis would spread across Europe.

The crisis in Ireland must be understood in the wider context of the overall crisis facing international capitalism, and in particular the very existence of the Eurozone as an economic and political entity. At the heart of the crisis stands foreign exposure to Irish debt. According to the Bank of International Settlements, the two biggest creditors to Ireland are Britain and Germany, owed €113bn (£95bn) and €105bn (£89bn) respectively.[5] Rivalries among the major imperialist powers emerged over the terms of any bail-out package, as Germany, supported by France, called for a rise in Ireland’s corporation tax which, at 12.5%, is one of the lowest in Europe. This forced the United States to intervene, when companies such as Microsoft, Google and Intel threatened to leave Ireland if a rise in corporation tax were made central to the terms of the bail-out. In the US the tax rate for businesses is 35%, in Germany 29% and in France 33.3%. The exceptionally low corporation tax in Ireland is essential to attracting foreign direct investment. As FRFI goes to press, the battle over this tax continues.

Amidst the talks of the IMF-EU bail-out package, British Chancellor Osborne intervened, offering bilateral loans to Dublin in the region of £7bn. He argued he was simply acting as a good neighbour and that it was in Britain’s national interest to do so. In reality, the offer expresses British financial and political interests in Ireland. Two partly-nationalised British banks are exposed to Irish debts of £57.6bn (Royal Bank of Scotland) and £27bn (Lloyds Banking group). The governor of the Bank of England, Mervyn King, said that the overall financial sector exposure to Ireland was ‘by no means trivial’. While Britain’s dependence on trade with Ireland is being played down, it is significant: in 2009, there was £3,607 spent on British imports by every man, woman and child in Ireland – one of the highest per capita spends on British goods in the world. Britain exports more to Ireland than it does to Brazil, Russia, India and China combined. The north of Ireland is particularly vulnerable, with 40% of the Six Counties’ exports crossing the border in 2009.

The priorities of the Irish government, backed by the IMF and EU, are made clear in the four-year plan. The poor and low-paid will be hit hardest, while corporation tax will remain at its current rate. The intention is to cut the deficit by a further €15bn (£13.7bn): €10bn from public spending and €5bn extra taxes. €6bn of cuts are to be achieved in 2011 alone. Welfare spending will be slashed by €3bn with major cuts in unemployment benefit and child benefit. The tax threshold will be lowered to include more low-level earners while public sector pay is to be cut by a further €1.2bn, reducing staff numbers by a further 25,000. The minimum wage has been cut by €1 (85p) per hour to €7.65 (£6.48). VAT will also increase by 1% on top of the current 21% rate in 2011, rising to 23% in 2014.

The objective of the bail-out packages is not to save the Irish economy but to save the Eurozone. To do this it will be necessary to crush the living standards of the Irish working class and further reduce the Irish economy to ruin in an attempt to restore the profitability of capitalism. The cold calculation is that the appalling social consequences will be a price worth paying.

Political crisis

The concentration of wealth in Ireland reveals the real class nature that the ‘Celtic Tiger’ and ruling Fianna Fail party represent. A 2007 Bank of Ireland Private Banking report [6] estimated that, including private residential property, the top 1% of the population held 20% of the wealth, the top 2% held 30% of the wealth and the top 5% held 40%. When residential property was excluded, the top 1% held 34% of the wealth. The same report observed that between 1995 and 2006 the personal wealth of the top 1%, even when considerable residential property was excluded, grew by €75 billion. It was also estimated that there were 33,000 millionaires on the eve of the crash.

People in Ireland feel betrayed by the corruption and greed of the system and the government. The Donegal Southwest by-election on 25 November was won overwhelmingly by the Sinn Fein candidate at the expense of Fianna Fail, further reducing the ruling party’s narrow majority to just two. Sinn Fein claims that it would refuse to join any coalition which imposed the cuts. But in practice, whatever its radical rhetoric, Sinn Fein has demonstrated that it is willing to sell any principles in order to gain power. In the north of Ireland, the party has ministers in a coalition government implementing cuts to health and education. In the south, Sinn Fein voted for the bank guarantee in the September 2008 bail-out, which effectively handed a blank cheque to the Irish banking sector. Fianna Fail’s coalition partners, the Greens, are calling for elections in the New Year. Before then however, a further budget is due to be passed by the Irish parliament on 7 December. Under the Irish constitution, if the government’s budget were to be voted down, this would automatically lead to the resignation of Taoiseach Brian Cowen, the dissolution of parliament and fresh elections. Parliament will be asked to support the budget in the ‘national interest.’ Cowen has said he will call an election after the budget is passed.

No capitalist solution

Whatever respite the bail-out has brought will prove temporary. The fundamental underlying contradictions remain. The Irish economy has already shrunk by over 20% since the crisis started in 2007. Further austerity measures will undermine living standards even further and the next few months will see an intensification of the class war in Ireland, with those on the receiving end of wholesale attacks pitched against a government implementing them. There can be no capitalist solution to the crisis.

1 Latest seasonally adjusted figure for April to June 2010, Quarterly National Household Survey.

2 The Live Register provides quarterly figures on the Irish economy; this figure includes part-time and seasonal or casual workers. It can be viewed at: www.cso.ie/releasespublications/documents/labour_market/current/lreg.pdf

3 www.rte.ie/news/2010/1022/ghostestates.html

4 For the background see: ‘Ireland: economic crisis deepens’ FRFI 213, Feb/March 2010 and ‘Celtic Tiger no more’, FRFI 211 October/November 2009

5 Financial Times 22 November 2010

6 See The Wealth of the Nation, Bank of Ireland Private Banking, page 14, available online www.finfacts.ie/biz10/WealthNationReportJuly07.pdf

 

Ireland: the key to the British revolution by David Reed

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