Article first published as Bailout Pushes Ireland into Politico-Economic Instability on Blogcritics.
Ireland formally placed request for aid from the EU and IMF. Ireland people are quite against to this. They are not able to believe that their country needed bailout. They are angry with the U-turn taken by the government, which said initially that Ireland could solve itself its crisis. Earlier, Ireland prime minister Brian Cowen and finance minister Brian Lenihan angrily rebutted the claims that Ireland was on the verge of asking for aid from the EU and IMF even as the preliminary talks for aid began with the European authorities by then.
It is said that Irish people were confident about their capacity to overcome any obstacles that came in their path of development. They had a history of fighting for independence from the England’s colonial rule. They believed that Ireland once saved the European Monetary Union by joining it while it was recording more than 30% of GDP growth rate. They believed in the same vein their country had a capacity to overcome the latest crisis. It seems they could not bear a fact that their country is in a position to beg for aid from other European countries.
Political opportunists always will be there to cash in such situations. They stepped in to cash in the people’s anger. Green party, the junior partner of the ruling Fianna Fail party announced on November 22 that they wanted the parliament dissolved for an early election in January next year. The ruling coalition is on political tight rope walk with just three seats majority in the parliament, where Green party holds six seats. Without GP’s support, the ruling coalition will collapse. So, Green party holds the capacity to force the country to seek early election. But, GP’s announcement to seek an early election might be a mere political exercise to extract more benefits for it.
Ironically, the Green Party is said to be in agreement with FF party to impose austerity measures on Ireland people over the next four years. The GP’s leaders have promised to support the austerity plan proposed by the government that will come up for voting on December 7. This reveals a fact that the GP is not interested in people’s anger but interested in cashing of such anger for its benefits.
Ireland Banks at Peril
Ireland’s banking industry was said to be one of the main pillars in recording record GDP growth rates for Ireland. According to the Reuters news, the Ireland banks are going to be downsized. Ireland’s finance minister says the Ireland banks are very dependent on the funds coming from the European Central Bank and they are not likely to raise funds on their own for at least one year. Most of the Ireland banks are now partially or wholly nationalized by the Ireland government as a result of banking crisis.
Like all other investment and commercial banks of rest of the western developed countries, Ireland banks also invested aggressively in mortgage property markets at home as well as abroad. When the property bubble burst in 2007-08, they were badly hit. Toxic mortgage loans and assets occupied major part of their balance sheets, which forced entire economy into peril. Then, the European Central Bank stepped in bought the toxic assets of the Ireland banks. In other words, the ECB supplied funds to the beleaguered Ireland banks.
Ireland finance minister said earlier that their banks might need support from the EU but not the Ireland state. Such statements are proved to be given for the satisfaction of their people. Now he has to take a U-turn, seeking joint bailout from the EU and IMF. He is trying to convince his people that the country is in need of the external bailout. Convincing the people to accept bailout means to convince the people to accept the impending austerity measures.
The government is planning to propose austerity on December 7 for Ireland people. According to the reports, the measures include increase of Income tax and wealth tax. It is not ready to increase corporate tax, as the US multinational companies such as Microsoft, Hewlett Packard and Meryl Lynch have already warned their investments might be withdrawn if the corporate tax is increased. This is the essence of the austerity; punishing people with spending cuts and tax increases, and complementing multinational companies and investment banks that caused the worst crisis since the great depression.
December is going to be a difficult month for the Irish government as the austerity gets nod on December 7. The people will come to the streets to protest against the wage freeze and pension reforms, the measures that became almost universal for the countries hit by the debt crisis. These were actually the copy righted measures of the International Monetary Fund. IMF used these measures to bring the third world countries onto the path of market economy.
Abolition of Welfare State Principles
Prior to the GATT agreement, that ultimately took the form of the WTO, the IMF and World Bank used to stipulate the strictures to third world countries while sanctioning the loans in the name of aid. Privatization of state owned enterprises, abolition of public sector and opening up of each every part of the economy for the foreign investments. Those measures gradually transformed the resource rich third world economies into the market dependent economies. The state capitalism, which was in the guise of socialism or socialistic pattern of society, was transformed into the private capitalism. Though such third world economies are not fully transformed into the market oriented economies, the strictures stipulated by the IMF, aided by successful conclusion of Uruguay round of trade negotiations, have succeeded to make those countries to implement market oriented reforms.
After the Uruguay round, Doha round began to complete the process of full opening up of the once state capitalist economies in a bid to open new markets for the benefit of western imperialist countries, in which excess production became the order of the day. (Such third world economies that took the market oriented economic path are now termed as Emerging ‘Market Economies’ – EMEs) Welfare measures implemented in the western countries helped a lot in withstanding the excess production until the collapse of Soviet Russia. After the collapse of the Soviet Russia, the threat of socialism disappeared and the western regime found no reason to continue the welfare state regime in the face of excess production crisis.
At the same time, the unprecedented financial and economic crisis and the European debt crisis that followed came in handy to the western imperialist regimes to convince the people that the austerity measures are inescapable. Greece people’s agreement with the tough austerity by their government has to be understood in this background.
Welfare state regime is actually in the interest of capitalist production system, which fed the consumer market of the western countries. With the abolition of capitalist friendly welfare state system, the western capitalist forces are increasingly exposed to further crises. That’s why the austerity measures are suicidal to the western imperialist countries. With the growing opposition from the EMEs such as China, Brazil and Russia, the western imperialists are more prone to hit by series of crises, economic and political.