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Ireland’s brutal “recovery”
23 January 2011
We are assured by various politicians and commentators that a recovery in the Irish economy is underway, but for most people such claims ring hollow. While there may have been a technical end to the recession, the hardships endured by many working class families are continuing and even intensifying.
The brutal nature of the Irish recovery has been highlighted in the most recent report from the Economic and Social Research Institute (ESRI). Its starkest finding, and the one which drew media attention, was the claim that as many as 100,000 people would leave the country by April 2012. That’s translates into one thousand people a week and compares which the levels of emigration experienced in the 1980’s. The net outward migration peak of 44,000 in 1989 is likely to be exceeded in both 2011 and 2012.
These high levels of emigration are bound up with continuing high unemployment and weak economic growth. The ESRI expects the rate of unemployment to average 13.5 per cent this year, falling by just 0.5 per cent in 2012. Without emigration, the rate would be even higher. Unemployment is most acute among 20 to 24 year-olds, standing at 31.7 per cent for men and 19.3 per cent for women (a cap which is put down to more women taking up study). If the total number of jobs shrinks as predicted, 2011 will be the fourth consecutive year of declining employment. The cumulative fall in job numbers since employment in the Irish economy peaked in 2007 will have reached almost 300,000 by the end of the year. That means that almost one in seven jobs will have disappeared over this four-year period. The ESRI predicts that employment will fall by a further 20,000 over the next two years; a stark contrast with the Government’s own prediction of net job creation of 21,000.
The ESRI also diverges from the Government in its forecasts for economic growth. It is projecting a slower rate of growth as the economy emerges from recession. Whereas the Government is hoping for 4.9 percent GDP growth over the next two years, the ESRI suggests it will be only 3.7 percent. The gap between the two is even larger in relation to GNP – 3.6 percent compared to 1.7 percent. The domestic economy, according to the ESRI, will grow by less than half the rate the Government projects. Significantly, the ESRI’s growth forecasts have been revised downwards from its last report. In October, it believed that GDP would grow by 2.25 per cent in 2011; that has now revised to 1.5 per cent. Its new 0.25 per cent growth forecast for GNP in 2011 is a fraction of the 2 per cent expansion it anticipated just three months ago. If this forecast, and a similar one for next year are accurate, the domestic economy will have been in recession for five years.
The ESRI report also highlights the continuing fall in the level of capital investment in the economy, which is projected to fall (in nominal terms) from €18 billion to €17.6 billion by 2012. This compares to the peak of the boom in 2007 when capital formation stood at €46 billion. While a fall off was inevitable the Government has contributed to its severity by cutting investment by half since 2008, from €9 billion to €4.7 billion this year (and €3.5 billion by 2014). The decline in both private and public investment will mean lower growth over the years ahead. Another category of negative growth is consumer spending. The Government forecast that it would grow by 0.9 percent over the next two years, but the ESRI projects a further fall of 1.5 per cent. This is in large part due to income tax increases, cuts in social transfers, falling employment and emigration.
These are examples of where the Government’s austerity programme is producing the opposite of its stated objectives. It is retarding growth, reducing tax revenue and increasing the overall level of debt. It is even failing to achieve the overriding objective of reducing the budget deficit to 3 per cent of GDP by 2014. The ESRI forecast for the deficit is 9.6 per cent this year and 7.8 per cent in 2012. The Government’s whole programme, including the budget and the four-year plan, are based on estimates that don’t correspondent to reality – that is it can’t succeed even on the terms it has set for itself. This also applies to the EU/IMF bailout as it too is based on estimates and assumptions that are very unlikely to be realised.
The one positive element in the Irish economy is the growth in exports. In December 2009, the Government predicted that exports would grow by only 0.4 per cent. Now the ESRI estimates that they will grow by 6 per cent in 2011 and 5 per cent next year. However, a closer inspection of Irish exports reveals a less spectacular performance. For example, Irish export growth between the first three quarters of 2009 and 2010 was 2 per cent; a long way behind the EU average of 18 per cent. So while Irish exports are growing (on the back of a general uplift world trade) they are growing at a slower rate than would be expected. It is also the case the benefits of export growth are quite narrow. This is because it is largely driven by a multi-national sector that is capital rather labour intensive, and in which most of the value created is repatriated to other countries. Ireland’s ultra low corporation tax serves to reinforce this trend even further. What we have is a two-speed economy in which there is a growing multi-national sector linked into expanding overseas markets, and a domestic economy based around finance and property that continues to languish. The problem is that the productive part of the economy while doing well is not doing well enough to counterbalance the stagnant part.
Of course what is also holding back a recovery are the escalating costs of the financial bailout. The ESRI calculates the total gross cost to date of the bank rescue at €52.8bn, assuming the state rather than private investors will make up the capital shortfall of the main banks. It calculates that total government involvement in the banking system could reach €97.8bn, or 61.3 per cent of GDP. Neither can it be assumed that the financial crisis has been solved even with the EU/IMF “bailout”. Indeed, there is evidence that the positions of Irish banks are continuing to deteriorate. In December, the Irish Central Bank had to activate its emergency liquidity assistance programme (ELA) for the first time, providing banks with €51bn in loans. This suggests that despite all the support they have received from the state and the ECB, the assets and collateral held by Irish banks continue to be eroded. While the loans are listed as "other assets" on the balance sheet of the Central Bank in reality they are liabilities that will be eventually added to the national debt. It is important to note that these emergency loans were issued with the approval of the ECB, a clear refutation the claim by the EC president that Europe bears no responsibility for the Irish financial crisis.
The continued weakness of the economy combined with costs of the financial crisis and the draconian terms of the EU/IMF “bailout” have placed an impossible burden upon the Irish people. The only way it can be effectively countered is through the mobilisation of workers in their trade unions and communities in opposition to all cuts and for a repudiation of the debt. While this is way beyond the current level of organisation and political consciousness of the working class, to claim that anything less would be adequate to meet the challenges we now face would be a deception.
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