More austerity as Irish economy contracts

Last week I put up an ad for meetings in Belfast and Dublin organised by Socialist Democracy on the state of the Irish economy and the ruling class attempts to make workers and beneficiaries pay for the crisis.  Below is an expanded version of a talk delivered at the meetings by J. M. Thorn.  It first appeared on the SD site:


During the period of the Celtic Tiger Ireland was hailed as the model of development for a small capitalist economy.  The policies pursued by successive governments, of lowering corporation tax and opening up the economy to foreign capital, won the praise of economists and international bodies such as the IMF.   The apparent success of the Irish economy also won the admiration of political parties in other countries, most notably in Scotland where the SNP used the example of Ireland to boost its case for independence.   The SNP leader Alex Salmond outlined his vision of an independent Scotland as part of an “Arc of Prosperity” encompassing Ireland and Iceland.  In the wake of the financial collapse, which decimated these countries and exposed the weak foundations of their economies, such talk appears utterly foolish.   Yet, despite its debacle, Ireland continues to be promoted as a model – this time for austerity and economic recovery.   As European leaders scramble to resolve the Continent’s debt crisis many are pointing to Ireland as an example to get out of the troubles.  The German chancellor, Angela Merkel, recently praised the taoiseach Enda Kenny, for setting an “outstanding example,” while the French president, Nicolas Sarkozy, declared that Ireland was already “almost out of the crisis.”

Economic crisis 

However the optimistic commentary surrounding Ireland cannot obscure the fact it remains a long way from recovery.  The Irish economy is still in a prolonged crisis – it is in the fifth year of recession, the fourth year of austerity and the second year of a bailout programme.  It has seen the most violent economic fluctuations over the last ten years from the peak of a credit-fuelled boom to the depths of a depression, and now the savagery of austerity.  If Ireland has served as a model it is one that illustrates the tendencies within in the world economy over the last period at their most extreme.  


This boom/bust/austerity cycle has had a massively negative impact on Irish society.   Through a combination of wage cutting, higher taxation and inflation the incomes of Irish workers have fallen by 20 per cent.  Unemployment has risen dramatically, and now stands at over 14 per cent.   Long-term unemployment accounts for 56.3 per cent of total unemployment.  There has also been a massive loss of working hours within the economy with the reduction in full time employment outstripping the rate of job losses.   The level of unemployment would be much higher if it were not for mass emigration – 76,400 people (mostly made up of the young) left the country in 2011, while another 75,000 are expected to leave in 2012.  (Despite being an obvious indicator of economic distress the Irish government dismisses this exodus as a “lifestyle choice”.  

The statistics on unemployment and emigration are evidence of an economy, which despite claims to the contrary, has failed to sustain any real recovery.  Indeed, the most recent figures suggest that Ireland is falling back into recession.  In the third quarter of last year GDP growth fell by nearly two per cent, the largest such decline in 2 ½ years.  Domestic demand contracted by almost 4 per cent – taking the domestic economy back to the size it was in 2002, a 26 per cent decline since peak in 2007.  Conditions for Irish manufacturing firms have deteriorated once again with new orders falling sharply.   There are also signs of a domestic credit crunch with October of last year seeing the largest monthly falls in both money supply and credit since the start of the recession four years ago.  All of this points to an economy that is certainly stagnating and potentially declining even further. 


In the face of evidence that its economic strategy is failing the Irish government continues to press ahead with austerity measures.   The Fine Gael-Labour coalition made its intentions very clear in its first budget delivered last December.   This was a package of spending cuts and tax rises that amounted to €3.6bn – equal to 2.4% of GDP.  The plan for 2012 targets basic social services for the deepest cutbacks with reductions of €500 million in the health budget, €700 million in social welfare, and €130 million in the education department.  Capital spending, which includes several large infrastructure projects, was cut by €750 million.  As a consequence, 6,000 jobs will be lost next year alone. By 2015, more than 23,000 jobs will have been lost in the public sector across the country.  Alongside spending cuts there was a raft of regressive taxes.   An increase of 2 per cent, coming two years after a similar increase, will see VAT rise to 23 per cent.   The duty on petrol was increased, college fees rose, and a household charge of €100 was introduced.  There were also a number of cuts that will result in higher charges for public services.  These “stealth taxes” will see the cost of health care insurance rise by more than 100 per cent for a family of four, while bus and rail passengers face an 8 per cent fare hike.  People will be paying more for a deteriorating service.  

Despite the general election of March 2011 (the so called “revolution in the ballot box”) the programme being pursued by the coalition government does not differ fundamentally from that of its Fianna Fail led predecessor.  Between 2008 and 2011, that government imposed four consecutive austerity budgets that reduced spending by 16 per cent of Irish GDP.  Overall, taking the latest budget in to account, fully €25 billion has been cut from government spending since 2008, with at least a further €13 billion to go by 2015.  The severity of such cuts (€40bn over a seven year period) is brought home when you put it alongside the figure of €56bn in total public spending for this current year.  

Unending austerity  

The programme of austerity has been promoted on the basis that it would only be a temporary sacrifice until economic recovery has been achieved.  The implicit timetable for this is the duration of the EU/IMF bailout, which is scheduled to run to 2015.  However, it is now becoming clear that the austerity programme will run well beyond this date, and that the changes being made are not just temporary but designed to make the Irish people permanently poorer.  

The Coalition has already set out the broad terms of its own four-year plan that incorporates the main elements of the bailout.  However, Troika officials have questioned whether this plan is rigorous enough to achieve its objectives.  They have cast doubts over whether the government can maintain income tax rates and suggested that there will have to be deeper cuts in the social security budget to achieve the “bulk of savings”.  Thanks to a leaked report from the EU/IMF we know that the 2013 budget will contain savings of €3.5bn, made up of €1.25 bin in new taxes and €2.25bn in cuts.  However, even the Irish government’s slavish adherence to the terms of the bailout is not enough, with Troika officials criticising it for cutting capital (which tends to favour business) rather than revenue expenditure, and for being too slow to introduce more punitive measures against the unemployed.  

The likelihood that austerity will extend beyond 2015 has also been highlighted by a number of Irish state officials.   Richard Tol, an economist with the Economic and Social Research Institute (ESRI), who recently announced that he was leaving Ireland due to the bleak economic outlook, warned that “ten more years” of austerity lay ahead and that economic recovery would take even longer.  Another ESRI spokesman concurred, declaring that any suggestion that austerity would end in 2015 with the conclusion of the current four-year savings plan was mistaken. Joe Durcan predicted that the current austerity drive was likely to continue “as long as anyone can look forward”, adding that even if the budget deficit was reduced to 3 per cent of GDP, this would be insufficient.   He said that the Irish state had to get its debt-to-GDP ratio down to 60 per cent, and that this could not be achieved solely through growth.  Given that state debt is forecast to rise to 120 per cent by 2013 this target implies a prolonged period of austerity.  The Irish government has also implicitly accepted further austerity by signing up the European Fiscal pact that commits states to reduce their budget deficit to 0.5 per cent. For Ireland this could mean €6bn more in tax increases and spending cuts in the medium-term, over and above what it has already planned.

Trade unions 

Despite the severity of austerity in Ireland the level of resistance has been very low.  To a large degree this has been down to a trade union leadership that has done all it can to push through the programme and dampen down any opposition.  Over twenty years of social partnership has produced leaders who completely identity with the Irish Government and employers, and with officials from the IMF and EU.   They have even been commended by Troika officials for the role they have played in ensuring that Ireland has not seen the type of protests that have taken place in Greece or Spain.

The approach of the trade union leadership is typified by the Croke Park agreement that committed them to supporting the complete restructuring of public services and overhaul of the pay and working conditions of public sector workers.  This was sold to workers as a temporary measure that would protect wage levels and employment within the state sector, but as it has progressed it has become a mechanism for anything the Government wants to push through, including the terms of the bailout, which actually post-date the agreement.   Croke Park is now being used as a stick to beat the workers with ministers saying that they are going stretch it “to the limit” and warning of something worse if they don’t get what they want.   In reality there is no limit as anything can be added to the agreement and the trade union leadership don’t have a bottom line.   This was revealed in the reaction of Siptu president Jack O’Connor to suggestions that the agreement could be renegotiated.  He said he was not “unduly concerned” at such a suggestion as the agreement was “delivering”. He pointed to the public service now having less than 300,000 people and another 6000 leaving this year as evidence of this.  He said he was not expecting any change in the Croke Park agreement “as long as people in the public sector deliver change”.  In this O’Connor was echoing the position (along with the implicit threat) of the Government.  


The all-encompassing nature of the Croke Park agreement can be seen in the way it is being used to push one of the main conditions of the bailout – privatisation.   It has now become a mechanism for the outsourcing of public services.  While the original agreement did allow for the outsourcing of “non-critical” work that term has been defined so widely as to include almost anything.  The Government has appointed an official tasked with increasing the level of outsourcing as well as asking all public to come up with their own suggestions.  Some commentators suggested that this might face opposition from trade unions but this was quickly refuted by Jack O’Connor’s concession that there was a procedure in the agreement that governed outsourcing and that it would be complied with.

The other main thrust of privatisation drive is the sale of public assets.  The Irish Government has already made proposals to offload around €2 billion of state property.  A list has been drawn up by an interdepartmental group that identifies assets and commercial State companies that could be sold in addition to the minority stake in ESB (a sale already agreed with the troika).  The state’s 25 per cent stake in Aer Lingus is included in the list alongside other key assets such as Dublin Port and parts of Bord Gáis and Coillte.  However, even this isn’t enough for troika officials who are keen to see the figure for asset sales more than double to €5 billion.   What the bailout has done is to put the whole of the public sphere in Ireland up as collateral for the loans the state is receiving.  It is a mechanism for transferring Ireland’s public wealth onto the balance sheet of private financial institutions, and when it has run its course Ireland will no longer have any public assets or services.   

Austerity not working?

The charge made against the Irish government by its critics, most consistently by left commentators and trade union officials, is that austerity is not working.  On the basis that economic growth has not recovered and that the debt crisis has not been resolved this is certainly true.  

If the Irish government did have a strategy it rested on the belief that the country could trade itself out of trouble through strong export growth.  This was dependent on growth in Ireland’s man export markets in the UK and Europe.   However, with these economies slowing down and possibility going into a new recession, the foundation of the export lead strategy has fallen away.  Even if this were not the case the claims for it were rather dubious in the first place.  While it is true that the growth that has occurred in the Irish economy over the past two years has been almost entirely down to the multi-national export sector this was never going to be enough to offset the continuing slump in the domestic.  Also, given the low level of taxation derived from this sector, it was never going to make an impact on state indebtedness.  So despite some growth in the economy the overall level of state debt has continued to rise.  With growth now faltering the debt burden will increase.    

On these purely economic measurements austerity can be said to be a failure.   However, from the perspective of the ruling class, as a means of making Irish workers bear the costs of the financial crisis, it has been a great success.   It has also been a success from the perspective of the international capitalist classes who know that the Irish people can never pay the onerous debts that have been imposed upon them but will in the meantime bleed them for all they are worth, re-ordering and restructuring the country to be even more accommodating to their needs.  Without taking this class perspective into account the policy of austerity can just appear irrational and self-defeating. 

Another bailout?

The failure the economy to recover has given rise to speculation that Ireland may need another bailout.  The most notable example was the suggestion by the chief economist with Citigroup, Willem Buiter, that the state would need further financial assistance on “non-market terms”.  His comments provoked a furious response from the Irish government.  However, there are factors that point towards support extending beyond the timetable of the current bailout.  Firstly, there is the ongoing cost of bailing out the banks. Much of this is covered by the bailout out but there is still €3bn for nearly fifteen years that will need to be paid in cash for Anglo losses.  There is also the likelihood that the remaining Irish banks will require further support.  They continue to post annual losses and hold massive liabilities.  A deterioration in their mortgage books, where defaults are steadily rising, could be the trigger for a new financial crisis.  Secondly, there are the interest rates demanded by lenders in the bond market.  If rates remain higher than those available from bailout funds then Ireland will find it difficult to return to the market.  When Ireland was from frozen out of the market in 2010 its bond rate was approaching 6 per cent, and while it has been falling from a its highest point, the rate on 10 year bond is currently 7.5 per cent (well above the rate that triggered the first bailout).   Thirdly, there are developments in Europe, such as the growing possibility of debt defaults and doubts over the ability or willingness of the core Eurozone states to further fund the bailout mechanism.  

Impossible terms

The probability that Ireland will need another bailout illustrates the fact that the stated objectives of the current bailout, of reviving the economy and resolving the debt crisis, are impossible to realise.  Indeed, the harsh austerity measures that are driving Ireland and its main trading partners into a new recession ensure its failure.  In the absence of strong growth domestically and globally, the Irish government will face the prospect of having to cut more to achieve a smaller reduction in the deficit.  Also a greater proportion of state revenue will be going towards the payment and service of borrowing and less towards the day-to-day running of the country.   Under the terms of the bailout the Irish state is taking on debts, in the form of loans from the ECB/IMF, to pay off the bondholders linked to the banks.  But even when the bondholders are paid out the Irish state will still remain indebted to the ECB/IMF.  It is locked into a cycle of debt.  Ultimately this cycle will be broken if for no other reason than the size of the debt makes it impossible to repay.      

But state debt is only one part of the problem for Ireland.  Indeed, it is actually the smallest component of Irish debt.  The biggest proportion of the debt by far is that held by financial institutions and by Irish businesses, as well as the debts which households incurred in the boom.  Ireland’s consolidated debt comes to a massive 663 per cent of GDP; that’s two and half the level of Greece and twice that of Portugal.  It has been estimated that to pay this debt would require a huge outflow from the Irish economy of €30bn every year.  Again this illustrates the impossibility of bearing such a debt burden.  

Building an opposition 

While the opposition in Ireland continues to be weak we can at least put forward a number of demands that if taken up would put it on a former foundation.  We need to recognise that the Irish people are being crushed by a debt burden and that debt is being used as a financial weapon to strip Ireland of its public wealth and what limited sovereignty it possesses.  The general demand of an opposition movement should therefore be for the repudiation of the debt and a rejection of the bailout terms.  The most effective and immediate way to achieve this is to oppose the austerity measures that are part and parcel of the bailout conditions. We also need to recognise that the biggest barrier to building opposition to austerity is the current leadership of the working class – the trade union leaders.  They can’t be ignored or by passed – they need to be challenged. 

It is also the case that the bailout has taken us beyond demands for burning the bondholders for it has revealed more clearly the role of imperialism in the form of the ECB and IMF.  Any struggle against the bailout will therefore have an anti-imperialist dynamic.   Neither can it be confined to a national level, as the forces ranged against Irish workers, or workers of any country, are too great.  The movement needs to be international and to build links with struggles in other countries particularly those that are subject to bailout conditions.  While this level of organisation and political consciousness does not exist at the minute it can still be set as an objective to strive towards.  Given the enormity of what we are facing anything less would be completely inadequate.  


Posted on February 13, 2012, in Economy and workers' resistance, Irish politics today, Political education and theory, Trade unions. Bookmark the permalink. Comments Off on More austerity as Irish economy contracts.

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