As the Story is Told: There is No Alternative
If there is one phrase that could be used to describe the strategy used by the Fianna Fail/Green Party coalition government since this crisis began it is that there is no alternative to what they are doing. It's an opinion shared by the vast majority of the Irish media when it comes to resolving our fiscal crisis. Slashing government spending is the only way to resolve the crisis – austerity is a fact of life, and the sooner we accept that harsh truth, the better, or so the argument goes. There is no viable alternative to "expansionary fiscal contraction" (despite the fact that this is a theoretical proposition repudiated by, of all institutions, the IMF). By Donagh Brennan
Both Eamon Ryan of the Green Party and Brian Lenihan have stressed repeatedly their desire to get the "best deal for the taxpayer". They don't want to 'go easy' on the banks, they don't want to run down public services, reduce employment, or cut social welfare, but given the scale of the crisis they have no choice – they have to make the hard decisions. Just as frequently, ideas about bringing in a stimulus through well directed state-led investment in health, education and infrastructure to compensate for the sudden loss of private sector investment and the plummeting of domestic demand, are dismissed as impossible.In a recent Sunday Business Post article a member of the cabinet was asked why there was no mention of a stimulus in the government's National Recovery Plan, or in the leaked proposals surrounding the forthcoming Budget 2011. "Ask the Minister for Finance" was the answer.
Instead we are told that we must 'live within our means', an echo of the same words used by the far from parsimonious Charles J. Haughey during a crisis of a slightly lesser magnitude in the 1980s. We have to cut the deficit. We're spending much more than we are taking in and this is "unsustainable". We 'partied' through the good years and now is the time to face the pain.
But whatever you do, do not mention the widening income inequality that opened up in these years, the low level of Irish public debt that existed before the crisis began, or the low level of government spending compared to the EU average in the last 20 or so years. Since 1992, average government revenues in the EU have been 44.8% of GDP, compared to 39.8% for Britain and 35.6% for Ireland.
This policy of austerity has been in place for two and a half years, implemented over five budgets and has removed €14 billion from the Irish economy. What is the result of the only realistic strategy that we are told is available?
The economy continues to decline, the rapid rise in unemployment continues, slowing only because of the huge increase in the level of emigration. Tax revenues are less than the already very modest expectations, the country is no longer able to borrow on the international markets and now we have been forced to accept an IMF/EU/ECB bailout to the tune of €85bn offered at a punitive interest rate of 5.7%. In addition the majority of the money that many politicians, outside of the present government, had imagined could be used to invest in the economy (cash balances from previous bond auctions and the pension reserve fund) is going to be used to fill the hole in the banks.
Because, we are told, there is also no alternative to plugging this hole, the depth of which is still unknown. That is, after Irish government and EU stress tests, after officials from the Irish Central Bank and IMF have been through their books, after the government has either nationalised or taken a majority stake in these banks we still have no idea how much more money they are going to need.
Because this is the only way to get the banks lending again and if we don't it will lead to a bank having to default on its bonds, and because of the Irish bank guarantee that amounts to a sovereign default.
Absurdly the Minister for Finance, when asked why the Senior Bondholders cannot be burned said "the markets will not tolerate it". "These are the people we're borrowing from" he said, and characterised burning the bondholders as going into your bank manager to ask for a loan and in the course of the conversation admitting that you have no intention of repaying the loan in full. If default was suggested they would stop lending to us.
The irony of this is that when he said "there's a nuclear button and I'm simply not prepared to press it" the bond markets had already stopped investing in Irish debt. The only institution buying Irish bonds when the level had risen to over 6% was the ECB. Their decision to stop this process, and their direct funding of the Irish banks, triggered the bailout. That bailout was put in place to prevent a sovereign default on bank bonds. To remove the trigger from the Minister's hands.
This reality was revealed after the terms of the IMF/ECB/EU €85bn bankrupting loan were announced. Asked why there was nothing in the agreement about the reduction of the debt that Irish citizens would be liable to pay through some defaulting on senior bondholders Brian Cowen said:
"In relation to the question of senior bondholders, there is no agreement from the European Union for [shifting losses] because of the impact we believe it would have in relation the stability of the entire financial system itself and the impact it would have across European banking generally."
There is no alternative to the evisceration of the Irish economy and Irish people for the sake of international financial capital because the European banks will not tolerate it. The European financial system, in order to save itself, must destroy an economy that it now considers to be only a liability. This is a long way off from the time that French and German banks bloomed while availing of Ireland's low corporation tax as they, disastrously as it turned out, fed off cheap capital on the wholesale money markets (think Depfra bank operating out of the Wild West of International Finance at the IFSC).
Of course, TINA, "there is no alternative" is a phrase made famous by Margaret Thatcher at a time when her Conservative government was implementing policies designed to cut back on those social provisions that were enshrined in the model of the Welfare state established in Britain in the Post-war years. The reason for doing so was not to resolve any particular financial crisis, as they saw it, but to open up more of the economy to financial capital, a system known as Monetarism. It was a policy that continued through successive governments up to the present time, and became the defining characteristic of Western Capitalism in our beloved "neoliberal" era.
This is how the world works now, we were told. As Mark Fisher argues in his book Capitalist Realism the idea permeated all aspects of Western society and culture and never really went away. Key elements of this new 'reality' are small government, increased centralisation of economic power, encouraging the free movement of capital across borders, the expansion of tax breaks to provide opportunities for the private investment of accumulated capital and the reduction of general taxation. Culturally, this lead to a valorising of homogeneity over the heterogeneous and a rise of consumerism alongside the emasculation of genuine politics, which was replaced with vague identity politics. The class antagonism of labour verses capital no longer informed popular discourse, punk gave way to pop, and a multitude of nasty clubs to thousand seater arenas and globe straddling cultural icons.
And then the crisis hit and rather than admitting that the policies of the past were responsible we instead got an acceleration of neoliberal thinking. The priority to "save the economy" was instead a strategy to save the banking sector, and the money from the real economy, used to provide social services, the social wage of workers who wages had stagnated, would be used to offset the losses from property speculation.
The consequences for the citizens would have to be endured, as 'we are all in this together', we are told. But while the arguments presented by this failed and now dead government have been wrapped in economic language, the reasoning behind it has absolutely nothing to do with saving the real economy. Instead it has everything to do with saving those who took the biggest financial risks and, as controllers of the largest amount of capital within the system, had most to lose.
Crises are not unusual in capitalism – in fact the various inbalances within capitalism are the very fabric of the system itself. Resolving crises, usually through massive state intervention, are a way for the system to correct the imbalances that occur periodically and which fuel the often phenomenal growth in the first place. As David Harvey explains in his recent book The Enigma of Capital:
"Crisis are, as it were the irrational rationalisers of an always unstable capitalism. During a crisis, such as the one we are now in, it is always important to keep this fact in mind.
We have always to ask: what is being rationalised here and what directions are the rationalisations taking, since these are what will define not only our manner of exit from the crisis but also the future character of capitalism? At times of crisis there are always options. Which one is chosen depends critically on the balance of class forces and the mental conceptions as to what might be possible."
So, in Ireland, and within the ECB we have to look at how the irrational rationalisers are operating. Their solution, to put an enormous burden on the workers of Ireland, Portugal, Greece and Spain, while letting those who caused the crisis get away with their profits is the only alternative that they are interested in. We have to make our own alternative, and soon.