Ireland may go to the polls on March 11th, but the huge implosion in the Fianna Fáil Party might yet bring that date forward. The FF and Green Party coalition government has eventually reached the end of the line, the Greens have left the government and will “support the finance bill from the opposition benches” Three years of austerity measures and a protracted period of political and financial uncertainty have completely transformed the political landscape in the state and affected the consciousness of all classes within society also.
But how could Ireland have reached such an impasse so quickly when for over a decade the state was heralded as an economic miracle, the Celtic Tiger? The answer lies in the worldwide economic crash and the slash and burn economic policies of the ruling coalition, policies which have seen a dramatic collapse in support for the ruling parties and a steady decline into chaos.
Throughout the late 1990s and the first years of the new century the Irish economy doubled in size growing at an average rate of 6% per year between 1995 and 2007. Unemployment fell and the decades long curse of the emigration of young people even went into reverse. The increase in world trade on the back of the economic boom and the development of the euro zone combined with a flood of foreign investment fuelled a huge construction boom. This boom which amounted to some 25% of the economy at one point was sustained by soaring house prices and cheap credit dished out by the banks. The outcome was an orgy of property speculation with widespread re-zoning of land and speculative building.
When the bubble burst the effects on the Irish economy were devastating. GDP fell in Ireland by 7.1% in 2009. Employment in the construction industry (which was a huge part of the boom fell from 229,800 in the 3rd Quarter of 2008 to 113,800 in the 3rd quarter of 2010. This represents a 50.5% fall in the official figures, although the full story is probably much worse as many workers would be working fewer hours or would be laid off for periods of time as well as the thousands who don’t appear on the official figures. The number of Irish workers working over 35 hours a week fell by some 20% over the same period, reflecting cuts in working hours.
The unemployment rate in the state is expected to remain at around 13.5% throughout 2011. House prices, which rose by 331.6% between 1998 and 2006, fell by 38.7% between 2007 and 2009 (including18.5% in 2009). It’s no surprise that emigration has begun again in earnest with recent reports indicating that some 1,000 people were leaving each week. One young worker interviewed on RTÉ recently reported that he was “the last man standing”, in other words from the 100 people in his year at school he was the last person left still living in Ireland.
The Irish economy is highly dependent on trade, and because of the relatively small size of the economy and its remoteness from the rest of the euro zone it is particularly vulnerable to currency fluctuations. For decades the Punt was tied to Sterling and now to the euro. Britain is a major trading partner and the fall in the value of the pound meant that Irish exports became far more expensive. In fact over the past two or three years the rise in the €/£ exchange rate means that some 25% of Irish families regularly travel to the North for their groceries.
Despite the relative strength of the banking sector within the Irish economy, by international standards the Irish banks are small. The building boom was built on the foundation of cheap credit and speculative building. The crash and the subsequent collapse in bank shares, which was an international phenomenon, placed the Irish banks in a particularly vulnerable situation. Central to the ongoing crisis in Ireland is the fate of two of the main banks, Bank of Ireland and Allied Irish Bank (AIB), as we explained in January 2009:
“The crisis of the Irish banks, however, has no end in sight. Since the market value of Irish bank shares reached a peak value of €59.44bn in February 2007, nearly two years later their market value stands at €1,65bn. Years of speculation, artificial extension of the Irish economic boom by means of easy credit, and huge profits ended abruptly at the end of September last year when the top executives of the Irish banks informed the government that they didn't have capital to face their liabilities.
“The Dáil approved on the 4th October last year the Credit Institutions (Financial Support) Bill 2008 in order to guarantee with €400bn the liabilities of AIB, Bank of Ireland, Anglo Irish Bank, Irish Life & Permanent, Irish Nationwide and EBS building society. Later the guarantee was expanded to €500bn to cover some foreign banks operating in Ireland.” (Ireland: government nationalises Anglo Irish Bank while the country faces the second worst recession in the EU, 28 January 2009)
This means that over a period of two years the book value of Irish banks collapsed by 97.22%. This crisis has acted like a running sore for the last two years. The “Golden Circle” scandal broke in early 2009 after it emerged that AIB lent a “Golden Circle of Investors” €300 million to buy a 10% share in the bank belonging to Séan Quinn who was after unloading it. The scandal re-emerged recently after the “Golf Gate” revelations, in which Sean FitzPatrick the former head of AIB claimed that he had discussed problems with Séan Quinn’s share holding with the Taoiseach as early as March 2008.
The Irish bourgeois is small and weak and tied hand and foot to the banks and the multinationals. Most workers wouldn’t be hugely surprised at the smell of brimstone around these allegations given the track record of bourgeois politicians in the state, notably Charles Haughey the ex-Fianna Fáil leader and Taoiseach. But the scale of the collapse in the Banks was directly translated into savage attacks in the living standards of the working class.
Leon Trotsky writing about the aftermath of the First World War in 1921 explained that:
“Each measure to which capitalism is constrained in order to make a step forward in restoring equilibrium, each and all of this immediately acquires a decisive significance for the social equilibrium, tends more and more to undermine it, and ever more powerfully impels the working class to struggle”. (Leon Trotsky, The First Five Years of the Communist International, Volume 1)
These prophetic words more than adequately describe the position faced by Capitalism on a world scale following the financial crash and the economic slump. The gigantic bailouts of the banks in a string of European countries and in the US now runs into $ trillions. But the structural problems faced by capitalism and the parasitic casino that is the world financial system threatened immediately to bankrupt many of the countries. The first wave included Iceland, where the banks were exposed to the extent of 500% of the Gross Domestic Product of the state. In October 2008 the Dáil passed a bill to guarantee €400 billion in deposits, which was later increased to €500 billion. This is more than 300% of GDP.
The depth of the crisis completely transformed the political situation on a world scale. But one thing has been clear from the start: someone would be presented with the bill. Under capitalism that means either the bosses or the workers. And the bourgeois will do whatever they can to make sure that they won’t be the ones to suffer.
The Fianna Fáil and Green coalition have carried out a whole series of austerity measures over the last few years, there have been budget cuts, emergency budget cuts, wage cuts, pension levies, cuts in social welfare and new taxes. But far from solving the problems of financing the Irish state the net effect of all these cuts has been to successively cut the market and further depress the economy.
The crisis in the Irish public finances mirrors the”Sovereign Debt Crisis” throughout Europe. While the crisis in Greece struck first, reflecting Greece’s position as the weakest link in the European economies, Ireland’s crisis has taken a more protracted route. The bailout of the banks was accompanied in Ireland by the establishment of a “bad bank”, the National Asset Management Agency”. This represents a toxic waste bunker for the Irish banking system into which bad debt can be deposited. As Fightback explained at the time:
“NAMA is like a black hole in space that potentially will suck in billions and billions of Euro. But it’s merely symptomatic of the deep crisis of capitalism internationally and particularly in Ireland. Only a complete break with capitalism, the socialist transformation of society in Ireland and Internationally, can ultimately solve the problems that capitalism in its degeneration and decay has created.” (NAMA: Putting Dracula in charge of the Blood Bank, 06 September 2009)
The full economic implications of the bailout of AIB became an issue in itself in the autumn of 2010 when the full cost of the bailout of the bank was announced. The figure, which had been the subject of widespread speculation, was eventually announced as being €29.5 million, which might actually be €34 billion in fact. But that’s not the end of it, as in reality the total cost of the bank bailout to the state was going to be around €46 billion, which is around 32% of GDP. Far from solving any of Ireland’s problems the bailout merely represented another sign of the political and economic crisis in the state; something had to give.
The outcome of this was to intensify Ireland’s woes on the International Bond Markets and increase the tension within the European Union. The development of the Euro means that the European states have less flexibility in terms of economic policy. The old policy option of currency devaluation – which gave national states a temporary competitive advantage over each other by reducing the price of their exports was no longer an option. During the boom the advantages of the single currency outweighed the negative features. But when the economies went into recession and trade dried up the contradictions became more exacerbated.
The amount that different nation states discount their government bonds to sell them on the financial markets has developed into a rule of thumb measure of the health of the economy and the capacity of the various governments to stay afloat. This discount rate can be represented as an interest rate, and it is possible to compare the relative strength of the economies by comparing them with the rate of interest that the bigger economies, especially Germany, can offer.
International credit agencies such as Standard and Poor’s award countries a credit rating dependent on the health of their economies. Over the course of the financial crisis in Ireland this rating has steadily declined and by December 2010 Ireland was just a few points above “Junk Bond Status”. This meant that the economy had entered a meltdown situation. After weeks of negotiations, denials and huge doses of wishful thinking on behalf of Finance Minister Brian Lenihan, the government entered into negotiations with the EU and the IMF over a massive bailout for the Government.
As we pointed out at the time:
“After weeks of dancing the seven veils, trying to hide what they were up to, the government, the EU and the IMF announced on prime time Television today that they have signed up to an €85 billion bailout. The money which has 5.8% interest rate attached to it will go to recapitalise the banks( €10bn); fund the budget (€50bn) and deal with “banking contingencies” (€25bn). So in other words the whole lot is going to bail out the banks and keep the government finances going.
“€85 billion is about €17,000 for every man, woman and child in the state. The fact that Cowen and Lenihan won’t be around to clean up the mess they’ve made is one thing, but to leave a bill of this scale is another thing all together. But to make things worse, the government will rub salt in the wounds of the working class by raiding the pension pot to help pay for the deal.
“This amounts to selling the family silver or basically asset stripping the state to the tune of about €10bn. Inevitably this will be followed up by further attacks on worker's pensions. This in and of itself will generate huge opposition. So if the government sought to gain anything politically from this deal, then the truth is they could well be whistling in the wind....
“While the bailout may take the heat off Ireland in the bond markets for a period, the problems in the Irish economy means that the bosses will still attempt to place the burden on the backs of the working class. On a European scale the crisis means that the speculators will merely look for another victim, as the logic of the speculators means that there will always be a country which is closest to the edge, and risk means profits.
“The limits of European integration have been demonstrated clearly during this crisis, as the contradictions between the different economies in the euro zone have become more acute.” (The IMF deal is struck: Cowen and Lenihan raid the family silver, 28 November 2010).
While presiding over the slump and the financial crisis the Fianna Fáil/Green Coalition have concentrated their fire on the Public Sector. Ireland’s economy doubled in size over the Celtic Tiger years and state spending increased also. But there is a world of difference between steady growth and a huge austerity programme. It’s not merely a question of rewinding public services to 2005/2006 levels as Brian Cowen has suggested.
The coalition launched a one sided civil war against the public sector workers, they were aided and abetted in this by the bourgeois press who launched a hysterical campaign against alleged “high wages and fat pensions”. The imposition of the pension levy in 2009 provoked a massive response from workers. Some 200,000 marched through Dublin in February and a one day national public sector stoppage was called for March 30th.
The March 30th strike was called off despite big votes in favour from the majority of unions, particularly the teaching unions, after IMPACT failed narrowly to secure a 66% vote in favour of strike action (the result was 65%). Had a genuine campaign been waged by the Irish Congress of Trade Unions (ICTU) and the IMPACT leadership the result of the ballot would not have been in doubt.
The cancellation of the March 30th action demonstrated the vacillation and prevarication of the Trade union leaders. Instead of presenting a militant intransigent class position on the cuts, the levies and the wage cuts the trade union leaders based their strategy on the principle of “Social Partnership”. As we explained at the time:
“As we have consistently explained there is truly ‘nowhere else to go’. The only way to stop the bosses’ onslaught is through coordinated national industrial action. If we give the bosses an inch they’ll take a mile and a country mile at that. Social partnership in a huge boom is an easy game; the bosses can afford to offer a few scraps to the workers. But under conditions of deep slump and crisis all bets are off.
“To rely on the old methods from the Celtic Tiger days is very short sighted. The bosses won’t make any concessions unless they absolutely have to do so. Relying on social partnership will be like firing a pea shooter against a tank. We know that weakness invites aggression. Just look what Thatcher did in Britain in the 1980s. The British trade union leaders held up the white flag and the Tories saw it as a sign of weakness.” (Ireland: class struggle on the rise as the slump deepens, 13 May 2009).
The government did indeed see the trade union leaders’ position as one of weakness. The private sector employers took the same view. The initial period of the slump saw some hard fought defensive battles, including the occupation of the Waterford Crystal factory. The bourgeois saw an opportunity to suppress wage levels and tear up national agreements. The TEEU strike in July 2009 and recent ballot results against wage cuts indicate, however, that the workers aren’t prepared to take this lying down.
At every turn the trade union leaders sought a compromise within the public sector on the basis of “social partnership”, the government span out the talks and the talks about talks for months. Trotsky explained in his 1940 article “Trade unions in the epoch of imperialist decay” that the trade unions will always seek an agreement with even the most reactionary governments. But he went on to explain these deals inevitably break down on the basis of pressure from the bosses on the one hand and the workers on the other.
In November 2009 the trade unions balloted for what was essentially a one day public sector general strike. The response of the workers was overwhelming, although the trade union leaders did their best to ensure that there was no demonstration and no big rally on the day. The trade unions called another strike day for December 3rd, but the leadership called the strike day off at short notice. The union leaders proposed a two week unpaid holiday for public sector workers as opposed to the government’s proposal for a pay cut across the board. The result underlined Trotsky’s analysis written 70 years earlier. As we explained,
“The talks between the government and ICTU have collapsed following pressure from the FF back benches. Apparently they had been pressured from “the private sector” to oppose plans for unpaid leave proposed by the union leaderships. Make no bones about it. What this really means is that the Irish bourgeoisie and the multinationals are putting on the pressure and demanding that the public sector takes huge cuts. It raises the temperature in what is already a charged situation. If the Irish Congress of Trade Unions had a fighting Socialist leadership; Ireland would be on the brink of a general strike. But that is far from the case. The public sector workers have demonstrated, struck and were ready to strike again. 250,000 were on strike on 24th November; that was the background to the talks over the last few days. But instead of using the militancy of the workers as a battering ram to stop Cowen and Lenihan from attacking the working class; David Begg and McLoone preferred a polite and gentle knock.
We have criticised the union leaders for their over reliance on social partnership and it’s obvious that their political outlook and programme has brought them to this stage. The programme of “unpaid leave” was as much dressed up to give the membership the impression that something had been won, as anything else. As we explained last week it was short time working by any other name. Remember that we have had talks about talks for months now and each time the outcome has been more cuts. Sisyphus was a character in the Geek myths who was forced to push a boulder repeatedly up a hill for eternity, just to watch it roll down again every time it got to the top. This is the same scenario that the ICTU leadership find themselves in. Each time they try and resurrect the long dead promises of social partnership and troop in to see the Taoiseach they end up with more cuts and levies. (Talks break down: Where next for ICTU? 06 December 2009)
Eventually, the government and the trade union leaders came to an uneasy agreement over wage cuts with a proposal that in return for a four year moratorium on wage cuts the unions signed up to a programme of “Public Sector Reform”. The Croke Park agreement was pushed through an emergency conference of trade unions by the ICTU leadership and a few of the big unions in the teeth of widespread opposition from various quarters, especially the teachers’ unions. Most significantly, however, the Deal was sold on prime time TV and radio and in the press by the government and the bosses.
But given the economic crisis and the huge budget deficit, it was inevitable that the deal would come under threat. In fact the four year economic plan announced in December 2010 calls for the full implementation of the deal. This may sound like a contradiction, but the truth is that the deal will be very difficult to implement. The “public sector reform” programme has already generated huge opposition. 10,000 marched through Navan to defend the local hospital recently. The Navan district has a population of only around 25,000 people. What is more dangerous, however, is the small print in the EU/IMF deal which places draconian targets on the public sector to achieve reforms. Already the government have proposed different contracts for new starters in the public sector. This is a wage cut by any other name.
But the political and economic crisis in the state has moved on apace. The election has been called and it won’t be Messrs Cowen and Lenihan who will be attempting to implement the reforms, manage the state budget and keep the wolves from the EU and the IMF at bay. The new government will be in crisis from its inception and if as seems odds on the new government will be a Fine Gael/Labour coalition, it will come under contradictory pressures from the bourgeois and the working class.
Certainly the Irish bourgeois cannot afford to rule in the same way as before, Fianna Fáil are completely discredited. Cowen has been forced to resign from the leadership of FF, but has hung on as Taoiseach. The FF are down to 14% in the polls as against 42% in the last election. There are likely to be four potential candidates for the party leadership, but the scale of the crisis means that the party is fragmented and in an impasse. Many of the leadership are retiring at the next election. It’s not ruled out that the party could split resulting in a realignment, in a similar vein to the Progressive Democrats, although this is not the most likely outcome at this stage.
But the crisis in the state is reflected inside Fine Gael also. The Irish bourgeois have no answers to the crisis. There is in fact no solution on the basis of capitalism other than to slash workers’ wages and conditions. This is a recipe for class struggle. Already there has been a shift toward the Labour Party in the polls, although it has fallen back recently. With a clear socialist programme there is no doubt that Labour could secure a majority government. Coalition politics will become a big issue within the Labour Party at a certain stage. This was the case in the 1980s when a left wing developed in opposition to the coalition’s programme. Over the next few years the same arguments will emerge, but on a higher level. The ideas of Marxism and of James Connolly and Jim Larkin will receive a growing echo across the whole of the island of Ireland.
But the key task for the Labour Party and the trade unions today is to drive Cowen and Lenihan out of office and maximise the Labour vote in the general election. But at the same time the trade union movement and the party need to be rearmed with a clear socialist programme. The two objectives cannot be artificially separated.