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From: Irish Political Review: Editorials
Date: August, 2012
By: Editorial

Euro Crisis: Politics of Recovery Vs. Politics of Illusion

There are certain immutable economic laws that cannot be wished away by fine words or good intentions. If a country continues to consume more than it produces, it will develop a dependent relationship with its creditors. To reduce its dependency it will either have to produce more or consume less.

If the creditor is benevolent the debtor might obtain some concessions. But that is not a very dignified position for a debtor country to be in. Since 2008 Ireland has made a decent attempt at solving her economic crisis and has been hoping for concessions on the basis of what may arise elsewhere. But it appears the Euro summit agreement of 29th June on separation of bank debt from sovereign debt is far less than it was widely taken to be. The prescription for the Spanish financial crisis is looking remarkably like the one for the Irish crisis. Ultimately the State must pay.

The Left in Ireland has never had to think about these issues. That element which has eschewed power has contented itself with railing against the real world, while the element which has participated in power has had no vision other than a purely moral imperative to keep Fianna Fáil out.

The Left in Britain was different, 40 years ago.  Harold Wilson's Government understood that a country could not continue consuming more than it produced and set about implementing a socialist solution to the problem. His policies of austerity included penal taxes on unearned income and capital, draconian restrictions on consumer credit, and wage restraint. These policies were implemented with the support of the Trade Union Congress. From being a basket case economy in 1964, Britain ended up in 1970 with a balance of payments surplus second only to Germany. All of that was squandered in the subsequent decade when the Labour movement reverted to the politics of protest, and opened the door to the Thatcherite alternative.

In 1987 Ireland implemented a social solution to the economic crisis, but this had nothing to do with the Left. Indeed Social Partnership was implemented in spite of it.   The far reaching reform was initiated by Charles Haughey under the influence of the German Social Democratic Chancellor Helmut Schmidt. 

The weakness of Irish Social Partnership was that it was led from on high. The labour movement did not have to take serious responsibility for weaknesses in the economy. When the economy boomed in the 1990s, financed by German credit, nobody thought that the party could end. In Germany, by contrast, the competetiveness of German industry was preserved about ten years ago by reforms initiated by Gerhard Schroeder in consultation with the Trade Unions. Nevertheless, Social Partnership in Ireland survives in the form of the Croke Park Agreement, which was negotiated by the previous Government, as well as in many other structures in industry and the public sector inherited from the Haughey/Ahern eras.

The Labour Party has been too busy denigrating the record of the previous Government or blaming the Troika for difficult decisions to focus on defending the social gains that were actually achieved. And the Left opposition wallows in its Keynesian illusions, aided by the Financial Times, the mouthpiece of Finance Capital, which sees opportunities in the disabling of the Euro, and hence promotes solutions to its crisis that would tend toward such a disabling.

The Left demonises the Eurozone Compact as a simple-minded "austerity" strategy designed to smooth the way for a neo-liberal make-over of Europe under German leadership. 

This is to misunderstand quite a few things, not least of which is the nature of the German state. 

Despite much domestic opposition by the free market interest, Merkel, with the increasing support of the opposition Social Democrats, has shown a determination to see through both the Fiscal Compact and the introduction of a banking union, which will inevitably involve a great deal of bank debt resolution.  Despite the caricature of her as a neoliberal, she is no such thing, just as she is no Keynsian. And in this her economic strategy both at home and at Eurozone level is remarkably reminiscent of Harold Wilson. The idea that Social Democracy and Keynesianism (or what is called Keynesianism) are synonymous is a fallacy. In the Wilson era, when British Labour was at its height, it was determined to impose control over the economy, and that was anti-Keynesian. The Government's whole orientation was to protect the value of sterling and return the economy to a balance of payments surplus which it succeeded in doing with the high-tax austerity policies of Roy Jenkins.

The new French Socialist President, Francois Hollande, who is much quoted by Irish politicians because of his espousal of growth, is as firm in his support for the basic currency disciplines proposed in the Compact, as was the former Socialist Prime Minister of Spain, José Luis Rodríguez Zapatero. In the months preceding the historic EU Council of November 2011, at which the Fiscal Compact was launched as a Eurozone initiative following Cameron's exercise of the British Veto, the President of Poland threw his backing behind Merkel: "What Poland fears more than German power is German inaction." 

For states involved in Troika "Programmes of Financial Support"—and let us be realistic and assume Spain to be one of these—there is no disagreement that deficits must be reduced and consumption brought into line with production. Nor is there any doubt that economies and fiscal systems need fundamental re-structuring to achieve this and lay the basis for a healthy political economy into the future. Against the background of the noisy street demonstrations by the Spanish indignados, a former advisor to previous Socialist Government commented: 

"This country needs really fundamental changes. We need an ample majority to carry through the fiscal and economic changes in a way that convinces the whole country this is just and fair; it is not enough just to have an absolute majority [in parliament]… What we need now is a new [national] pact, between the parties, but including the Basques and the Catalans. To recover our credibility we need to agree among ourselves"  …[Prime Minister] Mr Rajoy, some analysts are starting to suggest, needs to forge a national consensus urgently, through something like the 1977 Moncloa Pacts, the multi-party social contract that underpinned the transition to democracy" (Financial Times, 23rd July).

The Irish Programme for Financial Support with the ECB/IMF/EU 'Troika' was negotiated by Brian Lenihan and his team in 2010, just before the change of Government. The Troika was concerned chiefly with the 'bottom line'—how the deficit would be reduced. It was up to the Government to propose the precise steps. Despite popular perceptions, the Troika does not 'impose' any conditions, except to insist on adherence to already agreed European policies.

Lenihan saw the opportunity the crisis programme presented to carry through some reforms which many long knew were needed but would be impossible to introduce under the normal workings of the media/political process we know as parliamentary democracy. These included widening the tax base to encompass wealth (property) tax, charges for expensive resources (water), tackling the privileges of elite special interests (the 'sheltered professions') etc. Attempts to curb such groups in the past had invariably faltered. Many of these very progressive reforms—and not just reductions in the level of public service employment—were listed as structural reforms in the Programme.  

Brendan Keenan, one of the most perceptive commentators on Irish budgetary politics, believes that the ability to pay any more of the mass of Irish society, whose disposable incomes in the two years of the Programme to date have radically shrunk, has reached its limit (We've Hit A Fiscal Wall—it'll take a lot of nerve to plough through it, Irish Independent, 12th July 2012). But, while cuts in services and public sector employment have been rigorously implemented, the structural reforms of property tax and of the sheltered professions—reforms on which the Government has stalled—would seem to offer the scope needed for the final deficit reduction without affecting the mass of people Keenan is referring to.

The main lessons from engagement with the Troika loan programme would seem to be that the only given is that deficit reduction targets be met. This is meant to be achieved by a combination of savings and revenue raising measures, and by “structural reforms” in line with long established EU policy which, under EU Competition Policy, particularly the  Services Directive, can (though must not necessarily) include elements of privatisation. This element was proposed by the Irish government itself. What is clear is that the choices made in terms of tax policy, service cuts, welfare and minimum wage rates etc., are all determined by the political forces within a programme state.

As is now being discussed in Spain, an inclusive Pact across the social interests to deliver a programme of adjustment and recovery, as was achieved by the Haughey government in 1987 in negotiation with the social partners, would offer the most socially progressive means to achieve this. The European Commission—commenting on calls in Ireland for the Croke Park agreement to be set aside—made it clear recently that it welcomed negotiated solutions for structural reform and would not endorse the undermining of them. But, unlike 1987, the prospects for a social solution to the crisis in Ireland do not seem to be on offer, or to be an option any element in this government are choosing to pursue.

Euro Crisis:  Politics of Recovery vs Politics of Illusion.  Editorial
The Past Was Orange.  Editorial
The Moriarty Tribunal.  Editorial
Biteback:  Inviting 'Our Gallant Allies'.  Jack Lane  (Report).  Corry 'Terrorism' Claim Challenged.  James Fitzgerald
The Mystery Of The Dunmanway Killings.  Jack Lane
Britannia's Children.  Wilson John Haire  (Poem)
Austerity, Aspiration And The Treaty.  Eamon Dyas
Mitbestimmung.  John Minahane
Europe Subverted.  Editorial
Sinn Fein's Political DNA.  Seán McGouran reports on a meeting
A Literary Fantasy.  Jack Lane
Shorts from the Long Fellow (Sinn Fein & Fine Gael;  'Modern' And 'Historic' Sinn Fein;  Fine Gael;  The Labour Party;  The Irish Economy;  The Bank Guarantee ...Again;  Spanish Banking Crisis;  British Benevolence;  Science In Ireland)
Views Of Sinn Fein.  Stephen Richards, Brendan Clifford  (Letter Dispute)
Northern Ireland:  Threat Of Regional Pay.  Michael Robinson
An Irish Anti-Fascist Volunteer And Some Other Soldiers.  Manus O'Riordan  (Part 2)
Items From The Irish Bulletin.  8th July 1920  (Paart 13)
Cork Employment Resource Centre, 1988 to 2012.  John Holford  (Part 1)
Labour Comment:  Aquinas And Private Property.  Mondragon, Part 10
Summer Floods & Water Privatisation.  Michael Robinson   (Report)