Jack O’Connor, President SIPTU


The best alternative to austerity or “one sided austerity”, as it has been practised in Ireland and in Europe over the past number of years, is to stop it!

The evidence is now clear for all to see.  The Eurozone economy has contracted for six quarters in a row.  Domestic demand now stands 5% below the 2007 level and in the stressed countries of southern Europe it has fallen by 15%.  Unemployment has risen to its highest level since the 1950s.  Meanwhile, the US economy has grown by more than 5%, creating seven million jobs thanks to the expansionary fiscal and monetary policies implemented by President Obama and Ben Bernanke, Head of the Federal Reserve Bank.  Over the same period, the global economy has grown by more than 20%.

Unless there is a change of course entailing some sort of write off or mutualisation of debt, accompanied by a major fiscal initiative to facilitate the generation of jobs and growth, thus enabling countries to manage and reduce their debt to GDP ratio, it will end in some countries at least in the demise of the euro or the collapse of the democratic system itself or both.  It may not happen today or tomorrow but more likely, following a prolonged period of stagnation and anaemic growth interspaced by recurring false dawns, which will always be heralded as “the end of the recession”.   Indeed we may be entering such a false dawn now.

“Austerity” is never actually societally neutral. It is a violence perpetrated against working people and those who depend most on public services.  Until now at least, it has been administered through a deadly concoction of fiscal retrenchment accompanied by “Labour Market Reform” – a euphemism for the most sustained attack on the gains made by organised workers since the Second World War.

We are living through a brutal recalibration which is attempting to engineer a retrospective realignment of economies (and societies) to a currency.  This amounts to nothing short of the dismantlement of the post-War settlement especially in the area of the employer/worker relationship, dramatically shifting wealth from labour to capital and rigorously asserting the unfettered law of the market in the workplace.  Simultaneously, relentless austerity is gnawing away at it in the wider social arena.  Some see this as a kind of “Germanification” of Europe – actually it is much more about “Americanisation”.

Parallel with this, Social Democracy is committing political suicide as its attempt to ameliorate the impact is mistakenly perceived as collaboration, no less here than anywhere else.

This means that when the reaction materialises, as it inevitably will, there is a real danger that it will be led by the populist xenophobic right with horrendous implications for civil society.

The great tragedy is that the strong economies of central and northern Europe have the capacity to underpin a new social contract which could be underwritten by the ECB.  This would entail a kind of “Post-Collapse Settlement” to facilitate a socially sustainable realignment over a reasonable timeframe.  Most crucially, it would entail a different balance between stimulus now and fiscal effort over the medium term.  (In this regard the German DGB has put forward proposals for a kind of new Marshall Plan for Europe).  Ironically, the strength of those economies is largely attributable to the success of the Social Market Model which was the core proposition of the post-War compromise.

Pope Francis hit the nail on the head before embarking on his recent trip to Brazil when he said:  “If investments in banks drop a little, it’s a tragedy.  But if people are starving, if they have nothing to eat, if they are not healthy, it does not matter.  That is our crisis today.”  (Source:  T.P. O’Mahony, Irish Examiner 29/7/2013)

That’s Europe but the question is what, if anything, can we do to change things here in Ireland?  We have very little scope to manoeuvre, hamstrung as we are with an unsustainable debt burden and the highest deficit in the EU.

We really have no option but to try to stick to the 3% deficit target by 2015, even though it is nonsensical.

We have endured a punishing one sided “adjustment” programme, taking €28bn, the equivalent of 18% of GDP, out of our economy (only 10% of which is accountable to increased taxes on wealth and capital) to reduce the underlying deficit by just over €6bn.   As a result, our economy has been declining over three successive quarters.

The first thing we should do is to apply the law of digging holes i.e. we must stop digging!

The key in terms of alternatives to austerity is finding a better balance between “fiscal effort” on the one hand and a combination of measures to improve growth on the other.

We must try to create a platform to encourage the private sector to spend more, to consume or invest, unlocking our high savings ratio, (which is partially attributable to personal deleveraging), thus igniting domestic demand.

This will not be achieved overnight, but by employing the right combination of policies we could change the direction of the economic trajectory from negative to positive.  The breathing space afforded by the Promissory Note Deal offers the possibility of beginning to do it.

However, just when a tiny glimmer of light begins to appear in the tunnel, all the agents of those at the top of the banking system, who caused the crisis in the first place, have changed the goalposts, determined to extinguish it.  They have all come out over the past few weeks, from the Troika to the IMF to the Head of the ESM, to the Fiscal Council through the Central Bank – all the comfortable voices of the top decile, as if on cue, to threaten the end of civilisation if the Government fails to inflict more unnecessary misery on those who have little or nothing.

We have been threatened with loss of the prospect of retrospective recapitalisation of our banks by the Head of the ESM.  This is rather ironic given that this year’s June statement from the EU Summit all but reversed last year’s declaration on severing the link between sovereign and bank debt.  Indeed, the President of the Euro Group, Jeroen Dijslbloem, has recently been vocal to the effect that there is little support for it among Eurozone Finance Ministers.   We have also been threatened with loss of a precautionary credit line to assist in our efforts to exit the “bailout”.  This is nothing short of blackmail on a monumental scale.

We do need assistance on the bank recapitalisation: otherwise we are condemned to bear an impossible burden for more than a generation in a low growth, low inflation environment, if we do not succumb to it altogether.

However, while the Government does not have a great deal of leverage it does have some, because the failure of our programme could bring down the whole Eurozone pack of cards.  They must display nerves of steel in face of this tyranny.   It is one thing having to inflict misery because it is the least worst of the available options, but going along with it when it is unnecessary is not only economically unsustainable but worse, it is morally indefensible.

Over the next three months, the Government will doubtlessly be called upon to demonstrate the same resolve that it has displayed in Budgets 2012 and 2013, but this time in confronting the ruthless agenda of those at the top of the European banking system, instead of that of our own citizens.

Full utilisation of the breathing space afforded by the Promissory Note Deal would enable us to meet the 5.1% deficit target for 2014 with a €2.1bn adjustment instead of €3.1bn.  (Actually we would probably have some room to spare because we are running somewhat ahead of target).

The measures to be carried over from Budget 2013, (although aspects of the Property Tax in its current form must be revisited), together with the savings yielded by the Haddington Road Agreement will account for almost €1bn.  This would leave €1.1bn to be achieved.

In this regard, the first consideration is as to how rapidly the €6bn, which has now been redesignated for the Strategic Investment Fund, can be leveraged into the economy via commercial criteria.  It must be prioritised as a key pillar of Government policy as it will not be assimilated through a process of osmosis.

In a recent NERI paper, entitled “Ireland’s Investment Crisis: Diagnosis and Prescription”, Victor Duggan pointed out that “public and private sector investment is at its lowest level in the Country’s recorded economic history, undermining growth and job creation in the short-term and productivity in the long-term”.

We, in the Trade Union Movement, believe more can be done.  We published detailed proposals in September 2011 outlining a means of doing this, tapping into other potential sources of investment to address the infrastructural deficit.   However, we do acknowledge that it takes time.

Jobs on the ground are the most important ingredient in rebuilding confidence.  But it should also be possible to factor in some contribution to the budgetary arithmetic from the initiative in respect of savings on social transfers and revenue buoyancy.

Thereafter, there is the thorny question of increasing the revenue yield from wealth and those in the top income decile, so as to minimise the economic impact of additional taxation.

Despite all the hype about marginal tax rates at 52% and 55% respectively, the top 10% of households actually pay an effective rate of 25.6% of their income, according to analysis undertaken by Dr. Michéal Collins of NERI.   Increasing this by 2.3 percentage points would yield about €600m and a good deal of it could be achieved over two budgets without increasing the marginal rate.

In this regard I would earnestly urge the Fine Gael Party in the Government to demonstrate some compassion and lift its veto on a contribution from citizens in this category.  After all, if it is reasonable to ask those in the Public Service, who had already borne cuts averaging 14% to hand over a further €1bn on the basis that rates foregone would be reinstated in a few years’ time, is it not unreasonable to seek a similar accommodation from the better off?   It might be less objectionable if it were applied as some kind of a designated “solidarity contribution” in which the revenue garnered would be deployed solely for a specific purpose such as, for example: – resources for people with disabilities.

If we can arrest the decline and steer the economy back on to a growth trajectory, however modest, the next issue will be the establishment of robust credit lines to fuel recovery.

I do not believe our Banks are up to the task.   While they are in State ownership to a considerable degree, the outlook and values that prevail in them have not changed.  It’s still too much about “getting back to business as usual” as distinct from fulfilling their proper role in the economy.   In this regard the Government should set about the commitment in its own Programme to develop a new Strategic Investment Bank.  This presents a formidable challenge but the Strategic Investment Fund should be mandated to provide the core platform for the proposition working in conjunction with EnterpriseIreland and the other promotional Agencies.

Meanwhile our Ministers should no longer be constrained in their critique of the strategy which threatens the future of Europe.  It is one thing having to go along with it, it is another endorsing it when it is increasingly obvious that it is absolute nonsense and very, very dangerous nonsense to boot.  Somebody somewhere has to start pointing out that the Emperor actually has no clothes!

After that, there is the bigger question of industrial and economic policy for the medium term.  In this regard, still in the throes of our third major existential crisis in sixty years, it behoves us to come up with something better than – “Leave it to the Markets”.

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