Thursday, May 31, 2012

Irish referendum today (Thursday) on eurozone fiscal suicide pact

Ireland is having a nationwide referendum today on whether to adopt the treaty that Germany's Angela Merkel is demanding they accept, a fiscal suicide pact that basically outlaws Keynesian economic stimulus policies and in practice gives Germany (Angie) control over the national budgets of the participating countries. This is the treaty that newly-elected French President François Hollande has insisted must be changed to include fiscal stimulus if France is to approve it, officially named the Intergovernmental Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union. The European Trade Union Confederation opposes the treaty.

General descriptions of the Treaty can be found at the website of the Irish Referendum Commission, a supposedly independent body. The Irish Times has a this-side-says, the-other-side says summary: Paul Cullent, The treaty explained 05/30/2012.

Siobhan Dowling reports for Global Post on the campaign, Key Irish euro referendum pits fear against anger 05/30/2012:

The latest polls indicate that the Irish are going to vote in favor of austerity, bucking the recent voting trend in Greece, France and even Germany. But that doesn’t mean that the Irish are enthusiastic adherents of Merkel’s belt-tightening fixation.

As much as anything, the Irish referendum could be described as a battle between fear and anger.
Sadly, that's what the hopes for the euro and even the EU have degenerated into for much of the European public, "a battle between fear and anger." It seems to have been not so long ago that it was a truism that depressions could weaken democracies and lead to dictatorships and other bad stuff. Maybe growing up in East Germany, Angela Merkel never learned about that:

Many Irish people are furious at their political elite for getting them into this mess, and at the European Union for forcing them to effectively take on the gambling debts of speculators, bankers and property developers.

The bailout became necessary as a result of the previous government’s ill-fated decision to guarantee all of the country’s banking debts in 2008. Those debts turned out to be astronomical, as a result of reckless lending to property developers, and Ireland bailed out the banks at enormous cost.

As the state took on these liabilities the markets pushed up its borrowing costs, leaving Dublin with little choice but to turn to the troika [EU, ECB, IMF].

Making matters worse, the state has been overly reliant on real estate transaction taxes. Once the property market crashed, that left a massive hole in public finances. At the same time, there is more demand on the public purse due to soaring unemployment. For 2012 the funding gap is an estimated 13 billion euros.

That deficit comes despite a succession of harsh budgets that have been imposed at the behest of the troika, imposing billions of euros worth of expenditure cuts and new taxes.

At the same time, the bondholders — who had loaned to the reckless Irish banks — have been paid back billions of euros from the state coffers. [my emphasis]
They are right to be angry.

And democratic governance should give them more options that a choice between economic collapse, on the one hand, and agreeing to have their government wreck their own economy so that the government can collect debts for banks that made bad risks. This is the moral hazard problem of too-big-to-fail banks. In the theology of the Great God Free Market, stockholders and bondholders are assuming the risk that the company may fail, with the potential rewards that they make money if the company prospers. But what happened here is that the Irish government stepped in to remove the risk from bondholders and thereby sacrificed the well-being of the whole country to the comfort of the bondholders. The bondholders were relieved from the down side of their risk. At the cost continues to grow: Banks may require an extra €3-€4 billion, says Elderfield Irish Times 05/30/2012.

The Dowling article quotes international relations professor Ben Tonra saying, "The ECB has been utterly dogmatic in terms of protecting not only senior bondholders but junior bondholders. And has basically said all these speculators have to be paid back and they have to be paid back on the shoulders of Irish taxpayers." Democracy? Prosperity? To hell with them! Bondholders money comes first! This is not the purpose of the EU. The main purpose of the EU was to promote democracy and international peace in Europe. It has become an ugly travesty of itself.

Ireland's level of public debt only became problematic and subjected them to the ugly side of the bond market because of the depression that began in 2007, and because the government made the decisions not to require weak banks to be reorganized but to have the government assume their bad debts. Dowling also describes the partisan politics of austerity within Ireland in describing the phenomenon that Paul Krugman regularly mocks, the notion that Ireland is some kind of austerity success story:

Commentators often point to Ireland as Europe’s austerity success story. Unlike in Spain and Greece, on the surface, Ireland’s economy appears to have returned to growth, albeit modestly, with the EU predicting a rate of just 0.5 percent for 2012. Moreover, official figures show a trade surplus, although this may not be a reliable indicator since it is distorted by the many multinationals based in Ireland who repatriate their profits.

Yet most Irish people don’t feel that things are getting better. The number of those struggling to pay back often-massive mortgages is growing. On Friday the Central Bank announced that one in 10 mortgages are in arrears of more than 90 days. Unemployment remains around 14 percent, up from 4.5 percent just five years ago, and would be even higher if not for high levels of emigration and the return home of many immigrants who contributed to Ireland’s boom.

The party seen to have caused the mess, Fianna Fáil, was booted from office last year. However, members of the current government, particularly the center-left Labour Party, have seen their support decline, with backers angry at them for continuing the same austerity agenda.

Left-wing nationalist party Sinn Féin, the biggest critic of the Fiscal Treaty — which it dubs the “Austerity Treaty” — has seen its support soar, particularly among working-class voters.

Other opponents include businessman Declan Ganley, who helped defeat the Lisbon Treaty first time around, and smaller left-wing groups, including the Socialist Party. [my emphasis]
The Irish Times reported on Tuesday (Treaty campaign in last stretch 05/29/2012):

Both sides in the fiscal treaty referendum are using the final hours before the onset of the broadcast moratorium on referendum content tomorrow afternoon to persuade the electorate.

Speaking tonight on RTÉ’s Prime Time Labour’s Joan Burton encouraged people not to send out the “wrong signal” in Thursday’s vote saying the country has done very well for 40 years out of EU structural funds.

She was joined on the programme in calling for a Yes vote by Fianna Fáil’s Timmy Dooley who said if the country doesn’t learn to balance its budgets it will become an inhibiter to security of the euro.
"Both sides", the two major political parties, are insisting that the Irish people accept Angie's fiscal suicide pact. This is yet another example of the extent to which the neoliberal ideology has corrupted the establishment parties in Europe.

The same paper reports in Government 'lying' over treaty, "Three recent opinion polls revealed a 60/40 split in favour of the fiscal treaty among Irish voters who go to the polls on Thursday." But there is also a large undecided bloc going in to the election. Turnout will play a big role.

Padraic Halpin reports for Reuters on the failure of Angienomics austerity in Ireland, Pioneer Ireland fears austerity was in vain 05/29/2012.

Two trade unionists from the British Irish union UNITE testified about the effects of the treaty before the Irish Parliamentary Sub-Committee on the treaty on 04/18/2012 (the Irish Parliament is formally called the Oireachtas). Jimmy Kelly warned:

The eurozone economy and the European project itself are put at grave risk by this treaty. It addresses the wrong question and therefore comes up with the wrong answer. The crisis does not stem from recklessness in State spending but from the recklessness of financial institutions. This crisis is unfortunately still continuing. In Ireland we are all too aware of the direct cost of reckless banks and property speculation. We are also aware of the economic burden this recklessness has imposed on the State in terms of unemployment, falling incomes and collapsed tax revenue, and we are aware that had the fiscal treaty been in place ten years ago it would not have averted the disaster in Ireland nor changed budgetary policy one bit. Instead, the fiscal treaty targets the State and the public sector with a set of rules based on arbitrary targets and hypothetical measurements.
And he describes how the treaty will force what economists call internal devaluation, i.e., reduction of wages and salaries and workers' living standards:

The fiscal treaty will lead to further austerity measures, which no one doubts. UNITE estimates that this could result in an additional €8 billion or more in spending cuts and tax increases over the next few years. This will have a significant impact on workers’ living standards.

It would cut economic growth which will inevitably lead to lower job creation. Currently, more than 14% are employed and another 10% are under-employed or can only find casual work. Even more alarming is that the IMF, in its last review in March, estimated that even by 2017, unemployment will be above 10%. Additional austerity over and above what the Government is already planning will depress domestic demand even further. This will slow the already low level of job creation. We will be facing into a decade of high unemployment and emigration.

The European Commission has projected that even in 2015, real wages will still be falling, that is, wages after inflation. Between 2012 and 2015, average real wages are projected to fall by nearly 0.5% each year, which will reduce domestic demand and job creation. This will put downward pressure on wage growth. We will have a situation where inflation is eroding workers’ living standards at the same time as the Government is increasing taxation and households are trying to escape from extraordinarily high levels of debt. This is a recipe for continuing growth and falling living standards. [my emphasis]
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