An introduction to the crisis in Ireland - causes and potential conflicts


Something entirely unexpected has happened in Ireland - history has gone into reverse. While North Africa, Egypt and the Middle East are struggling to shake of the shackles of neo-colonial dictatorships, Ireland after the Celtic tiger finds itself back in a situation of direct rule. This time not from London, but from the head quarters of the European Central Bank in Frankfurt and the European Commission in Brussels. A state which it now shares with it’s fellow PIGs, Portugal and Greece. For most of the last 60 years we have been told that liberal history went in one direction, from dictatorship and colonial rule to liberal democracy. This picture no longer fits the new status of the PIGs within the European project.

In the case of Ireland, it must be understood that the ending of British colonial rule in the early 20th century does not mean that the Irish economy now looks like a smaller version of the French or German models. The Irish economy until the 1970s was still dominated by the industry that it had inherited from former times, that is the export of cattle to Britain and other foreign markets. From the 1970s onward, inward investment from American and European sources created a foreign owned export industry. A sector in which Irish involvement was mainly providing real estate and tax breaks. Construction and tax dodging being two of our traditional strengths. In the 2000s Ireland competed with Singapore for the title of world’s most globalised economy - in 2006 imports and exports amounted to 100% of GDP.

Politically this economic pattern led to a democratic version of the one party state. In the republic, the Fianna Fail party held power from shortly after the birth of the state in 1932 for 61 out of 79 years. The Irish ruling class were, and still are, a classical comprador class.

After some initial growth in the 1970s, Ireland suffered a crushing recession in the 1980s which did not really begin to recover until the 1990s. By the mid-90s the prospect of the coming monetary unification had changed the status of peripheral countries like Ireland and Portugal.

Why money flowed into Ireland

The coming euro was a guarantee against currency risk for potential European investors. At that time Germany was still suffering the after-effects of unification, with growth rates at 1% or lower. When the Irish economy took off in the late 1990s achieving growth rates of 10% or more, there was an obvious opportunity for investors to get a higher rate of return in the fast-growing peripherals than in the core.

The result was that a large amount of EU core country capital flowed into Ireland, leading to a ballooning of the Irish banking sector. Total Irish bank assets (which are also debts) are today 900% of GDP, the highest in Europe (France’s banking assets are 390% GDP, for comparison). The biggest creditors or owners of that debt are, in order, the UK, Germany, USA, France and other EU states.

When the great crash of 2007-2008 came, losses were spread across the European banking system, but there were concentrations in the high-growth financial bubbles in the peripheral countries. The same whiplash effect that had exaggerated growth in the Euro fringe, now multiplied the plunge in output in these countries as well.

The bank crash & bailout in Ireland

At the first rumours of insolvency of Irish banks in September 2008, the then government declared an unconditional and unlimited guarantee of all Irish bank debts by the state, meaning the population as a whole. This socialisation of the debts of the banking system is the direct cause of the crisis of state endebtedness. Today’s sovereign debt crisis remains yesterday’s bank crisis in a different guise. In total, including the bailout loan from the IMF\ECB, the Irish state has poured 90 bn euros into these insolvent banks, which is one and a half times the entire state expenditure for 2011 of 60 bn.

In addition to government funds going directly into recapitalising banks, there is also the hidden subsidy of government bonds. The banks can buy these bonds to receive the high Irish sovereign interest rate, while exchanging them for ECB cash at the central 1% lending rate. They can then book the difference, for “free” from an accounting viewpoint. Of course this does mean, as is becoming clear in the current phase of the peripherals, that this means that any sovereign default will bankrupt the banks all over again due to their massive holdings of these tickets to state subsidy - another, hidden, mechanism for draining money from taxpayers to pay for investors losses.

But that hidden subsidy is supplemented in Ireland by yet a third mechanism for the workers to generously support the capitalists in their hour of need. In late 2009 the state created the National Asset Management Agency, a bad bank to take worthless assets of the hands of banks and developers in return for government bonds (taxpayer money) at an absurdly modest discount. NAMA is itself one of these infamous Special Purpose Vehicles (SPV) of which we heard so much about in the genesis of the crash itself. There is a particular irony in the Irish “solution” to a global crash caused by CDOs is effectively a giant nationalised CDO. The nationalised elements being, naturally, the risk and the losses.

To put some numbers on those losses. The reported paper value of the loans taken on by NAMA was 72 bn for which they paid 30 bn. Bear in mind that the average prices for domestic properties in metropolitain areas have declined by 40-50% already, figures which are worse in rural or peripheral areas. But the figures for many commercial properties or land sold at speculative prices for developments that will never now happen, and are effectively worthless, is far higher.

NAMA - an expensive failure

As a strategy to save the Irish economy, NAMA was an expensive failure, as it’s cost, together with the state recapitalisation of the affected banks for the 42 Bn written down in the deal, meant that the IMF and then the markets judged the Irish state insolvent at the end of 2010 and the imposition of direct rule by the troika followed. Today Irish people are collectively the owners of empty properties they are forbidden from using, or in some cases, the very homes for which they are paying astronomical mortgages, far above current market value. A hidden double penalty. Naturally there is no bailout for working class mortgagees.

This massive drain of money from the hiring economy into making good the financial losses of private investors, both Irish and international, is a measure of the first loyalty of the the Irish ruling class to the needs of international capital, above the welfare of the local economy and population. This loyalty is not ideological but a simple reflection of the structure of the Irish economy. For that reason, the ideological appeals by some bourgeois commentators in the Irish press to repudiate the debt in the “national interest” are utopian because they ignore the structural interests of Irish capitalists.

Resistance collapses before it really starts

The litany of cuts to social services and public sector workers pay is too depressing to enumerate in detail, but they have been severe. To take just the case of wages, two budgets in 2009 cut public sector wages by an average of 14%. Initial anger was channelled by the mainstream unions into a one-day public sector strike in late 2009 and a few large public demonstrations of over 100,000 people (very large relative to Ireland’s 4.5 million population). But this was mainly a way of letting people give off steam. Those actions were then followed, in 2010 with a negotiation with the government which resulted in the Croke Park Agreement. This was presented by the union bureaucrats as a triumph, but in fact copper-fastened the pay cuts of 2099 and granted the state employer large new “flexibilisation” rights to change workers conditions, hours and place of work, without consultation.

The Croke Park Agreement was put to the vote of the membership in all the ICTU unions and, despite the opposition of left union activists, was passed by a majority vote by all the main unions. Since that time the demoralisation of the main union sector is more or less complete, the signing of the CPA being the equivalent of the Versailles Treaty for the organised labour movement that has effectively accepted defeat without any serious fight. The defeat being all the more total for not being imposed on the membership by some act of “treason” by the union bureaucracy, but legitimated by the plebiscite of the entire membership.

So, from such a grim position, are their any prospects for the revival of a class struggle, even if only defensive, on the horizon? In fact there are a couple of issues that may well see some possibility for rebirth.

The Household tax & the crisis

The first is a succession of new domestic taxes that the government, under the tutelage of the troika, has planned in the view of eventually extracting in the region of 2 bn euro from the 1.5 million households in the Republic (about 1,300 per household). These funds are to be raised not from income or transaction taxes, but from direct, flat-rate taxes on people or households, similar to Margaret Thatcher’s infamous Poll Tax of 1990 in the UK.

The original plan was to start with a domestic Water Tax, with some element of charging by usage, with the installation of new water meters for every household. Now the state does not have the funds to pay for the meters, so an interim flat-rate household tax is due to be introduced 1 January 2012. Even though the tax will be initially modest, at 100 euro per household, this is admitted by finance ministers to be a temporary level to ease the introduction of the taxes which are to rise to the 1,300 level within two years, a trick that people have recently experienced with a bin tax.

The various organisations of the contestationary left and community and social campaigners are united around building a campaign for non-payment of the new taxes. This is partly on the model of previous successful campaigns against council rates and water charges back in the 1980s and early 1990s.

It must be noted that the most recent mass non-payment campaign around the previously-mentioned bin tax, was not successful. But that was in the middle of the celtic tiger boom when full employment and a growing, if illusory, sense of wealth amongst mortgage-owners were obstacles to building a solidarity campaign based on inability to pay. In today’s climate, with the reappearance of mass unemployment and many households being in arrears with their mortgages and basic utillity bill payments, the objective conditions for success are much more propitious.

40,000 Mortgage arrears

As just mentioned, the other elephant in the room of Irish politics is the situation of over 40,000 people who are currently more than 3 months behind in their mortgage payments. In many cases these are mortgages on prices paid for houses at the height of the boom, whose current value may have fallen to anything down to a half of the mortgage price. Both government and banks have over the last 2 years continually applied various sticking plaster measures to avoid confronting this problem or beginning any large scale evictions - something which is culturally taboo in Ireland for historical reasons.

Also from a bank perspective to evict families and take possession of a devalued asset means writing down the value of that mortgage and having the problem of disposing of a property on an already over-supplied market. So long as domestic property prices continue to fall, it is likely that this particular problem will keep getting put off to the future.

However, there is an obvious contradiction with the general plan of extracting the 2 billion directly from households if a good portion of these are already struggling to pay their mortgage. At some stage, especially if property prices were to stop falling (something which has been repeatedly promised for ‘next year’ every year so far since 2007), the re-imposition of capitalist discipline in the domestic property market must be attempted. 

Based on a talk first given at the 2011 Alternative Libertaire summer camp