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Austerity: First the bad news. Then the bad news. And then… the bad news. April 9, 2013

Posted by WorldbyStorm in Economy, European Politics, Irish Politics.
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Was away over Easter in a far flung part of this island. But, was able to get the Sunday Business Post in its print edition and what did I read? Nothing but good news there… no, excuse me, not so good news. For the headline read:

Austerity to end by 2016 but ten years of tight budgets to come.

And reading further it was hard to see how one could differentiate between the pre-2016 and post-2016 era. Actually it’s interesting how it was phrased. Some will recall that the narrative has been shaped by a ‘spending beyond our means’ line and how cuts and austerity were not merely necessary but actually good. But the report notes that 2016 will ‘show the end of huge cuts to public spending and tax increases in 2016’. Which is interesting in that at least the scale of said cuts is unvarnished.

It continues:

In effect his this will mean that the government finances will remain extremely tight for another decade, during which time they will be overseen by European authorities.

This being the case it does make something of a mockery of all the talk of ‘regaining our sovereignty’ does it not? For if sovereignty meant anything it fundamentally means the capability to make our own decisions and allow for those being both good and bad. Though it’s hard to argue that the actual situation will be good, in the context of said European supervision.

And there’s more.

There will be little or no scope for spending increases beyond the rate of economic growth nor will there be resources for tax cuts.

Let’s put the latter to one side, that being the SBP’s trope of the day, every day, but let’s note that once austerity has done its magic nothing changes. Literally nothing. We will be locked into a permanent 2016, or near enough permanent. It’s hardly worth dragging out the growth and stimulus argument, we’re all well aware of it at this stage, but this has effects beyond the economic.

For a start it suggests a complete shutting down of alternative economic policy options. What is political contest in a state which has in itself decided that there can be no change, and worse again is constrained by the EU and others in this. This provides both challenge and opportunity for those who would argue otherwise, for almost every argument in that context is an oppositional one, and if not revolutionary – after all, let’s not get ahead of ourselves, it is one that provides a direct push back against the orthodoxy and the status quo.

That’s, in a sense, the broader context, but more narrowly this has significant ramifications.

One obvious follow on from this is that this must spell ruin to Labour’s ambitions of a recovery, and not very good news at all for Fine Gael, for despite all their right of centre tilting they are as aware as any Fianna Fáil member of the necessity to disburse something to the citizenry, and how, at the end of the near enough decade of austerity that need will be greater again.

Indeed it suggests that the messages both FG and LP can craft are minimal in terms of their attractiveness for the post-2016 period.

Now granted none of this is new, we’ve known broadly the parameters that the state will operate under for quite some time, but now it is beginning to come into sharper focus. Particularly as a sense that economic growth is quite some way off.

But if one thinks that’s it, what of this last weekend’s news, again from the SBP that:

The IMF has warned that the cost of bailing out Ireland’s embattled financial institutions could spiral by as much as €16 billion if the economy fails to recover.

And:

The fund states that this could happen in a “downside scenario” when slow growth would hit the property market. It believes this would increase bank mortgage loses and hamper Nama’s ability to dispose of its mammoth loan book.

The IMF has also called for more EU help for Ireland, warning that, if economic growth does not recover as expected, the national debt will quickly rise to unsustainable levels. The warning places further pressure on the European Union to ease the terms of the €40 billion it has advanced to Ireland through as part of the bailout.

Thing is we’re living in precisely that ‘downside scenario’. Only this weekend the Central Bank revised growth forecasts downwards yet again.

Now the IMF is an unreliable operation, in so far as it often appears to be speaking out of both sides of its mouth simultaneously. Nor is it’s ‘good cop’ to the ECB/EU ‘bad cop’ routine entirely convincing. Yet there is a consistency now to its refrain that growth must be supported. But contextualise its thoughts with those already outline above and far from things looking as if they’re getting better it would appear that stagnation, is at best, the light at the end of the tunnel.

Comments»

1. greengoddess2 - April 9, 2013

I’m glad somebody noticed this obfuscation around austerity v tight budgets. Basically there will austerity for ten years. Hemmed in by the 6pack and thr FCT. There will, however, be political problems with this after we exit the bailout. But then, what would I know? The gov regard me in particular as a kind of bimbo Borgia!

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2. Joe - April 9, 2013

I read or saw a report on the US Treaury(?) Secretary on a visit to Europe this week. The report said he would be urging the Europeans to ditch austerity or something like that. So there is some kind of debate there at elite level. Is there?

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CL - April 9, 2013

Yes- the Austrians, or ‘austerian’ vs the Keynesians. Lew is ‘prodding’ Olli Rehn. The U.S. is worried that stagnation in Eu will stall its own recovery,- a recovery based on massive govt. stimulus of aggregate demand, but so far with only tepid results.
http://www.bloomberg.com/news/2013-04-07/lew-to-seek-euro-assurances-on-growth-amid-austerity-struggle.html

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Joe - April 9, 2013

Thanks CL.

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3. Paddy Healy - April 9, 2013

The suggestion that “exiting the bailout” constitutes a recovery of sovereignty is completely false. As the main parties refuse to adequately tax the Irish rich, the state will continue to be subordinated to international lenders.
But this is not all.
After the fiscal deficit has been reduced to 3% of Gross Domestic Product in 2014, the ESM Treaty requires the “structural deficit” to be reduced to 0.5% of GDP over a number of years. Economists such as Michael Taft (Unite the Union) and Tom McDonald (Tasc Research Group) estimate that this will require further cuts and tax rises amounting to 5.7 billion in the absence of economic growth in Ireland. After this figure has been achieved, the Treaty requires that Irish debt levels be reduced to 60% of GDP from the officially projected 120% over 20 years from 2018. In the absence of economic growth this will require further cuts and tax rises amounting to 4.5 billion each year. If there is a further increase in state debt due to further recapitalisation of banks this figure will be greater. Significant economic growth would reduce the figure but the IMF is pessimistic on this matter. Indeed, as Wordbystorm reports, the IMF is concerned that state indebtedness could rise to greater unsustainable levels in a “downside scenario”. The extraction of 4.5 billion from public finances compares with an extraction of 3.5 billion in the most recent budget. This is an appalling vista for those now living and for generations to come. It cannot fail to close more businesses and to throw tens of thousands more on the dole or into emigration.
Because the Fiscal Compact(ESM Treaty) is enshrined in an international treaty between governments, it cannot be reversed by the Irish people in the future by electing an alternative government or by referendum. Change requires the agreement of all parties to the Treaty. The Treaty constitutes a major surrender of Irish sovereignty.

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4. Austerity: First the bad news. Then the bad news. And then… the bad news. | misebogland - April 20, 2013

[…] via Austerity: First the bad news. Then the bad news. And then… the bad news. | The Cedar Lounge Revol…. […]

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