The Irish people expected to pay in austerity cuts for their banks' sins have another option. Reject the ECB and IMF, ditch the euro.
When a firefighter or medical team make a rescue, the
person is usually better-off as a result. This is less clear when the rescuer
is the European Central Bank (ECB) or the IMF.
Ireland is currently experiencing a 14.1%
unemployment rate. As a result of bailout conditions that will require more
cuts in government spending and tax increases, the unemployment rate is
almost certain to go higher. The Irish people are likely to wonder what their
economy would look like if they had not been rescued.
The pain being inflicted on Ireland by the ECB/IMF is
completely unnecessary. If the ECB committed itself to make loans available to
Ireland at low interest rates, a mechanism entirely within its power, then
Ireland would have no serious budget problem. Its huge projected deficits stem
primarily from the combination of high interest costs on its debt, and the
result of operating at levels of economic output that are well below full
employment – both outcomes that can be pinned largely on the ECB.
It is worth remembering that Ireland's government was a
model of fiscal probity prior to the economic meltdown. It had run large
budget surpluses for the 5 years prior to the onset of the crisis. Ireland's
problem was certainly not out of control government spending; it was a reckless
banking system that fueled an enormous housing bubble. The economic wizards at
the ECB and the IMF either couldn't see the bubble or didn't think it was worth
mentioning.
The failure of the ECB or IMF to take steps to rein in
the bubble beforethe crisis has not made these international financial
institutions shy about using a heavy hand in imposing conditions now. The plan
is to impose stiff austerity, requiring much of Ireland's workforce to suffer
unemployment for years to come as a result of the failure of their bankers and
the ECB.
While it is often claimed that these institutions are not
political, only the braindead could still believe this. The decision to make
Ireland's workers, along with workers in Spain, Portugal, Latvia and elsewhere,
pay for the recklessness of their country's bankers is entirely a political
one. There is no economic imperative that says that workers must pay; this is a
political decision being imposed by the ECB and IMF.
This should be a huge warning flag for progressives and,
in fact, anyone who believes in democracy. If the ECB puts conditions on a
rescue package, it will be very difficult for an elected government in Ireland
to reverse these conditions. In other words, the issues that Ireland's voters
will be able to decide are likely to be trivial in importance relative to the
conditions that will be imposed by the ECB.
There is no serious argument for an unaccountable central
bank. While no one expects or wants parliaments to micromanage monetary policy,
the ECB and other central banks should be clearly accountable to elected
bodies. It would be interesting to see how they can justify their plans for
subjecting Ireland and other countries to double-digit unemployment for years
to come.
The other point that should be kept in mind is that even
a relatively small country like Ireland has options. Specifically, they could
drop out of the euro and default on their debt. This is hardly a first best
option, but if the alternative is an indefinite stint of double-digit
unemployment, then leaving the euro and default look much more attractive.
The ECB and the IMF will insist that this is the road to
disaster, but their credibility on this point is near zero. There is an obvious
precedent. Back in the 2001, the IMF was pushing Argentina to pursue ever more
stringent austerity measures. Like Ireland, Argentina had also been a poster
child of the neoliberal crew before it ran into difficulties.
But the IMF can turn quickly. Its austerity programme
lowered GDP by almost 10% and pushed the unemployment rate well into the double
digits. By the end of the 2001, it was politically impossible for the Argentine
government to agree to more austerity. As a result, it broke the
supposedly unbreakable link between its currency and the dollar and defaulted
on its debt.
The immediate effect was to make the economy worse, but
by the second half of 2002, the economy was again growing. This was the start
of five and a half years of solid growth, until the world economic crisis
eventually took its toll in 2009.
The IMF, meanwhile, did everything it could to sabotage
Argentina, which became known as the "A word". It even
used bogus projections that consistently under-predicted Argentina's
growth in the hope of undermining confidence.
Ireland should study the lessons of Argentina. Breaking
from the euro would have consequences, but it is becoming increasingly likely
that the pain from the break is less than the pain of staying in. Furthermore,
simply raising the issue is likely to make the ECB and IMF take a more moderate
position.
What the people of Ireland and every country must realise
is that if they agree to play by the bankers' rules, they will lose.