RTÉ and the Irish press report fairly
regularly about the workings of the Troika and the discussions Enda
Kenny (leader of Fine Gael) and Michael Noonan (Minister of Finance)
hold with European Union and the IMF, although the edited highlights and
the “communiqués” don’t mention the small print. As many people behind
on the mortgage will have found out to their cost over the last few
years, the devil is in the detail.
RTÉ and the Irish press report fairly
regularly about the workings of the Troika and the discussions Enda
Kenny (leader of Fine Gael) and Michael Noonan (Minister of Finance)
hold with European Union and the IMF, although the edited highlights and
the “communiqués” don’t mention the small print. As many people behind
on the mortgage will have found out to their cost over the last few
years, the devil is in the detail.
For the IMF even the worst bad news is couched in the polite language
of diplomacy. Why? Well it would be most unfortunate if the truth got
out. After all, working people might be listening and who knows what
might happen then?
One fine example of this sort of diplomacy is the finely entitled
“2012 Article IV Consultation with Ireland – Concluding Statement of the
IMF Mission”. This was published on July 18th 2012. The title of the
document might sound a little like a scientific paper about a mission to
Mars, but the finely chosen words of the statement are an assessment of
the economic and political perspectives of the Bourgeois in respect of
Ireland.
"The Irish authorities have made steadfast efforts to address an
exceptionally deep banking crisis, establishing strong credibility in
policy implementation despite an adverse external environment that has
tested confidence and delayed recovery. Key medium-term priorities are
enhancing financial sector health to help revive lending, putting the
budget on a sound footing, and advancing structural reforms to
facilitate growth and job creation. Difficult challenges remain in the
context of persistent euro area uncertainties, and a further
strengthening of European support to Ireland is required to weaken
bank-sovereign linkages and improve the sustainability of the
well-performing adjustment program, thereby facilitating a durable
return of the sovereign to market financing."
Translated, that amounts to:
The Irish Government have been thrashing around for a few years after
the collapse of the banks in the crash, there is a new government with a
working majority who will do anything we tell them even though Europe
is in deep trouble and it looks like it’ll get worse. We’ve told them to
keep feeding the banks, make billions worth of cuts and slash welfare
while attacking the public sector workers and fiddling around with some
workfare schemes. Europe is on the edge of the abyss and the Taoiseach
wants some deal that stops them having to keep bailing out the banks so
much and reduce the interest rate on the bailout thereby allowing them
to pay us back all of our money.
But maybe we are exaggerating? Perhaps not, what does the small print say? The sections of the IMF report are in italics:
1. The Irish authorities have made impressive progress to restore
stability in the face of an exceptionally deep banking crisis.
Determined actions have been taken to restructure and downsize banks,
and the recapitalization exercise in early 2011was rigorous and
transparent. Budgetary efforts have been substantial in recent years,
containing the fiscal damage from the severe economic collapse in
2008-10 while maintaining social cohesion. These and other steps have
together helped rebuild confidence, as seen in declining spreads on
Irish bonds, the recent successful return to the Treasury bill market,
and continuing substantial inflows of foreign direct investment. The
underlying strengths of Ireland’s highly open economy delivered
export-focused GDP growth of 1.4 percent in 2011, although domestic
demand and GNP continued to decline.
What this amounts to is that the Government have been trying to shift
all of the toxic debt to NAMA and that they have bailed out the banks,
as we know to the tune of €63billion. There have been some vicious
budgets which have tried to shift the burden onto the poor, the
pensioners, the youth and the public sector workers. The last government
was forced to make a concession through the Croke Park Deal, “And other steps” is presumably a reference to the bailout, which is why the “spread on Irish bonds”
which is the difference between the interest rates that the German and
Irish governments are forced to pay the speculators, has fallen as a
result of the bailout. Ireland has seen a growth in foreign investment
but Gross Domestic Product only rose by 1.4% in 2011, Gross National
product GNP – which excludes production by foreign owned companies –
continued to fall.
2. Yet major challenges remain. At around 40 percent of GDP, the
cumulative cost of supporting the financial sector accounts for half of
the sharp increase in net public debt in recent years. The
sustainability of public debt—expected to be 116 percent of GDP by year
end on a gross general government basis—depends heavily on continued
economic recovery. Real GDP growth is, however, expected to slow to
about ½ percent in 2012 owing to weak trading partner activity. A rise
in growth in coming years must overcome the drag from the ongoing fiscal
consolidation and high private sector debt burdens, and must also serve
to reduce unemployment, which at 14.8 percent, is at levels not seen
since the 1980s.
The cost of bailing out the banks came to 40% of GDP which is why the
state debt has gone through the roof since 2008. Unless the economy
grows, the state will continue to be caught in a vice. Real GDP growth
(excluding inflation that is) will fall to 0.5% in 2012 because most of
the European Countries are more or less in recession. Any future growth
will have to overcome not only the debt from bailing out AIB and the
rest, but also be sufficient for workers to pay off their debts and
start spending money. Unemployment at 14.8% represents a further
obstacle at a level not seen for 30 years. We have called the current
crisis a structural crisis of capitalism; what else does this represent?
3. Ensuring a lasting recovery will require further strong policy
action. Financial sector health needs to be strengthened so that
domestic demand can be supported by sound lending. Phased fiscal
adjustment must be completed in a growth-friendly manner. Continued
reforms are needed to head off structural unemployment.
This seems to suggest that the Government will have to continue to
bail out the banks so that they can lend to people. “Phased fiscal
adjustment” presumably means the gradual introduction of the Household
Tax starting now with the thin end of the wedge. Growth friendly? Sure,
that will mean being light on the boss and heavy on the worker.
4. Success will hinge on euro area stability and recovery, and
strengthened European support is also required. Ireland’s small open
economy has regained much of the competitiveness lost during the boom.
Yet prospects for recovery, and for the resumption of market financing
for the sovereign, rely on a revival of trading partner growth and
calmer euro area financial conditions. Against that backdrop, euro area
leaders have recently made welcome commitments to break the vicious
circle between banks and sovereigns by enabling the ESM to recapitalize
banks directly, to treat similar cases equally, and to examine the
situation of the Irish financial sector with the view of further
improving the sustainability of the well-performing adjustment program.
These commitments represent key stepping stones towards the mutually
beneficial goals of ensuring Ireland’s economic recovery and its durable
return to the bond market, thereby avoiding continuing dependence on
official financing.
What exactly does this sentence mean? “Ireland’s small open economy has regained much of the competitiveness lost during the boom.”
Well, prices fell by 6% in 2010 and went up by about 2.5% last year.
Since then they have gone up by about 2% this year so far. So Irish
goods are cheaper and of course the bosses have been forcing down wages
throughout the economy. So all of the competiveness comes from the dire
state of the economy and attacks on the working class. But, “prospects for recovery” are tied up with the European crisis as is the return of Ireland to the bond markets.
The EU is now bailing out the banks directly and is looking at the
Irish banks. They see this as the way out of the crisis and therefore a
way for Ireland to pay the EU their money back.
5. Reforms of the banking sector have made substantial progress. A
comprehensive strategy was adopted in March 2011 to return to a fully
functioning banking sector that serves the needs of the Irish economy. A
rigorous analysis of capital needs at that time gained market
credibility through independent loan loss estimates, stringent scenarios
and capital thresholds, and transparent reporting. Downsizing of the
banks has proceeded on schedule while avoiding fire sales.
By creating NAMA and moving as much toxic debt as possible, the
Government bailed out the banks and reduced their liabilities. They
increased the capitalization of the banks and reduced their size.
6. However, a number of interrelated challenges need to be
addressed to restore banks’ ability to support Ireland’s economic
recovery. In particular, arresting deteriorating asset quality and
restoring profitability, together with regaining access to market
funding, are each central to a resumption of lending:• Arresting the deterioration in bank assets is essential. As
residential mortgage arrears rose during 2011, the Central Bank of
Ireland identified banks’ operational weaknesses in distressed credit
operations and required the banks to develop mortgage arrears resolution
strategies. Banks are now accelerating work to build their credit
collection and workout functions. Similar supervision of workout efforts
for loans to SMEs should continue to proceed apace considering the
importance of this sector for job creation. The authorities also
recently introduced to parliament a reform of the personal insolvency
framework to help address borrower financial distress while maintaining
debt service discipline. Consistent implementation and close monitoring
of these combined efforts should enable a much needed transition toward
long-term solutions that are tailored to borrowers in difficulties. In
parallel, it will be important to ensure that the repossession framework
complements the personal insolvency reforms.
“Arresting the deterioration of bank assets is essential” –
this all sounds very nice. But of course what it really means is dealing
with the huge rise in mortgage arrears. Our liabilities are their
assets. “Operational weaknesses in distressed credit operations”
– this sounds very much like the IMF doesn’t think that the banks are
chasing debtors hard enough. However, they are pleased that the banks
are strengthening their credit collection services, which means no doubt
that they’ll be knocking on the door sooner rather than later demanding
money. The same goes for small businesses, who have suffered as a
consequence of the banking crisis.
• Regaining profitability is necessary for banks to sustain new
lending. At present, interest margins are compressed by high deposit
interest rates and fees on the Eligible Liabilities Guarantee (ELG)
scheme. The authorities’ intention to phase out the ELG scheme in an
orderly manner, while preserving access to funding, is appropriate.
Moreover, banks’ remain burdened by cost structures that are too high;
plans to reduce operational expenses will need to be fully implemented.
The IMF believes that the terms of the ELG scheme are reducing bank
profitability, so they want to phase it out. Reducing bank cost
structures and operational expenses will mean slashing the number of
bank branches and cutting staff.
• In common with banks in other euro area countries, accessing
material volumes of secured market funding to support new lending faces
difficulties. The Irish deposit base has recovered somewhat recently,
and banks have obtained repo funding secured on UK collateral. However,
looking ahead, the banks face further bond maturities that may increase
their reliance on Eurosystem funding, which results in substantial
encumbrance of their assets. These circumstances undermine prospects for
a revival of lending, and a sustainable solution to this problem will
need to be found.
The Irish banks are still in trouble as are the rest of the European
banks. It is difficult for them to attract funds and bailing out the
bondholders is unpopular. The ECB seems to have changed its line on
making bondholders “take a hair cut”, but they have already paid off
almost all of the AIB bonds.
7. Ireland has implemented substantial fiscal consolidation since
the onset of the crisis. Cumulative budget measures during 2009-12
strengthened the structural primary balance by just over 8 percent of
GDP. This effort has been expenditure-led, including cuts in public
wages, social welfare rates, personnel numbers and capital spending.
Revenue contributions have included income tax base broadening, higher
taxes on capital and savings, and an increase in the standard VAT rate.
Careful design has enabled this consolidation to be achieved during a
deep economic slump without compromising social cohesion or key public
services.
The government has slashed wages, attacked welfare, sacked Public
Sector workers and stopped capital programmes. They’ve increased taxes
also. By “careful design” no doubt the IMF mean gradual introduction of
household taxes, the pension levy, all of the emergency budgets and
NAMA. The “social cohesion” referred to is only relative. Sure,
there hasn’t been a series of General Strikes in Ireland, unlike Greece
where there have been 19.
The fact is that the Croke Park Deal bought the Fianna Fáil
government some relief from the large scale industrial struggles in the
public sector that had dogged them throughout 2009. “Key public services”
have been attacked, despite the rosy glow the IMF gives. The main
reason that the Public Services have not been attacked further lies in
the weakness of the Fianna Fáil/Green Coalition in the first instance
and the strength of the working class. The full extent of an Bord Snip
has not been implemented for example.
Fianna Fáil were routed in last year’s general election, as the
working class moved from the industrial front onto the political front.
FF and the Greens served their purpose, now Fine Gael and Eamon Gilmore
have stepped in as the reserve team. The very fact that FG and Labour
weren’t FF and the Greens gave them a certain amount of breathing space.
But the austerity is here to stay, full implementation of Croke Park,
or even the ditching of the agreement as advocated by the FG TDs would
open a new period of class struggle. Of course, emigration has played an
important role also in the so called social cohesion. The unemployment
rate is fairly stable but over 70,000 people emigrated in 2010/2011.
8. However, with the deficit still in excess of 8 percent of GDP,
significant further medium-term consolidation is required. After five
years of consolidation, few low-hanging fruit remain, especially on the
expenditure side. A strategic approach focused on the efficiency and
fairness of measures, that keeps all high-quality expenditure and
revenue options on the table, is needed to complete the consolidation in
a durable manner. While avoiding imposing excessive fiscal drag in any
particular year, the multi-annual expenditure ceilings and the
Comprehensive Review of Expenditure provide confidence that the
medium-term targets will be achieved despite implementation risks
associated with large expenditure adjustments, demographic pressures,
and risks to the macroeconomic baseline.
The public sector has been slashed over the last few years. So we would agree that there is no “low hanging fruit”,
but what is being outlined here seems like a coded message to say that
the Bord Snip report is back on the agenda, What else does a “strategic
approach focused on the efficiency and fairness of measures, that keeps
all high-quality expenditure and revenue options on the table, is
needed to complete the consolidation in a durable manner” mean? Colm McCarthy advocated the closure of whole government departments, in other words, strategic high quality services. “Implementation risks associated with large expenditure adjustments”
that would be the reaction of the working class and the trade unions.
So, what else do they have in mind? Huge scale sell offs of state and
semi-state sponsored bodies?
9. Comprehensive targeting of spending is needed to deliver
immediate reductions combined with reforms to underpin savings in the
medium term. Maintaining expensive universal supports and subsidies is
difficult to justify under present budgetary circumstances. Better
targeting of the child benefit, medical card spending, the household
benefits package and the expenditure on non-means tested pensions can
generate significant savings while protecting the poor. The Croke Park
Agreement has facilitated personnel reductions and efficiency savings,
and has helped maintain the industrial peace needed to achieve broader
reform goals. Continued monitoring of the adequacy of savings in the net
pay and pensions bill, and of public service provision, is necessary.
Deeper reforms in health and higher education are needed to identify
service priorities and deliver them efficiently.
This speaks for itself, but, let’s spells it out. The IMF doesn’t
think child benefit, health, welfare and pensions should stay as they
are. They want the government to attack health and third level
education. They’ll keep an eye on Croke Park and hold the government to
task on their “targets”.
10. A base-broadening approach to raising revenue will mitigate
adverse growth effects. Ireland’s combination of high personal and
indirect tax rates, and relatively narrow tax bases, provides
considerable scope for this approach. In this context, income tax
reliefs could be better targeted to low-income taxpayers, and options to
broaden the base for Pay- Related Social Insurance could be examined.
The planned introduction of a value-based property tax in 2013 will
provide a progressive and stable source of revenue. A suitably high
level for this tax would maximize these benefits, while care is needed
regarding collection modalities and lead times.
The IMF are encouraging the government to press ahead with the
household charges, which will be much higher than any €100. They want to
introduce a broader tax base. However, we can be sure that the low
rates for corporation tax will remain and the working class will be
expected to shoulder the burden, partly through “targeting” tax credits,
which is code for cuts for most workers.
11. The growing problem of long-term unemployment requires firm
implementation of a broad based approach. Although economic recovery
will be the main vehicle to reduce unemployment, it is also important to
ensure that jobseekers are willing and able to fill jobs when they
become available. The Pathways to Work initiative sets a sound direction
for engaging with and supporting the unemployed to get back into the
workforce. Jobseekers’ adherence to the principle of mutual obligation
should be ensured. Realizing the full benefits of this reform will take
time and will require enhanced training for case workers. Involving
private sector firms in the provision of activation services, especially
for the long-term unemployed, could also play a useful role if well
designed. Given the need to re-skill jobseekers to enable their mobility
between sectors, the creation of SOLAS and the Education and Training
Boards is a priority to provide regular monitoring of training outcomes
and effective delivery of further education and training.
No one would be opposed to genuine training for genuine jobs. But the
truth is that the welfare to work approach to solving unemployment is
in reality a stick to beat the unemployed with. Over the water in
Britain, the recent scandal over the workfare Jubilee security guards is
an indication of the thinking of the ruling class. ICTU should be
demanding a decent training on trade union rates of pay with a
guaranteed job at the end of every course. But the IMF aren’t talking
about this. They say that, “Involving private sector firms in the
provision of activation services, especially for the long-term
unemployed, could also play a useful role if well designed”. This
would result in low quality profit driven programmes designed solely to
force the unemployed off welfare, into temporary cheap labour
programmes.
12. Reforms of social benefits can support this strategy. The
flat structure of unemployment payments results in replacement rates for
the long-term unemployed that are high by international standards,
contributing to low exit rates from the Live Register. The highest
replacement rates affect those also receiving housing benefits. To avoid
unemployment and inactivity traps for this cohort, it is important to
integrate the systems of social housing provision and rent supplement
for those with long-term housing needs into a new means-tested Housing
Assistance Payment.
This proposal suggests that unemployment payments are too high,
Housing Benefits also. By a “flat structure” they mean that benefit
rates don’t fall after a certain time. They claim this creates an
“inactivity trap”. Our view is that it is capitalism that created this
trap. Tens of thousands of Irish workers and youth are languishing
without work, thousands are emigrating. It’s not the case that the state
can’t afford the unemployed, the unemployed can’t afford capitalism.
We need a genuine socialist alternative, a fighting socialist
programme linking the day to day struggles of the working class and the
unemployed with the need to change society. We stand for a 32 County
Socialist United Ireland, the nationalisation of the banks and the big
industries under democratic workers control and a Socialist United
States of Europe.
