Return to Economic Crisis menu
What are the Alternatives? Part One: The Capitalist Alternatives
5 December 2010
The Memorandum of Understanding (MoU) inflicted on the Irish people represents an intensification of the policies of the Fianna Fail/Green Party coalition. Any illusions that the smart men of Brussels or Washington had different ideas from the corrupt incompetents of Fianna Fail have been well and truly dashed. And why would it be any different? Fianna Fail policy, as we have repeatedly argued, has consistently been based on what is good for international capital invested in Ireland.
The MoU has, however, revealed in one fell swoop the cost that is to be borne by the Irish people. It has been doubly shocking because what has been starkly revealed in a very clear way is that the Irish State has no genuine sovereignty and is openly the plaything of international capital, in other words imperialism. This is not to argue that the Irish state has ever been sovereign but equally it would be wrong to say that no loss of sovereignty has been incurred over the last few weeks. It is just that the hypocritical editorials from ‘The Irish Times’ – ‘Was it for this?’ – reveal anguish that the local agents of this imperialism are now so obviously subordinate. The lie that all the policies of Fianna Fail were for the Irish people are more clearly exposed. More and more it is popularly recognised that the MoU is a bail out of European banks, not of the Irish people and not even of the Irish State.
This is a cruel blow to Irish nationalism, exposing it as that weak thing that so cravenly surrendered its claims to its national territory in the North and now seeks to assert what sovereignty it might still claim by drawing a line at the 12.5% corporation tax it levies on US multinationals. The independence of the Irish State is to be defended to the last on the rock of abject supplication to the richest corporations in the world while its own people are screwed and the youngest compelled to look abroad to seek out a reasonable life.
A policy of pandering to international capital is to be defended to the death as a panacea to an economic catastrophe inflicted by international capital. Just as we were told that sucking it up to the EU by voting for the Lisbon Treaty would bring jobs so we are told that allowing the State to be a site for shady tax evasion will also deliver a way out of the crisis. But lower corporate taxation of multinationals in the 1980s gave us a decade of failure and low corporate taxation has been quite compatible with economic collapse today. The corporate tax policy that will save the State has not been affected one iota while unemployment has rocketed and the State has fallen into bankruptcy.
The MoU firstly orders the looting of the State’s cash reserves and the National Pension Reserve Fund in order to bail out the Irish banks that are in turn to pay off the European bondholders stupid enough to invest in them. The banks are to have so much funding put into them that they can be sold off to foreign capital which can then make monopoly profits by fleecing Irish customers. The European Central Bank (ECB), European Commission (EC) and International Monetary Fund (IMF) will lend us money at an unsustainable interest rate of 5.8% while we do this. Other profitable state assets are to be flogged to the point where one columnist has suggested that over 80 per cent of corporate Ireland will be foreign owned.(1) The ECB/EC/IMF has insisted that all bondholders in the British and German banks etc. must be paid off in full and that there would be no debt forgiveness and no sharing of the debt burden even though the ECB insisted on us taking on much of the debt in order to pay these banks.
The first question asked by many of this MoU is will it work? and the answer from many has been no. The austerity required will at best lead to an extended period of stagnation if not continued decline in economic activity. Conservative estimates suggest that the level of debt will increases to 120 to 130 per cent of annual economic production (GDP) while interest payments on the debt will amount to 7 per cent of GDP, while this excludes actually paying back the principal. Since the economy must grow at more than 7 per cent each year to ensure the debt does not get bigger this debt can only grow and grow. This is not a sustainable way out. The idea that the banks can be shrunk while providing the credit to a growing economy necessary to make the plan work is simply incredible.
This should not be surprising. In its statement ‘requesting’ the EU/IMF intervention the Government acknowledged that the basic problem was that the banks had grown too large for the Irish State to cope with, at around five times the size of the Irish economy. It stands to reason that simply taking the debt off the banks and giving it to the Irish people to pay is not a solution.
But if it is not a solution for the Irish State it is not a solution for the EU either. The European Central Bank may provide the funding to the Irish State so that it can hand it to the Irish banks which in turn can pay back the British and German banks which lent them money; but the end of this chain has to be the ability of the Irish people, through the Irish State, to pay back the EU, ECB and IMF. If the debts simply get bigger and bigger this becomes impossible and becomes impractical long before it becomes a mathematical impossibility.
It would be tempting to see in this a continuation of the blind policy that piloted us all into the crisis in the first place; after all the EU and IMF cheer-led the boom and failed time after time in reports on the Irish economy to raise the alarm. Subsequent to the crash the EU Commissioner Olli Rehn joined in with stupid statements from Brian Lenihan who claimed that the economy had had a ‘remarkable turnaround’ and the banks were ‘on the road to recovery.’ The EU bank stress tests earlier this summer were as counterfeit as the Irish ones. The essentials of Fianna Fail policy have been endorsed in Brussels and the statements from Trichet and Rehn now are as fanciful as those of Cowen and Lenihan.
It is nevertheless clear that the MoU cannot work and it is also openly admitted that this escalating sovereign debt crisis could not just be an Irish failure but a failure for the EU as a whole, one that would threaten the future of the Euro and with it the plans, especially of Germany, to make Europe, led by it, into a world economic superpower.
But how could such a tiny state possibly threaten the whole Euro project and the core policies of one of the world’s most powerful economic blocs? There are two answers. Firstly it is not just a problem of the Irish State but of Greece, Portugal, Spain and potentially also of Italy and Belgium, which have also suddenly joined the PIIGS in the dock. But this is only half the story. The core countries of Germany, France and also Britain have dangerously exposed banking systems that could scarcely cope with the collapse of these creditors to them.
Claims therefore that there is no alternative do not wash because if the current interventions into Greece and Ireland aren’t going to work then there has to be an alternative. The debate among capitalist circles, visible for some time through the comments of assorted experts and financial commentators and in the more and more open debates within the EU demonstrates that this is increasingly understood. Already the actions of the EU have betrayed the principles they had sworn to uphold. These actions have included the liquidity operations of the ECB which have seen it become the main provider of funds to Irish banks while accepting dodgy collateral in return for these loans. They have also included the creation of the intervention fund of €750 billion with the IMF, used to partly fund the Irish intervention, and the widely publicised plans to make it possible for senior debt holders in the future to take losses in the event of distressed banks being unable to pay off their debts. None of this was in the original script for the Euro so that a radically new one to save it now will hardly shock anyone.
Alternatives – Bigger?
Two questions, or rather three, present themselves. What are these alternatives? Will they work? And should the working classes of Europe support them?
The first point to make is that all these alternative involve a cost and it is primarily a political decision over who bears it. Technical questions are important, such as the practicality of leaving the Euro and creating a new national currency, but the more these questions are discussed the more clear it becomes that these alternatives are practically possible albeit with dramatic costs and subject to the law of unintended consequences. Incidentally what these discussions also do is to open up the space for presentation of a working class alternative, assuming that one exists and that it is actually argued.
The most obvious capitalist alternative is already being discussed: make the bail out fund bigger. It currently stands at €750 bn but in order to raise this amount only part of it could be used, estimated at perhaps €250 billion, before the fund would lose its AAA credit status and therefore become more expensive to fund.(2) The real scale of the problem has not been admitted but one report has it that Euro zone banks have lost €515 billion between the beginning of the crisis and the middle of 2010. Outstanding debt amounts to €5,000 billion. The sovereign debts of Greece and Ireland amount to €500 billion; a further €150 billion is owed by Portugal and €700 billion by Spain. Italy owes nearly €2,000 billion(3). The current fund is therefore inadequate to make good potential losses of the banks or support the debts of the weakest Euro zone states.
The question is how a much increased fund could be created? Who would finance it? Under what conditions would it be deployed and how could it be made a permanent mechanism that would get through the political obstacles potentially in the way, such as referenda on a new EU Treaty and obstacles to change in Germany. More importantly this solution simply blows up to the European level the shouldering of private debt by the European working class. If much of this debt is rotten and is simply to be repaid by the states contributing to the fund how will this be accomplished? If the Greek and Irish working class cannot be made to pay for it how could the German or British working class be made to do so? Already the German tabloid ‘Bild’ has howled ‘First the Greeks, then the Irish, then . . . will we end up having to pay for everyone in Europe?’ Never mind that in this case the German workers would be paying to bail out other states only so these states could hand the money over to German bankers.
German workers would have to be asked to do more than this if this solution were to have a chance to work. This is because a larger intervention fund will do nothing to create the conditions that would allow Greece or Ireland or any of the other PIIGS to pay back its bail out loans if some of this debt were not effectively forgiven. If it is not the banks then it must be the stronger states who shoulder this burden and they might do so at the expense of their own workers. No capitalist class in Europe is currently in a position to legitimise its rule through its working class paying for a foreign capitalist state no matter what longer term interests appear to be served for that capitalist class or its state. The EU cohesion fund and German funding for it has been the limit of such action in the past but an unstable economic situation, in which sacrifices are already demanded of German workers, is not conducive to the success of such a strategy.
A bigger bail out fund does not therefore address the problem that the weakest States may simply not be able to pay back the bail out loans and will forever be a stagnant weight on future economic growth in the Euro zone.
Return to top of page