JM Thorn

20 December 2010

Following from a series of votes endorsing the measures contained the budget the Dail has approved the terms of the EU/IMF bailout package.The vote on the package was passed by a majority of 81 votes to 75, with a number of independent TDs supporting the government.

Given the significance of what was being voted on (a package which even mainstream commentators had described as a loss of economic sovereignty) there was remarkably little controversy.Indeed, the Government was bold enough to bring forward the motion, daring the opposition to vote against it.This lack of controversy is undoubtedly due to the degree of underlying consensus across the elite of Irish society, and which extends beyond the Dail to include the trade union leadership.There is agreement that the banks should be rescued, the capital holders paid out, and the Irish people made to bear the cost no matter how great.What passes for political debate on these issues is merely manoeuvring ahead of the general election.Fine Gael and Labour voted against the bailout and also the budget, but they accept their basic terms.They agree on the level of cuts and on the timeframe within they must be made, the only dispute is over how they will be made. They criticise the bailout on the basis that the interest rate on the loans to the state are too high, suggesting that they would seek to negotiate less draconian terms.They even propose that some of the capital holders should take a loss.However, such criticisms do not address the substantive elements of the austerity programme and the bailout. Even if a future Fine Gael / Labour government did make good on these commitments, it would only represent a slight amelioration of the hardship that is being imposed on the Irish people.

It has been claimed that the vote represented a democratic acceptance of the EU/IMF package.This ignores the fact that what was being voted on was fundamentally undemocratic, representing a further diminution what limited ability the Irish people have to determine their own economic policies (which will now be determined by accountable bureaucrats from the EC and IMF), and also tying the hands of any future governments.It is also the case that the vote was pushed through on the basis of threats and bribery, with the pro-government TDs trying to put off their inevitable wipe-out in a general election off for another few months, and independents haggling for whatever concessions could be won for their own constituencies.It was even reported that the support of one independent was secured by the granting of a casino licence (though this would be appropriate given that prior to the collapse the whole Irish economy had been transformed into one big casino).Such proceedings carry no legitimacy even under the limited scope of parliamentary democracy. 

The undemocratic nature of the efforts to save the Irish banks and their bondholders is reflected in the Credit Institutions Bill.Passed in the same session as the bailout agreement, with which it is bound up, it gives the Government sweeping powers to oversee the bailout and reduce the size of the banks. Under its provisions the Minister of Finance will be empowered to intervene with any Irish-owned credit institutions if it is deemed to be in the “public interest”.It allows the Minister to transfer assets and liabilities from relevant institutions to facilitate the restructuring of the sector.(This will underpin the restructuring of Anglo Irish Bank and Irish Nationwide.)It also empowers the Minister to make orders on a case-by-case basis to allow for “appropriate burden sharing” with subordinated creditors.However, there is no mention of senior bondholders, who will continue to enjoy the protection of the bank guarantee.Other powers afforded to the Minister include the ability to remove any director or employee of a credit institution without any notice being given; and to appoint, on consultation with the Central Bank governor, a special manager to “preserve or restore a credit institution”.The bill will enable the Government to effect a recapitalisation of AIB before the end of 2010.It also allows the Minister to suspend payments to the National Pension Reserve Fund and direct the fund to invest in government bonds and to make payments to the exchequer.

The Credit Institutions Bill is an emergency law that gives the Government dictatorial powers over Irish owned financial institutions.Its anti-democratic nature is reflected in the fact that the use of such powers requires no reference to the Dail.Also, the operation of these laws will be carried out largely under conditions of secrecy.The High Court will have the power to order that any application made under the act be held in private.There are also harsh penalties for any breach of secrecy.The legislation allows for fines of up to €100,000 and prison terms of up to three years for anyone who publishes the fact that the Minister has enacted the main powers in the Bill or is proposing to do so.This is a very draconian and anti-democratic piece of legislation.While some may welcome it as a sign that the Government that it is getting tough with the banks, its genesis in the EU/IMF bailout agreement indicates that its primary purpose is to ensure a favourable outcome for the bond holders.We also have to be wary of emergency legislation, no matter what is initially claimed for it, as history shows that such laws are always used against workers organisations.It is notable that the bill did come under some criticism from the EC.However, this was based on the potential for it to infringe on property rights.That the EC’s concern should focus on this, rather the provisions of the bill that blatantly undermine democratic principles, reveals the overriding priority of the European political institutions to be the defence of capital. 

Despite the EU/IMF bailout being approved by the Dail there are still serious doubts over whether it will work, even in the terms it has set for itself.These are related to the overall level of state debt, the level of interest rate the state has to pay on its loans, and the rate of economic growth. If Ireland has to pay interest on the loans at a rate which exceeds the rate of economic growth over the next few years, then the country’s debt situation will worsen, not improve.Yet, under the terms of the EU/IMF bailout this is the very scenario that Ireland faces.We know that the average rate of interest on the loan will be 5.8 per cent, and we have a number of projections for economic growth.But even the most optimistic of these comes nowhere near to the interest rate. The growth assumptions underlying this year budget came from the government’s four-year plan published in November.They assume real GDP growth of 1.7 per cent in 2011 and 3.2 per cent in 2012 and, more importantly for budgetary projections, nominal GDP growth of 2.5 per cent in 2011 and 4.3 per cent in 2012. However, EC’s forecast, published a few days later, projects real GDP growth of 0.9 per cent in 2011 and 1.9 per cent in 2012. When the figures are adjusted for the affects of deflation, the forecasts for nominal GDP growth are 1.3 per cent in 2011 and 2.7 per cent in 2012, putting them 1.2 percentage points behind the government in 2011 and 1.6 points behind them in 2012.The EC’s projections for the level of the deficit, of 10.3 per cent in 2011 and 9.1 per cent in 2012, also diverge from those of the Irish Government. They imply deficit levels of €16.2 billion in 2011 and €14.9 billion in 2012; figures which are €1.3 billion higher than the government’s assumption in 2011 and €2.6 billion higher in 2012.On the basis of such forecasts the task of reducing the budget deficit to 3 per cent by 2014 or 2015, one the key elements of the bailout agreement, would seem impossible. 

There is also the question of the overall level of state indebtedness.The 2011 budget appendices published on 7 December – show that national debt will peak at 102 per cent of GDP in 2013.It is forecast that national debt will rise to just over €179bn by 2013 – calculated as 102 per cent of a GDP that the Government department believes will rise to €175.4bn. That's up from a national debt in 2011 of €159.5bn, or 98 per cent of a GDP that will be worth almost €162bn in 2011.These debt ratios make assumptions about the rate of economic growth and the level of debt.But as we have shown in the paragraph above, the Government’s growth projections are very ambitious.It is also the case that the Government is minimising the level of state debt, for its forecasts do not include the further €25bn set aside for the bank rescue. This is supposedly a contingency fund that Irish banks can draw upon if there is a worst case scenario in which the losses on mortgage and company loans escalate.Of course the experience of the ongoing financial bailout is that the various worse case scenarios are always surpassed. Indeed, there are already indications that Irish banks will require the whole of the €25bn and more.The chairman of Anglo Irish, Alan Dukes, was reported as saying that this would certainly be the case as “the number that's there at the moment is based on what we can expect of the commercial property market" only.

If we assume the worst case scenario and include the €25bn then the total national debt in 2013 rises to over €200bn, or 114 per cent of GDP.Of course this has implications for the servicing of the debt. In its 2013 calculations, the Department of Finance forecasts that, by that year, the Irish state will be paying an "implied" annual interest rate of 5.7% on a national debt of €175.4bn. That is an interest bill of €9.9bn in 2013. Just under a quarter of all the €41.2bn in taxes the department predicts it will collect that year will be taken up by interest payments alone.Including the €25bn "contingency" bank funds pushes the debt service costs in 2013 to €11.4bn, accounting for over 27.5 per cent of the all the projected taxes collected in that year.

The terms of the IMF/EU bailout are impossible to satisfy, for the debt burden that is being placed upon the Irish people is impossible to bear.The institutions involved, the EU and the IMF, implicitly recognise this fact. It is also recognised by the financial markets, with Irish bond yields remaining high and Ireland having its credit rating downgraded once again. The fact is that the Irish state cannot pay the debts it has taken on from its banks, and the further debt it has had forced upon it by the EU and IMF.From a purely technical perspective the debt cannot be repaid; there will be a default.However, between now and that inevitable point, the Irish people are to be bled dry in order to pay out as much as possible to the capital holders. The IMF has threatened to make the terms of the bailout even more draconian if austerity measures are not pursued rigorously enough.

If a default is inevitable it is in the interests of Irish workers to bring it forward, for the longer it is put off the more they will be made to suffer.The demand must be taken up for a repudiation of the debts and liabilities associated with the financial bailout. This is already gaining some credibility, even amongst sections of the capitalist class, with figures such as the currency trader George Soros advocating that a new Irish government repudiates the debt.For the likes of Soros this is not considered a revolutionarily proposal as the process of debt default and restructuring goes on all the time within capitalism.The fact that it is resisted so fiercely by the Irish ruling class is a reflection of their relative weakness and complete dependence on international capital.So by taking up such a demand Irish workers would be striking not only at the capital holders but the one of the foundations of capitalist rule in Ireland. In this context the demand for debt repudiation does have a revolutionary potential.