When a loss is a mandate for change

If the Government think they 'won' the Fiscal Treaty vote they are in denial. By John Farrell Clark.

The Government may have won the vote but they clearly did not win the confidence of a vast majority of the citizens. If they think they won and have a mandate, they are far more in a state of denial than one would have thought possible.

The fact that an impressive 39.63% of the people voted No, combined with a significant percentage of those who reportedly voted Yes but “with clenched teeth” and another 49.73% of eligible voters who were not inspired to vote at all, tells the real story.

It could not be more obvious that the time has come to have an open and honest debate as to an alternative financial plan. Clearly the austerity measures of the European Central Bank and the European Commission have failed.

It’s time to challenge the so-called conventional wisdom, particularly when it’s coming from technocrats and economists who for the most part have no life experience in the real world; who have never managed a business nor experienced economic hardships. They live and think alone in a bubble. They have no idea of the pain they are inflicting. If they did, then surely they wouldn’t do it.

As to the politicians promoting austerity, they need to stop looking only across the Irish Sea to Brussels, Berlin and Frankfurt in order to be told what to do. Instead they need to turn around and face the people who elected them, a significant portion of whom have made it abundantly clear they want their sovereignty back.

The people no longer want to be beholden to investment bankers who lack compassion and have seized control of the democratic process while exhibiting, at times, a pattern of sociopathic behaviour.

Austerity vs growth

The conventional wisdom and given assumption is that Ireland cannot manage its financial obligations without outside financing. But the majority of that new debt is being used to service old debt and prop up banks. It’s doing nothing to stimulate the economy. With the likelihood of a second bailout in the near future all we are doing is going deeper and deeper in debt; all for the most part to pay institutional bond holders.

Meanwhile the plan is to tighten our belts through an ‘austerity programme’, thereby reducing the cost of running the State. However, that program has proven to be a failure throughout most of the EU. It's taken the ECB years to realise this fact, and it is the reason that all of a sudden a ‘growth component’ in the form of stimulus is now being finally discussed.

Economists that favour growth over an austerity policy only have argued that it makes sense to implement the latter when times are good in order to ‘save for a rainy day’. To do so when there is a deep recession only makes the situation worse and can lead to a depression; and frankly we are on the verge of having one.

The government needs to go to its creditors, including those who hold bonds on defunct private banks that the government so foolishly guaranteed, and simply tell them, just as any bankrupt entity would, that we cannot afford to pay you now, but we will when we can afford to.

The Goldman Sachses of the world made bad investments and they are not entitled to preferential treatment in the form of governments bailing them out by way of taxpayers. It is not capitalism nor is it democratic when they keep their profits but pass on their losses to the general public.

There is a better way

By making the following adjustments to the budget and implementing reform measures, the Government would have cash flow to not only balance its books but also have excess funds to invest in badly needed infrastructure projects.

- Discount or delay payments of the debts of failed private banks which the government guaranteed and modify the existing payment schedule on our sovereign debt on a temporary basis until we can once again afford to service this debt as originally agreed.

- Increase the corporate tax rate from 12.5% to 15%, which would still be one the lowest, if not the lowest, in the entire EU.

- Add a modest increase in the personal income tax rate of high income earners.

- Make an across the board 10% cut on all government expenses (except for those in society who are truly in need).

- Eliminate fraud in social welfare related payments and eliminate needless payments to retired public servants who have pensions but who are rehired at wages that are in some cases greater than what they were paid before (and by the way, what ever happened to serving your country gratis?).

This plan, or a similar one, with some adjustments, would create jobs and begin to stimulate growth, which in turn would bring back confidence in the overall economy; and a stronger economy will allow for reinstatement of that portion of debt that had been temporarily suspended. It may take a generation to get out of this hole and for bond holders to get whole once again, but if we don’t find a better way we will be creating a permanently indentured society.

Whose ‘confidence’?

So far, Government officials are talking about restoring confidence in the capital markets as if that's what is most important. But that ignores the simple fact that economies flourish when consumers have confidence to invest and spend. Nearly 70% of any market economy is made up of people spending money for goods and services. It's the confidence of consumers that is more important, not investment bankers having confidence in investing money. Without the confidence of the people there can be no recovery, let alone growth.

In essence, Ireland is what we used to call in banking a giant ‘loan work out’. In those kinds of situations, prudence, patience, and compromise usually worked best, not only for the creditor but also for the debtor.

But the real problem is that the investment bankers want their money now, and have no inclination to accept that they made bad bets. They have a moral obligation to be part of the solution. It’s also smart business. And it’s up to our politicians to tell them so.

It is no coincidence that the President of the ECB and the non-elected and appointed prime ministers of Greece and Italy are all former senior executives of Goldman Sachs. And that's just for starters. The web of former Goldman Sachs executives in very high positions of authority all over Europe and the U.S. is massive in size. These are the people who truly set the agenda and government policies; but the problem is we don't get to vote for them.

Presently we have polices that are about protecting investment bankers and their investments at the expense of everyone else. We not only have a financial deficit. We have, more seriously, a deficit in democracy that needs correcting. We also need a plan that is fair and makes sense. The outcome of the recent voting told us as much.

There will be some who will for certain consider this plan naïve, if not radical; but at least it’s a starting point for a plan which is more than what the Government is offering to the people. It is not about dishonouring our debts, rather it is how and when we pay them. It’s no different than allowing time for a neighbour to pay back a loan because he has hit hard times. It’s the decent thing to do. Otherwise, we’re putting the demands of investment bankers in front of the needs of our children and grandchildren.  {jathumbnailoff}

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