The Irish economy remains in depression. It is the ECB's bailout of the banks we are being invited to celebrate
Ireland is being held up once more as the star pupil of the austerity school of economics in Europe, with the Taoiseach Enda Kenny arguing that his government is exiting the bailout programme set by the troika of European Union, the European Central Bank and the IMF. He says the era of austerity is coming to an end.
Both of these claims are clearly questionable, but they do illuminate some important features of the situation in Europe – including Britain.
The policy of the Dublin government will continue to be set by the troika for many years to come. In fact the EU has already put in place a system of budget monitoring, regulation and even sanctions that will enshrine permanent austerity for all members of the euro. In addition, it has become customary for the IMF to put in place a new credit facility once initial bailout money runs dry which has its own strings attached. Therefore it is untrue that austerity is at an end. Instead, the assets and loans held by Irish banks have become so devalued as a result of economic weakness that the risk of a new bailout for their creditors is rising.
There is also an important reason why Ireland cannot be emulated by countries such as Greece and Portugal. At the outset of the crisis, the Irish economy was vastly more prosperous. And after a prolonged slump across the European periphery, that remains the case. One measure of the failure of successive Dublin governments is that living standards have fallen so far that they have fallen back towards British levels, having pulled ahead before the turn of the last century.
There is always a chorus in Britain that wants to ascribe all economic ills to the EU. But George Osborne's threat to maintain austerity until at least 2018 and to aim for budget surpluses matches the perma-austerity of Brussels, Frankfurt and Washington. The lazy assertion of British Eurosceptics of both left and right, that we are better off outside the euro, is disproved by the fact that in international currency terms the British economy has contracted by more than any other country. Britain has not prospered from devaluation.
Similarly, the outbreak of self-congratulation both sides of the Irish Sea is entirely misplaced. The recent self-criticism from the Office for Budget Responsibility regarding its own hopeless forecasting record includes a clear verdict that the source of the very weak recovery in Britain is an unexpected increase on government consumption.
Dublin governments tend to lack the age-old arrogance of the British political elite and so seek plaudits abroad. The governing coalition of the rightwing Fine Gael and Irish Labour parties looks to be patted on the back or perhaps the head, for a forecast that government finances will shift into what is called a primary surplus, that is a surplus on government finances before interest payments are taken into account. But this is a claim increasingly made by supporters of the governments implementing austerity in Portugal and Greece too, and is largely meaningless. Unless the growth rate of the economy exceeds this growing interest bill, the level of government debt becomes unsustainable.
But for the time being the immediate risk of government default has been sharply lowered. This is partly due to the commitment of the ECB to "do whatever it takes" to maintain the euro. Whatever extends to unlimited for bailouts for creditors, mainly European and British banks, but not a euro for the governments.
It is this life-support operation for the banks we are now invited to celebrate. The party is likely to be shortlived as austerity is hollowing out the economy. Without investment productive capacity declines. In Ireland, net new investment (after deducting depreciation, wear and tear and so on) is close to zero. The economy remains in a depression, one of whose effects is to pile up bad loans at the retail banks, including distressed mortgage payers. Austerity is the enemy of growth and cannot resolve the crisis.
IrelandAusterityEconomic policyEuropeEuropean UnionInternational Monetary Fund (IMF)EconomicsEuropean Central BankEuropean monetary unionEconomic growth (GDP)Michael Burketheguardian.com © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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