The future for a great many countries is already out there. One of the best places to see how it will be is Ireland.
A few weeks ago the triumphant headline was
‘Ireland out of recession’. And the articles that went with the headline were full of ‘growth’ and ‘bounce’ and ‘exports’. They were all keen to suggest that Ireland’s victory would soon be ours.
Today Moody’s joined the other ratings agencies in fleshing out the reality of this triumph, which they did by downgrading Ireland again. So how does being ‘out of recession’ fit with being downgraded?
Ireland was downgraded because of what CNBC coyly refered to as “a loss of financial strength”. By which it mean that because of the length of the continuing economic slowdown causing rising unemployment, Ireland’s tax revenue is going to keep contracting for the rest of this year and probably next as well.
Now, lower tax revenue and high unemployment generally don’t equal strong growth. Thus it isn’t really a surprise that despite the Irish government’s’s own ‘growth estimates’ (emphasis very much on the estimate rather than the growth), Moody’s said it expects “Irish medium-term growth of 2-3 percent per year” which is BELOW “…the 4 percent projection built into the government’s fiscal programme.”
Lower growth means, as the IMF concluded last week, “…that Dublin will not meet a European Union-agreed deadline to reduce its budget deficit to 3 percent of GDP by 2014.”
According to some estimates its worse than that. The loss of renenue will in fact completely “negate the impact of the savings….” ( Death by a thousand Irish Cuts ) .
So, to sumarize, the austerity measures brought in to cut the deficit will fail. They will, in fact achieve no net improvement because they will cause tax loss equal to any savings from expenditure. And these losses are going to continue. They are NOT finished. The Irish banking system, like all the banking systems in the west, continues to be dependant on an ongoing series of recapitalization measures and the promise, implicit or explicit, that these measures are open ended.
Hence today’s request by the IMF that its own lending facility be increased to a TRILLION dollars. It is NOT a coincidence that this was requested just a day or so before the EU releases the results of its bank ‘stress test’. Even though the test was easier than the Marine Corps spelling test, some will still fail it.
The Irish government has also had to create a special investment vehicle to buy up some of the worst, most cripplingly bad and unrecoverable debts. And the government has also said its support for these debts is ‘unconditional’. Which measn the already impoverished Irish citizens are on the hook to pay the FULL face value of ‘assets’ and debts which were already largely worthless when the Irish governmewnt agreed to buy them and guarentee them.
So if the austerity measures aren’t actually lessening the deficit what are they doing? Well actually if they aren’t reducing the deficit, which we know they aren’t, then they are purely the negaitive by-product of other actions and decisions. The deicsion to bail-out the banks. That is all the austerity measures are. They are made necessary ONLY because of all the money we have borrowed to bail out banks. No other reason. Which means the Irish peopleare being lied to by their own government. They are being told they are ahving to bear the pain of austerity in order to save themeselevs. That IS A LIE. They are sufferingausterity for no other reason than to save the banks.
How can I make such a sweeping statment? Surely they are to combat the vast and communist inspired attempt to ruin the country via massive, and unbriddled pubilc spending?
Well, from the same Moody’s report, Ireland’s CB lending as of the end of January 2010 to Ireland’s banks was €98 billion. That is €98 billion that Ireland has borrowed and is therefore paying interst on – for the sole purpose of bailing out the banks. THE SOLE PURPOSE. Interest payments for which, come out of tax revenue. Diverting money away from being spent on anything that the people paying th etaxes might benefit from.
That €98 billion could have been borrowed to spend on lending to viable businesses which might have provided more jobs and incomes for Ireland’s people. But in fact the whole lot was given to only a very few businesses and specifically to those few which were all, every one of them, businesses which not only Irish banks but also EVERY BANK IN THE WORLD had REFUSED to lend any money to – the banks themselves. That is precisely what it means when banks can’t raise money on either the Interbank market and bond market and have to get bailed out by bought-and-paid-for politicians.
Why did our politicians decide to give ALL the stimulus spending to the one section of the economy that was never going to grow, never going to help the broader economy or the people? Why?
Why not invest the stimulus money directly in viable businesses?
Why did the Irish politicans, like politicians of every nation, decide to borrow heavily, give all the money to businesses which offered almost no prospect of growth (the Irish government itself admits the banking sector will not grow), saddled the tax payer with paying the interest on this puzzling deal, AND then forced those same citizen tax-payers to labour under savage austeriuty measures which ADD to the deficit by collapsing tax revenue?
As a purely business, investing decision you do have to ask some serious questions about why the money was invested in the businesses least likely to show a return. THAT is how I think bank bail outs need to be seen.
The decision was so glaringly unwise it suggests it was NOT a business decision AT ALL. It was also NOT a decision designed to recover growth or jobs. It was a decision taken KNOWING FULL WELL that it would cause sovereign debt problems, downgrades and would increase borrowing costs.
What then was the reason?
Let’s look at AngloIrish bank. According to the Irish state funded Economic and Social Research Insitute (ESRI) it was the cost of bailing our AngloIrish Bank which caused Ireland to have a budget deficit of 14% GDP. Previously AngloIrish has been shown to have enagaged in some fo the worst, most phenomenally stupid lending decisions ever encountered or imagined. Why bail such a failed instution – AT ALL? AngloIrish is NOT in any way essential to the survival of Ireland. In fact none of Ireland’s banks are. That is the great conundrum of the bail out in Ireland and elsewhere.
Ireland cannot bail out its banks. The banks’ debts are many, many times greater than the entire wealth and GDP of Ireland as a nation. The same is true ofn most european nations. So in evrey case a smaller entity is being forced to pump its life blood into a larger entity and not surprisingly, the smaller of the two is dying as a result. Made more tragic because it will in the end prove to be a futile effort.
Were Ireland to let its banks suffer the losses they made, Ireland would NOT die. It would be hurt. But it would not die. What would die, is the rest of the European and global banking system. Ireland’s banks are so indebted to everyone else, that their death would cause a global banking die-off.
THAT is the reason for the bail-outs and the austerity measures. They have not been for the good or benefit of the Irish people. They have been for the global banking system. A system Irland DOES NOT NEED in order to survive.
Ireland shows us a glimpse of the future. Ireland is a test case. It is exagerated and this makes things more starkly aparent. We all need to learn from the Irish.