This budget will just be a spit on a fire…… November 24, 2010
Posted by irishelectionliterature in Uncategorized.Tags: ireland
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Vincent Brownes show on TV3 is often compulsive viewing……
Last nights show brought home the enormity of the Financial hole the country is in.
Vincent Browne Show 23rd November 2010
Our Debt
€90bn – Current Sovereign Debt
€20bn – Prefunded Debt
€23bn – Redeeming bonds over next 3 years
€35bn – Bank Recapitalisation
€45bn – Cost of funding the the country over next 3 years
€100bn -Short term ECB liquidity to Irish banks
€30bn – Irish Central Bank master loan repurchase agreements
€343bn total
Annual Interest Payments anything from €14 to €18 Billion .
Our current Annual income approx €32 Billion
As Brian Lucey put it “ This budget will just be a spit on a fire”
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I don’t disagree that the end result is that we will end up with debts, to adapt Springsteen, that ‘no honest country could pay’, but I’m not sure if Lucey’s figures entirely add up either: fr’instance: items 2 and 3 are surely already part of item 1? And the short term liquidity from the ECB to the banks, as he said himself, may need to be considered as separate and notional – it is assumed that once the banks are recapitalised, they can return to interbank lending.
Mr Lucey is forgetting though that if we cut the minimum wage coupled with cuts in Jobseekers benefit we’ll get through this.
Allied of course with the increased death-rate amongst those claiming Jobseekers benefit. In 2007 the death rate among this cohort was something like 15 a day and that rate has certainly increased since then, particularly as Minister Lenihan’s brave budgets take full effect. I estimate that the death rate at present is 18 people a day and I’m sure Minister Lenihan’s/IMF/ECB December budget will hope for a death rate of 20 people a day as they target more fully and accurately the disabled, children, the old and the sick.
And if we all emigrate, sure there’ll be no one left to pay…..
Thanks for setting these figures out, IEL. Some things do need to be clarified about them though. For example:
(1) Does the “current sovereign debt” figure include or exclude the bonds to be redeemed over the next three years?
(2) I presume that the pre-funded debt is what we have borrowed to run the country in the first half of 2011. Will such a figure be needed in three years from now, i.e. is the €45 billion figure overstated or does it reasonably take the pre-funding needs for 2014 into account?
(3) As I understand the €100 billion to the ECB, this is the money that the banks are borrowing at present because they cannot get funding in the interbank market. The banks should be fully capable of servicing this cost from their day-to-day operations, i.e. it is not a direct cost to the taxpayer.
(4) As for the €30 billion already owed to the Irish Central Bank, is this not money owed to ourselves, so to speak, meaning that it is double-counting to include it here? Also see last point re banks.
(5) We draw this bailout money over the course of the 3 years, so we are not hit with the total drawing and associated interest cost upfront.
(6) Does this recapitalisation of the banks to 12% capital ratios post-NAMA now mean that they are much closer to acting like functioning institutions again and therefore capable of supporting a desperately needed revitalisation of our economy? In other words, what does this €35 billion recapitalisation really buy us (other than snide remarks!)?
I only ask these things for the sake of clarity. Its not as if something like €200 billion in debt and €10 billion in interest payments would be chump change either.
€10bn in interest payments is €2,500 per anum per capita, ad infinitum (assuming 4m people are left in the country after this wave of emmigration).
It just can’t fly, especially with more and more households being forced into poverty.
So, basically, all the bail-out can do is defer the default?
Try more than €5k per person currently employed (i.e. 1.9mln last June as per CSO) and you would be about right!
In other words, the debate that we are not having as a people is between (i) do we default & take what comes with that and (ii) do we make all of the sacrifices necessary to try and stave off default. It is also surely one of the reasons that we are bring bounced so hard by the European Commission into cutting a deal prior to an election campaign being fought. They are too wary of the lessons from the Nice & Lisbon referenda to let the Irish electorate near a debate this big.
You’ve got it, ladies.
The loan is a desperate deferral exercise, because there is going to have to be a big write-down of debts and/or a printing of money. I’d argue this is easier done within a currency union, rather than in a chaotic situation of rebooting and highly vulnerable (to speculators) national currencies.
At the same time we need democratically controlled local complementary trading currencies to overcome the liquidity crisis, and get something going in local economies.
I only ask these things for the sake of clarity. Its not as if something like €200 billion in debt and €10 billion in interest payments would be chump change either.
John Moloney the Minister for whatever confirmed the final bill would be north of €200bn the previous night and Somerville last night reckoned €250bn. Maybe Lucey had his ‘apocalypse’ turned up to 11 and overegged it, but the more sober figure of a quarter of a trillion is hardly a comfort. The really scary thing was that both Lucey and Somerville expected the interest rate on all this to be 6% or 7%. That’s a €15bn per annum interest payment forever with no hope of reducing the capital. Not even SMART mortgages would be so reckless.
You’d wonder how long the Government have been aware of these figures.
No matter what they do, surely there is zero chance of bringing the deficit to 3 per cent of GDP by 2014, which seems to be the Holy Grail of the Government and others.
[...] This budget will just be a spit on a fire…… (cedarlounge.wordpress.com) [...]
Brian Lucey mentioned an IMF study on bank bailouts by Luc Laevans. Here it is for anyone that’s interested (thanks to Wikipedia):
http://www.imf.org/external/pubs/ft/wp/2008/wp08224.pdf
The Workers Party has prepared a detailed document on the Government Budget Strategy.
The full document will be uploaded to the website later today.
Below please find the Executive Summary
Executive Summary:
* Due to the failed ideology and failed politics of this government the Irish people, through the Irish Parliament, are no longer free to construct our own budget without big brother IMF/ECB/European Commission dictating.
* As 2/3 of the budget deficit is the result of the bank bailout we must ensure that this never happens again and demand a referendum to place the public good above the rights of private profit..
* Job creation is our central demand – We cannot shrink our way out of this recession.
* The expansion of our state companies is the central plank of our jobs policy
* The nationalisation of our oil and gas and the creation of a State Energy Company is a further step to energy security and long term employment.
* The utilisation of the NBRF to act as a National Employment Investment Fund – to be administered on a commercial basis.
* No reduction in old age or disability pensions or in unemployment benefit / allowance.
* Reverse the cuts in carers’ allowances and conditions
* An equitable tax system.
* A third tax band of 50% to be introduced. The threshold would be set at the level of 250% of the Average Industrial Wage.
* All income to be treated equally for tax
* An end to the “Tax fugitive” system
* Introduction of a wealth tax
* Eliminate all non-productive tax allowances and eliminate al tax allowances that are a direct or indirect subsidy to the private sector.
* Oppose residential property tax or Service charges.
* Maintain funding to our public health and education system – end funding to private health and education.
* Completely separate the private and public health system.
* De-bureaucratise the HSE
* End the scandal of a €0.5 billion annual subsidy to private landlords – invest the money in public sector housing.
* Upgrade our private housing stock through a subsidised insulation scheme
* Modernise our water network
* State supervised scheme of re-negotiated mortgage terms for family homes in negative equity and mortgage difficulty.
NEWS RELEASE
Thursday, 24th November 2010
Four-Year Plan is “A Tired and Stale Document produced by a Jaded Government”
This plan will actually destroy jobs and lives
Michael Finnegan, President of the Workers’ Party has described the government’s much vaunted four-year plan as: “A stale and tired document produced by a jaded government with a failed ideology, which does not provide a roadmap for recovery”.
“It is indicative of the mentality of this government that one Euro per hour can be cut from the minimum wage but not one cent tax placed on wealth. The Galway Races tent mentality still pervades Fianna Fail” stated Mr Finnegan.
“The most striking failure of the 150 page document is the failure to set out a strategy for job creation. The government has failed to grasp the simple reality that if we create sufficient worthwhile employment we can earn our way out of this crisis”.
“The Irish people, through our publicly owned commercial semi-state companies, have a rock-solid base of 40,000 jobs which could be doubled, at no cost to the exchequer, if innovative political and management decisions were taken by the government. They have failed miserably to so do”.
“The so-called plan” continued Mr Finnegan “once again targets the poor, the lower and middle income groups. While tax is being extended on those at the bottom of the income pile, this rump government again abjectly refuses to introduce a third tax band for those at the upper income level”.
The Workers Party President described cuts in social welfare payments for jobseekers as “punishing the unemployed instead of those who took their jobs away by bankrupting the country”.
“They barely scratch the surface of tax-shelters. They continue to allow double jobbing by consultants as wages for nurses and hospital porters are reduced. The massive public subsidy to multinational private hospitals continues, as does the obscene subsidy to exclusive fee-paying schools”.
“How can we take a four year plan seriously when it sidesteps completely the issue of the future of the Irish banking system? This millstone around our necks, which has destroyed our economy and led the government into the poisoned embrace of the IMF / ECB, is not addressed in this document. Is this government serious?”
“Lastly” said Michael Finnegan “this government fails to tackle the issue of the wealth and job creation potential of our natural resources. We have vast reserves of oil and gas, which Fianna Fáil politicians over the last half century have signed away to foreign multinationals. This economic treason, whether or not facilitated by bribery, must be addressed and reversed by the incoming Irish government. The economic and wealth potential of this one step would drive massive economic growth and obliterate the need for this strategy of poverty and stagnation unveiled today”.
This type of household balance sheet approach is ridiculous. Ireland’s problems aren’t about fiscal profligacy, they’re about financial excess, i.e., banks gone wild. There is a need to restructure the bank debt, not leave it to be absorbed by the national economy
Also, the size of the debt is not as important as the ability to make the repayments.
The markets know this and that is why Ireland’s creditworthiness has fallen on news of a bailout for banks, and deflation for an economy which is expected to pay for it.
It is strange that “lefties too stubborn to quit” don’t seem to understand that national debt is not the same as household debt – and that the ‘spit on a fire’ analysis quoted above is straight out of the pages of the Daily Telegraph.
I suppose you will blame immigrants next!
I think you probably need to read the blog more attentively, Philip.
Not many of us around here buy the notion that a nation is economically analogous to a household, or that we should pay for the bankers’ folly, or even that we can.
Philip, I agree with what you’re saying precisely, and we’re not saying anything different here on the blog, as Pope Epopt notes. Not sure how you got the idea that we were.
Oi Pope, will you ever drop me an email?
Sunday 21 November, the day the Irish government formally applied for a bailout to the EU and IMF, should be marked as the day that the Irish capitalist class were exposed as a rotten, despicable failure, bankrupt in every sense and incapable of offering any way forward. The significance of these developments cannot be overstated; they are a turning point in Irish history and will impact on other countries in Europe and the EU itself.
“All changed, changed utterly”
“These are the times that try men’s souls. You will no doubt hear a great number of stories respecting the situation of this country, its present unfortunate state is entirely owing to treachery, the rich always betray the poor.” – Henry Joy McCracken following the betrayal of the 1798 uprising by the “men of property”.
The failure of the capitalist establishment to provide for the needs of people often provoked the bitter and ironic comment that we’d be better off giving the keys back to Britain and apologising for the mess! It is truly ironic now that a version of this black joke is becoming reality.
This is all about saving the Euro and capitalism
A bail out was inevitable, it was only a matter of when. But the government were bounced into it now at the behest of the sharks in the markets and the EU. This bail out is not about solving the crisis in Ireland. It and the new austerity programme that is coming will make the crisis much worse. Working class people in Ireland are being prepared as the sacrifice so profiteers can make more profit and so the Euro and the EU can be maintained.
Angela Merkel talked recently of orderly insolvencies. But this process will not be orderly; it will be convulsive. Right now the EU has forced Ireland into this bail out to save the Euro and the EU. However, in future they could force Ireland or other countries out of the Euro altogether, to safeguard their own capitalist interests. The existence of the EU as we know it is and will be challenged over the next years.
The worsening crisis in Ireland spelt crisis for the EU
From its high point, the southern Irish economy has declined by nearly 15% and the hopes of the capitalist establishment that the economy would begin to recover and grow this year have been dashed, mainly because of the depressive effect of the draconian cuts of €15 billion that the government has already imposed.
In a country with a workforce of less than 2 million, 450,000 are currently unemployed. The official figure is not beyond half a million only because very high levels of emigration have returned. With mass unemployment and attacks on pay, mortgage arrears are growing very quickly and indicate that a new crisis for the Irish banks was imminent.
The weakness of the banks was a vital factor in provoking this bail out. Notwithstanding the government’s bank guarantee, probably more than €25 billion worth of deposits have been taking out of the Irish banks this year in a flight of capital, with the bulk since September. Despite earlier bailouts, the banks do not have the necessary capital requirements to be solvent on an ongoing basis and they were not able to borrow on the commercial markets this autumn. Instead they borrowed huge amount from the European Central Bank (more than €90 billion) and from the Irish Central Bank (€20 billion). Irish banks currently hold 20% of all the monies loaned out by the ECB.
The prospect of the banks recovering was inextricably linked to a recovery in the property market and the economy generally. That hasn’t happened and in fact will be undermined further by the new IMF/EU austerity programme. More so even than in the case of Greece, British, French and German banks have very significant amounts of loans tied up in the property market and banking system in Ireland and a banking collapse here had to be avoided.
At the same time the value of the Euro and the interest rates being charged to Spain and Portugal were also adversely affected by the instability surrounding Ireland. A delay in acting, which was a feature of the EU during the crisis in Greece, was not an option this time round. The nervousness about contagion is a real indication that the fundamentals of the European economy and the EU are far from sound.
Rip-off and robbery already indicated
It looks like this bail out will be over €80 billion but less than €100 billion. Britain and Sweden have also offered additional direct loans to Ireland. There are indications that the EU/IMF will seek that a large amount of the money will be handed to the Irish banks who will then give it straight back to the ECB to pay off some of the €90 billion plus they borrowed. The remaining amount will be held by the government to help fund its own budgeting requirements.
At the stroke of a pen, the EU and ECB will get a lump sum back but also a huge additional payment in increased interest. This loan may be cheaper thanon the bond markets but it’s far from cheap. The original money that the Irish bankers borrowed from the ECB was at an interest rate of 1.5%. This money in this bail out will most likely be charged at an interest rate of between 5 – 6%! The EU has basically renegotiated the terms of its own loan to Ireland and given themselves three or four times the interest rate, robbing the working class again.
When the details of this bail out and of the new austerity programme become clear, they will constitute a declaration of war on the working class and young people. In September, Taoiseach (prime minister) Brian Cowen said that there would be €3 billion cuts in this December’s Budget. The government over the last weeks doubled its proposed cuts and are now talking about a staggering €6 Billion of cuts in the Budget, to be followed by another €10 billion cuts before 2014!
This was the austerity plan hatched at the behest of the markets but before the EU/IMF bail out. Now there is speculation about what conditions the EU/IMF will impose on top of these vicious attacks from the Irish government. Whether the EU would force the Irish government to scrap its very low 12.5% rate of corporation tax has also been a big issue.
The EU/IMF may not immediately force huge additional attacks on top of the governments’ austerity proposals or the scraping of the terms of the Croke Park trade union agreement. In reality both the EU and the IMF have had officials in the Department of Finance for many months and undoubtedly they have already been instrumental in pushing the government to double its proposed cuts since September. There is also likely to be increased taxes imposed on ordinary people. This will be the fourth and biggest austerity budget yet, to be followed by at least another three. By 2014 they aim to have cut over €30 Billion from the budget, which fi they are successful, would be practically a 50% reduction on the budget of 2007! The pain and destruction that such cuts would cause would be unprecedented.
Bail out will not work
But crucially, the EU and the IMF now have the power to enforce additionalconditions on this or any future Irish government. Given experiences the world over, they will undoubtedly insist on a destruction of pay and jobs and attacks on the working class generally. There is talk of cutting 20,000 plus jobs from the public sector. As a symbolic indication that all the gains from the Celtic Tiger will be attacked, just as the bail out was being announced so too that the minimum wage will now be lowered!
This neo liberal, slash and burn policy could well cause a deflationary spiral to develop in Ireland. The cuts being proposed are part of a plan to reduce the current budget deficit from 32% of GDP to 3% by 2014. They are basing this plan on an assumed growth rate of 2% over the next years. There is a collapse of investment and such growth will also be impossible with such
draconian cuts and that will cut government revenue further. In turn the EU/IMF is likely to demand more cuts to compensate for the lack of growth! Far from overcoming the debt crisis, this plan will not work and will likely result in spiralling debt crisis.
The Irish government, the EU and the IMF are preparing to turn Ireland into a wasteland. Rarely if ever in the history of capitalism will the working class have experienced such highs and lows over such a brief time frame. From the promise of the Celtic Tiger boom to the intense insecurity of a great depression. Now it seems the hopes of escaping from a past of poverty and emigration have turned out to be just a mirage after all.
Profound impact on working class – hatred of the government is tangible
The idea being touted in the media that people will be accepting of the EU/IMF and the austerity package, relieved that finally someone will take the hard decisions that have been avoided, is completely off the mark. The entry of the EU/IMF is a confirmation of the working classes worst fears. While hoping for the best, it’s been clear that most people knew that the crisis was getting worse. That the EU/IMF are now centrally involved will deepen people’s sense of foreboding about the future. People know that the IMF isn’t just along for a holiday and know of their reputation and record.
Right now the disgust of the working classes is mainly focused at the government and Fianna Fail in particular. The declaration from the Greens that they will vote for the budget but then in early January will demand that a general election takes place in late January, has completely destabilised the situation. All forces, including backbench TDs and Independents are now manoeuvring for advantage and this has raised the possibility that the government could even collapse and a general election held before Xmas but without agreement on a budget or the 3/4 year austerity programme. The political situation is now a mess and extremely unstable
Fianna Fail, along with their builder and banker friends, is seen as being primarily responsible for the economic crash. In the general election in 2007 they got 42% of the vote. The latest opinion poll conducted just before the bail out gave them an historic low of just 17%. The bail out, the fact that the country has been forced to go cap in hand to the major capitalist powers, has guaranteed that Fianna Fail, who have dominated politics in Ireland since the foundation of the state, will be decimated in the general election. The hatred and contempt that exists towards them is tangible.
Before this bail out the trade unions, under pressure from the working class, had called for a pre budget mass mobilisation in Dublin on November 27th. It was always likely to be big but this demonstration could now be huge and symptomatic of the potential that exists for a huge struggle
against the government, the EU and the IMF and their austerity policies. Depending on what happens, the demonstration itself could alter the situation and destabilise the government and create the conditions for struggle which the leaders may find difficult to sell-out again.
Since the crisis hit in 2008, the trade union leaders have sold-out and twice defeated the desire for a generalised movement that was developing in the working class, first in the spring of 2009 and then again last December. While the arrival of the EU/IMF can have initially have a shocking affect, their room for manoeuvre is about to disappear and the unions will be faced with a stark choice, either reflect the deep anger that exists or be pushed to the side. The TEEU, which organised the successful week long strike of 10,000 electricians a couple of years, has said that it thinks civil unrest the likes of which that hasn’t been seen in decades is on the cards.
Huge potential for the left, socialist ideas and for internationalism
This bail out by the EU/IMF is a watershed. It is now becoming clear that the hopes that there would be a recovery and the prospects for a future are being crushed under the jackboot of the dictatorship of the markets and capitalism. The shift in consciousness that had already been evident in the last months will be given a profound impulse as people, young and old, search for real solutions and a way forward.
That peoples lives are been destroyed so the banks can be maintained and so bond holders get huge profits, will create the conditions that will create revolutionaries. The extreme and brutal policies of capitalism will impose will create an extreme response. The Socialist Party will intervene into this crisis with a programme to point the way to how workers and youth can
fightback and the urgent need to build the socialist alternative.
Importance of the general election
The coming general election will be historic because of the hammering that Fianna Fail will get, which may even raise a question over its future existence and because undoubtedly the EU and IMF will interfere, albeit behind the scenes. But their hopes for a stable political outcome will not materialise.
Fine Gael and Labour are set to win a decisive majority, with the possibility that Labour could become the biggest party for the first time. Labour seems at least set to achieve its highest vote ever. Some commentators are speculating that so serious is the situation, that pressure will be exerted on Fine Gael to switch after an election and seek to have a coalition with Fianna Fail if the two parties had the numbers, rather than with Labour. What seemed certain just a couple of months ago, in these new conditions is less certain and we need to watch developments very closely, we are in completely uncharted territory. However, it remains most likely that Labour and Fine Gael will form the next government.
Regardless of what exact role the EU or the IMF plays, a new coalition government will not have any honeymoon to speak of and will quickly be a government of crisis. Labour in power will badly disappoint people and the vacuum for a force on the left could become very pronounced. In this
situation if there was a fraction of left/socialist TDs in the parliament, even three or four, they could act as a lightening conductor for the anger and radicalisation that is growing, and they could have an opportunity to launch a new mass workers party in Ireland. In order to maximise the chances of getting a fraction of left/socialist TDs elected, the Socialist Party, with others has established the United Left Alliance which will stand a slate of candidates in up to twenty constituencies across the country.
It is clear that the Labour Party is set to do very well and that could put a squeeze on the Socialist Party and the ULA. However, the fact that this four year austerity plan is likely to be agreed before the general election will mean that the basis of the election will have shifted. The election could well be dominated by the issues of the austerity plan and the EU/IMF and less so the need to replace Fianna Fail as regardless of whose is in power, people may feel that the policies are already determined. This may make the election more open than it otherwise would have been.
This poses a new difficulty for Labour and potentially a new opportunity for the genuine left. Labour will do very well but they are also likely to go along with the austerity plan, even though they will try to sound reluctant about it. Sinn Fein will oppose the plan and attempt to tap into the mood but they can be somewhat compromised on these issues because inherent in their argument is that the cuts should be implemented over a longer timeframe and because of their role of imposing cuts in the northern Assembly.
In this situation, the launching of the United Left Alliance could dovetail with the emergence of harder opposition amongst the working class and it could it could get some serious traction. We have to do whatever we can to maximise the potential for a breakthrough for the left on a principled basis and to build support for mass struggle and a socialist solution to this unprecedented crisis for Irish capitalism.
The Socialist Party is fighting for:
A one day general strike as the start of a programme of escalating industrial action to defeat the government/EU/IMF austerity plan.
For students and school students to organise now for strike action against fees, austerity and for a decent future.
Don’t pay the debts of the Celtic Tiger profiteers; don’t pay the bond holders.
Overcome the budget deficit by taxing the super rich and big business and policies that will create economic growth.
For the nationalisation of the banks and finance houses under the democratic control and management of working people, and the introduction of capital controls to prevent a flight of capital.
No reliance on investment from the markets to revive the economy. Immediately take the key wealth and resources into democratic public ownership.
Run the economy to provide the jobs and services that the majority of people need, not for the super profits for a tiny minority.
For the launching of a new mass party for the working class and a genuine left/workers government, committed to socialist policies.
For solidarity and a united struggle of workers and young people across Europe against EU/IMF austerity and against the dictatorship of the markets.
For a socialist federation of Europe.
http://www.socialistparty.net/component/content/article/1-latest-news/551-oppose-the-imfeu-backed-attacks