September 2012        

Ireland has been turned into a vast debt-service machine

The latest draft review of the 26-County economy by the EU Commission makes grim reading. The review cuts the forecast for growth in 2013 and “advises” a new round of spending cuts and tax increases to ensure that it meets budget deficit and debt targets in its bail-out programme.
     It expects the 26-County economy to grow by 1.4 per cent next year, down from its forecast in May of 1.9 per cent. Growth in 2012 is expected to be 0.4 per cent, down from 0.5 per cent.
     The review says the 2013 budget, due to be announced in December, will be “a key test of the authorities’ resolve” in meeting the troika’s targets of cuts. But they needn’t worry, as the authorities have already revealed that they are considering cuts in eligibility for free or reduced-rate medical treatment and further reductions in spending in the public sector.
     The EU Commission revised upwards its forecast for unemployment in 2013 to 14.4 per cent, from 13.7 per cent. It does not venture to give a forecast for emigration.
     Export growth is predicted to be down to 4.2 per cent, from an earlier forecast of 3.5 per cent, with a warning that a slowdown in exports is undermining growth and threatening to make the debt burden unsustainable. “The outlook for external demand has deteriorated somewhat since the finalisation of the last review, particularly for next year . . .” says the review. “On unchanged policies, risks to the programme targets for 2013–15 have increased.”
     Ireland’s debt is forecast to reach a peak of about 120 per cent of GDP next year—a level most economists believe is unsustainable. To meet the debt reduction targets Ireland must achieve average growth of 2.2 per cent between 2012 and 2016—an impossibility.
     The 26 Counties has been portrayed as being Europe’s “poster child for austerity,” so a lot rides on presenting the Kenny government’s slash-and-burn economic and social policies as a success.
     Between 2007 and 2011 the Republic’s GDP fell by 11 per cent and its GNP by 15 per cent. There was a net decline of 16 per cent in paid employment. Unemployment is now at 14 per cent of the labour force, and there is heavy emigration of young people.
     While it is true that manufactured exports from the capital-intensive transnational sector grew in those years, these give little new employment and are now facing recession in EU markets. Domestic demand fell by a quarter in four years as households and indigenous business deleverage in the face of heavy debts, a bank credit crunch, and rising taxes and public-spending cuts.
     The latter result from a succession of severe government budgets that have been premised on the maintenance of the disastrous blanket bank guarantee.
     Between now and 2013 the government has agreed to pay debts of €31 billion, plus interest of €17 billion, on the defunct Anglo-Irish and Irish Nationwide banks alone, at the insistence of the European Central Bank and in defence of the European banking system and the euro. Government debt is some 117 per cent of GDP.
     According to data from the Bank for International Settlements, at the end of 2010 the Republic’s total debt, combining government debt, household debt, and private business debt, was the highest in the world (taking account of the proportionate size of the world’s economies), at nearly five times GNP. This was 50 per cent higher than Greece’s.
     All this debt must be met by Irish citizens, whether in taxes to the government, in mortgage debt and credit-card payments to private lenders, or in higher prices to businesses. It shows the vital need of debt “restructuring” for Ireland.
     Ireland has been turned into a vast debt-service machine by the criminal incompetence of its own chief policy-makers. A government that put the Irish people’s interests first would seek to work with the governments of the other “PIIGS” countries in seeking a way to rid both itself and them of the intolerable burden of private bank debt that the euro-zone authorities have insisted should be imposed on taxpayers. It would seek to co-ordinate with other euro-zone governments an orderly dissolution of the euro zone and a reversion to national currencies in as organised a manner as possible.
     Failing a collective withdrawal by some “PIIGS” states from the euro zone, or its agreed dissolution by all its member-states, it is essential that the Irish state restore an independent Irish currency and with that regain control either of the rate of interest or of the exchange rate, which are essential economic instruments for advancing its people’s welfare.

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