John McAnulty

29 June 2009

Capitalism falls into crisis naturally, as a result of the chaotic and uncontrolled drive for profit that impels the system forward. It has a standard method for resolving these crises – war!  The massive and catastrophic destruction of resources resets the system and allows the cycle to begin again.

War is not on the horizon locally, but a series of reports have indicated that Ireland is facing into a financial tsunami that will have the same economic effect as a major war, with the amount of wealth to be squeezed out of Irish workers expressed in numbers that are almost literally incalculable. 

The numbers are so unbelievable that many capitalist analysts doubt the ability of capitalism in general, and Ireland in particular, to survive.  Their major focus of hope is the equally astounding inability of the opposition to generate any resistance.

The latest report from the International Monetary Fund (IMF), in line with other reports, spells out the scale of the disaster, only differing from earlier accounts in that, yet again, the billions of debt keep up their accelerated rise. 

The IMF predicts:

- The economy will contract by about 13.5 per cent from 2008 until the end of next year.

- Unemployment will reach 15.5 per cent in 2010.

- Bank losses could rise to €35 billion by the end of 2010.

 (Irish Times, June 25th)

The measures they suggest are just as grim.  Both the IMF and the Organisation for Economic Co-operation and Development (OECD) say that Ireland will face a bigger slump and a slower recovery than the major capitalist countries and that the ‘adjustment measures’ – the amount that is to be extracted from the working class – will be far more painful.

They propose:

- Further wage cuts.

- NAMA should guarantee non-property loans as well as property loans.

- Nationalization of major banks – this would be the state guaranteeing the banks individually as well as the collective guarantee in NAMA.

- Across the board cuts in public spending.

- The IMF argue that “Social welfare spend should better target the vulnerable”. 

Translated, this means more means testing and cash limiting of essential services for the ill and elderly.

- Further cuts in the public service wage bill alongside wide-ranging job cuts

- More taxation as services are cut – the banks need the money.

OECD support

The Organization for Economic Co-operation and Development (OECD) agrees that the Irish economy will contract more sharply in 2009 than the Dublin government has forecast. Both organizations see a wider gap between income and spending than Dublin projected. According to the OECD, the world’s most industrialized countries will see their economies shrink by 4 per cent this year, before returning to modest growth in 2010. The Irish economy will collapse more quickly and recover slowly. The savage cuts in jobs, wages and services will be deeper than those required in the advanced economies.

Both organizations propose a similar cure:  The IMF argues that: “the focus should be on expenditure reduction, possibly including a further reduction in the public sector wage bill”. The OECD says: “substantial spending cuts and increases in taxation are required in the coming years”.

It should be borne in mind that these are not scientific nostrums, but ideological ones. They are designed not to resolve the crisis for the Irish people, but to resolve the crisis in the interests of capital. 

The short-term aims of the reports are straightforward. They are to support the Dublin government and ensure they ram through a program to save the bankers and speculators. The IMF argues that in the area of bank bailout and the massive public cuts required to fund these, Dublin had “moved in the right direction”. This was immediately taken up by Brian Lenihan: “I welcome and note the significance of the fact that the IMF has stated that on the two fronts that matter most – the healing of the financial sector and the correction of the budgetary situation – the Irish Government has moved in the right direction. The Government is continuing to take the right steps to resolve our financial difficulties and to stabilise and restore our economy”.  “Government action in terms of public sector wage rates are significant steps in the ongoing measures to improve our overall competitiveness,” he added.

Yet behind this gung-ho approach in support of the Fianna Fail coalition lies deep unease. The main worry is the setting up of the proposed National Asset Management Agency (NAMA).  The IMF is concerned at the open-ended guarantee to property speculators on the one hand and the narrow focus of the bailout on the other.  It proposes nationalization of the major banks on the grounds that, if the state were both owner and lender, it might be able to control the price at which worthless assets were transferred. It also proposes a widening of the types of bad debts so that the state provides a broader guarantee to capital. It foresees “further deterioration in bank balance sheets.” “A full scoping-out of the likely distress is needed,” the IMF adds. So, on the one hand the state needs to avoid a full payment to the speculators while on the other hand it needs to guarantee all the other bad debts the banks have stacked up!

The IMF view of cuts in wages, jobs and welfare make chilling reading. It notes that: “Reducing fiscal deficits is needed to maintain credibility with markets but deepens the economic contraction.”  In order for the banks to be saved the Irish economy will have to be sacrificed!

The reports lack any strategic dimension. They foresee the economy returning to equilibrium, but it is not the equilibrium of the Celtic Tiger, but that of Ireland of the 80s. The influx of transnational capital on the scale of the Celtic Tiger will not be seen again. Capital has no proposals that would lead to a sustainable development of the Irish economy.

The most striking element of the IMF report is the call for bank nationalization. This appears to put it formally far to the left of the trade union leadership who, under the slogan “sharing the pain” stand four-square behind Irish capital.  David Begg summed up their policy with a recent comment that social partnership was “the only game in town”, even though all it contains is endless cuts.

The IMF stand on a par with much of the Irish left and their call for bank nationalization. The significance of this is twofold.  On the one hand it spells out in letters of fire the simple reality that nationalization is not by itself a socialist demand.  It indicates also the much of Ireland’s tiny socialist movement, fearful of a break with the trade union bureaucracy, do not actually have a program for dealing with the crisis.

In the absence of an alternative all the anger and despair of workers will simply dissipate as the initial 100 000 demonstration at the beginning of the crisis did, strangled by the union bureaucracy. There is also the danger of a right wing resurgence around the growing tide of racial hatred.

The urgent task for socialists is to unite militants around a common socialist alternative that provides an opposition to IMF dictats and the offensive led by local capital.