Government Misleading Europe about Austerity and Ireland’s Debt Crisis
Posted on March 11, 2015 at 12:50 PM
This blog is written by guest blogger Dr. Rory Hearne, Lecturer in Political and Economic Geography in National University Ireland, Maynooth.
The government is misleading Europe about the reality of austerity and the debt crisis in Ireland so as to avoid admitting that they took the wrong approach with austerity, and their failure to get a meaningful debt deal. The truth is austerity is based on flawed economics and it hasn’t worked in either Ireland, Greece or for Europe and Ireland’s debt is unsustainable.
Austerity has devastated Irish society. For most people recovery is just a word being spoken by politicians and the media. The Central Bank and ESRI have highlighted that the much lauded growth figures do not reflect the true health of the Irish domestic economy because they are artificially inflated by multinational and financial activities that do not take place here.
Austerity has resulted in 1.4 million people, almost 31% of the population, suffering from deprivation – which is up from 14% in 2008; 37% of children suffer deprivation (up from 18% in 2008). The legacy crises are multiple – from mortgage arrears, rent, homelessness, childcare, hospitals, and community services. Unemployment figures are largely reduced because of emigration and the use of unpaid jobs schemes. Domestic demand remains static and working class communities, small towns and rural areas are devastated. Austerity has not worked for the low income and working people of Ireland. At a European level the Euro area is mired in stagnant growth of 0.8%, mass unemployment of 11%, and a debt-to GDP ratio that that has risen from 72% in 2009 to 92% today.
The calculations of economists Reinhart and Rogoff that austerity was required to reduce government debt levels below 90% in order to return to growth was also found to be incorrect. The IMF has also admitted that it underestimated the negative impact of austerity’s higher taxes and spending cuts on economic growth and unemployment.
The government continues to peddle the myth that our national debt is manageable and sustainable. It is assuring the international markets that the Irish people will continue to pay all of the debt accumulated from the crisis and bailing out the banks, irrespective of its impacts. But why are we immiserating and impoverishing our population, and depressing our economy, in order to pay back this illegitimate debt?
In 2009 Ireland’s national ‘general government’ debt was €104 billion. This year it stands at a staggering €210 billion. In 2009 the Irish debt to GDP ratio, the figure used to assess the sustainability of national governments debt levels, was 62 percent. This year it has risen to 108 percent. In 2009 we paid €2.5 billion in interest on the national debt. This year we are paying three times that figure – €7.3 billion. How is an economy that has undergone such a deep recession to be expected to pay double in debt payments what it was paying during an economic boom? That €7.3bn debt interest is twenty percent of all taxes taken in by the government. It is equivalent to the entire education budget. But these repayments and the debt are going to get even worse in the coming years. The national debt will be €214 billion in 2018.
So what the government really means when it continues to argue to Europe and the markets that our national debt of €215 billion is manageable is that the Irish people accept that a fifth of all taxes collected will go to debt interest repayments. The interest on this debt will be paid each year through the massive diversion of resources away from the education system, social housing, employment creation supports, disability services etc. Rural services will remain shut and mental health services will remain underfunded. The waiting lists of the sick to get hospital treatment will lengthen and more children will go hungry. The domestic economy will underperform as personal taxes are diverted to debt repayments.
Ireland’s debt to GDP figure is also misleading in a way that hides the true size of the debt relative to the economy. Ireland’s GDP figure is inflated by multinational economic activity, some of which is not real activity taking place here in Ireland. The GDP growth figures (which are used to claim Ireland is in recovery) are also artificially inflated in this way. This means that Ireland’s debt to GDP ratio should be even higher and we have even less economic capacity than our GDP figures suggest to pay back this debt. This is worsened by the fact that corporations pay low levels of tax in Ireland which leaves a disproportionally higher burden of the debt with the general population. This is a major downside to the way in which multinational activity and taxation is organised in Ireland that is often overlooked.
What this shows is that Ireland’s debt crisis is being ignored and downplayed to the detriment of the economy and public services.
Yet the Irish government is now a leading opponent of a Greek debt deal despite the fact that we could save up to 3bn a year on our debt interest as part of Greece’s European debt conference proposals. But the Irish government and European elite are more concerned that a deal for Greece will boost anti-austerity politics in Ireland, Spain and Portugal. So their strategy is to try to isolate Greece now and beat it into submission before it is joined by like-minded governments. If Greece gets a deal, it will show in very stark terms to the Irish people that the last two governments’ strategy of savage austerity and passively accepting Europe’s debt was wrong and unnecessary.
The other real reason that the elite don’t want to ease austerity is that they have used the debt crisis to impose policies on the bailout countries that the financial elite, the wealthy and big business have been trying to get in during the last thirty years of neoliberalism. That is to reduce the surplus value (wealth or profit) that is produced in society that goes to working people and the poor and increase that going to the rich and capital. So taxes on corporations and the wealthy are reduced and new flat stealth taxes are introduced, low and middle income workers wages are reduced, working conditions are made ‘flexible’ (i.e. precarious such as zero hour contracts), funding for core public services such as health, welfare, housing is reduced, state assets are privatised to provide more opportunities for wealthy businesses owners and the cost of repaying the massive credit expansion of the boom years is loaded onto households. Austerity involved a massive transfer of wealth from the lower and middle classes to global capital. This has given rise to a rapid rise in inequality across Europe and the US pointed to by economist Thomas Picketty. But it is not an accident – it is the purpose for which the European elite are pursuing austerity capitalism.
What the European elite have not realised, however, is that something has changed for ordinary Europeans. The emergence in Greece, Spain and now Ireland of new movements and political parties opposed to this elite, has given them hope and confidence to stand up to the juggernaut of austerity. Europe has blocked a deal to alleviate the debt burden and austerity on Greece but Syrizia has indicated it will start to roll back on aspects of austerity. What is clear is that Merkel’s mantra, ‘There is no alternative to austerity and debt slavery and impoverishment for the PIIGS’ –is being fundamentally challenged.