Ireland: a bank with a small country attached
Posted on Thursday 30 September, 2010
Filed Under Economics, Ireland
STAMOCAP, as all true Marxist theory nerds will recollect, is an ugly little acronym for state monopoly capitalism. It comes in Stalinist or Trot variants, but the basic idea is that modern economies are characterised by a fusion of financial capital and the state.
About a decade ago I realised that the whole notion is actually bollocks, and that by confusing this observable trend in modern economies with settled reality, the far left general ends up with its political knickers in a twist.
But reading the Financial Times this morning, I couldn’t help wondering if Rudolf Hilferding – the bloke who thought the whole concept up – was onto something. The Irish state’s bailout of Anglo Irish Bank is gobsmacking stuff.
Banc Ceannais, the central bank, is going to stump up £30bn to keep Anglo Irish from going under. The move will send the budget deficit soaring from 12% of gross domestic product to an astonishing 32%. Overall public debt will hit around 100% of GDP, which is four times what it was in the Celtic Tiger years.
Finance minister Brian Lenihan admits that the state had little choice. No country could contemplate the failure of such an institution, he insisted. Or, in colloquial English: If Anglo Irish fails, Ireland goes tits up.
Except Ireland has already has both its knockers out and pointing resolutely heavenwards. It has experienced the deepest slump of any European Union country during the past three years, with GDP declining by 10% in 2008 and 2009, and expected to fall for a third successive year in 2010. Meanwhile, its cost of borrowing has hit record levels.
It is part of the eurozone, which means that it has to live with a monetary policy in which the top three concerns are Germany, Germany and Germany. If it is not careful, the EU could be about to get its first demonstration of Japan-style permanent stagnation.
What’s more, the talk in the City is that some of the other PIGS economies – as Portugal, Ireland, Greece and Spain are known – are in an even more parlous position.
Obviously, I’ll leave it to the Irish comrades to organise the protest campaign. But I cannot help but observe that policies that Ireland has pioneered in response to the post-2007 global economic travails have been based on slashing public sector payrolls and welfare benefits. Remind you of anybody?
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34 Responses to “Ireland: a bank with a small country attached”
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Er…..isn’t your final para exactly what Ed Balls said much more resoundingly in his speech yesterday?
‘But we don’t need to go back to the history books to see the warning signs over George Osborne’s economic policy – we only need to look across the Irish Sea.
Two years ago, the Irish Government convinced itself they had to slash public services and cut child benefits to get their deficit down as fast as possible and reassure the money markets.
The IMF praised the Irish government for its “sense of urgency”.
And what has happened since?
Recession turned to slump, unemployment at a 16-year high, 19 consecutive months of deflation, consumer spending and tax revenues plummeting, and the deficit worse now than when they started.
The Irish Economist David McWilliams said this week:
“It is like watching a slow car crash. The more they cut, the more the economy will continue to stagnate.”
George Osborne used to say that Ireland has so much to teach us, if only we were willing to learn.
Now he’s the one ignoring the lessons.’
[end quote]
And Greece is vastly more fucked than Ireland – but achieved this state with a generally very cautious and conservative banking sector – the deficit rocketed due to massive institutionalised corruption. in which the whole society gleefully participated (yes I know this is the narrative being pushed by international capital to justify its imposition of austerity measures – but that doesn’t necessarily make it completely untrue as an account of what happened historically).
In the last analysis Ireland has a highly skilled and well-educated workforce that can produce stuff that other countries want.
Much as I love Greece and the Greeks they really have nothing at all to offer globalised capitalism now that the international banks have belatedly realised that encouraging them to lie their way into the Eurozone was a bad idea and have turned off the flow of credit.
For the Greeks debt default and a siege economy with rationing, import controls etc may actually start looking like the easy option.
Yeah well Roger. He’s got better speechwriters than I have.
The Irish, along with the ‘PIGS’ and, of course, our very own ‘septic Isle’, have spent money they never had, thus, quotes from Ed Balls, a man who makes a drunken sailor look look like a man of probity, is not perhaps the best place to look for guidance!
Look, our governments owe the money-lenders. Forget the whys and the wherefors, they are in hock and the ‘Shylocks’ want their money back, or to be precise, they want increasingly heavy interest over very much shorter loan periods if our governments wish to continue spending in the style to which they have grown accustomed.
Thus, the solution is simple – a choice of two. Either you default and tell the lenders to get stuffed, or you conduct your spending in a way which will impress and placate your lenders so that they will continue to lend without onerous rates.
If you choose the first, it might make you feel slightly better because they will now be suffering as much as you will be. However, you still have to pay for the NHS, the schools, the welfare, the army, the police, etc, and as you were doing that on borrowed money which is no longer available, well, you will be (forgive the expression) as fucked as they are and **you will still have to cut public expenditure**! Also, when eventually this particular ‘alarm and excursion’ dies down you will still find yourself paying over the odds because money-lenders tend to have long memories!
If you take the second option, you still have to cut public services but at least you have a little leeway to choose exactly where, and when things improve, as they will, your money-lender will smile at you at and push the money sacks across the table at a resonable rate of interest. That this will encourage the likes of Brown/Balls to go on yet another spending spree is, alas, part of life’s rich texture!
Whichever way is chosen “There Will Be Blood”, or at least very severe cuts to public services. The only proper and pertinent argument for everyone, Right, Left or Centre, is where the axe should fall – not whether it should even be raised in the first place.
SOrry to have blathered on so long.
David Duff. The only thing I want to know is who are the anonymous money lenders and where they got the money to lend. It would be nice to see their faces. Maybe we should default and tell them whoever they are to fuck off.
Ask the bloke next door, Jimmy, because if he has a pension or savings plan there is a good chance that part of his money is invested in the Bond market.
Also, you obviously failed to read my comment in full – my fault, I was somewhat wordy – but if you tell the money-lenders to fuck off you will still have to cut government spending which depends on borrowed money! In fact, you will have to cut even deeper and more viciously because no-one will lend you a shilling!
This from The Guardian (I chose it because it might appeal to you more than the FT or the WSJ!):
“Public sector net borrowing came in at £15.9bn last month, official figures showed this morning, a record high for August and above City forecasts. The figure compares with the £14.1bn of borrowing seen in August 2009 and excludes the impact of the banking bailout.”
Agreed.
What is wrong about the narrative now being created around Greece is that the banks (except to some degree Goldman Sachs whose role in the creative accounting process is too huge to ignore) get off scot-free.
The Greek political elite although famously corrupt simply did not have the nous to lie themselves into the Eurozone and thus gain access to loans at 5% rather than 18% rates – they needed the support of international financiers who cooked the books and then effected to believe the transparently false stats that they were presented with.
Which is why a default is in fact the only moral course (which does not mean it is practical) – international finance capital created the problem by effectively putting a hopeless alcoholic in charge of the distillery and it should be them that pays the price and not the alcoholic’s family.
Dave – just pointing out that Balls made a surprisingly good speech – under present conditions I can’t really imagine anyone would make a better Shadow Chancellor.
Forget the whys and the wherefors
This is the main plank of the rightwing argument.
“Never mind who got us into this mess, you’re going to have to pay for it with your job I’m afraid. That’s just the way it is.”
boilermaker. It does not have to be the way it is. David Duff. Figures produced by the financial experts are for their own benefit. Borrowing should be a thing of the past. Taxation and educating people to pay for a decent society is possible. And good for democracy. I assume you want a decent society David!
Georgie Boy teaches us about Ireland and the Irish “miracle”:
“Look and learn from across the Irish Sea
A generation ago it would have seemed ridiculous to go to Ireland for economics lessons. Not any more
“George Osborne
A GENERATION ago, the very idea that a British politician would go to Ireland to see how to run an economy would have been laughable. The Irish Republic was seen as Britain’s poor and troubled country cousin, a rural backwater on the edge of Europe. Today things are different. Ireland stands as a shining example of the art of the possible in long-term economic policymaking, and that is why I am in Dublin: to listen and to learn.”
http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article733821.ece
Actually, ‘Boilermaker’, I deliberately avoided “the whys and wherefors” to spare your Left-wing blushes. One man was in charge of our financial and economic affairs over the last decade or so with full, almost dictatorial, powers over the regulatory machinery, so powerful was he that even the prime minister was, to quote a phrase, “too frit” to interfere. Now who was that … no don’t tell me … I’m sure it’ll come back to me …
Today, governments are falling over themselves to regulate this, that and the other in financial markets – so why weren’t they doing it ten years ago? Simple really, because it would have been highly unpopular, that’s why – and that is also why, in a democracy, you get the government *you* deserve. *You* voted for them, so now *you* are getting what *you* deserve.
Jimmy, before I answer your deceptive, and deceptively simple, question, allow me to ask you one: what, precisely and exactly, do *you* mean by “a decent society”?
Amazing that the British “left” is only just waking up to Ireland. Or maybe not. The sleep of sheep.
Read Fintan O’toole’s (Irish Times hack) “Ship of Fools” (Faber 2009) for a gut-turning account of the long-term complicity and “clientism” of all – politicians, bankers, developers, academics, unions, the media (oh, those wonderful property pages) etc. A fine book.
And today look at the total policy bankruptcy of the Irish Labour Party ~ just as fkg. clueless and impotent as the Brit version.
RTE calculated last night that the vast majority of the Irish banks and financial sector’s boards and execs, economists and “credit experts” (sic) are STILL in place! Plus ca change.
Capitalism may (one day) “eat itself”…it certainly won’t collapse from any current left challenge.
One man was in charge of our financial and economic affairs over the last decade or so with full, almost dictatorial, powers over the regulatory machinery, so powerful was he that even the prime minister was, to quote a phrase, “too frit” to interfere. Now who was that … no don’t tell me … I’m sure it’ll come back to me …
I’m not sure why that should make any lefty ‘blush’. Brown is certainly no lefty, and certainly was not acting as a leftwinger while letting the financial services industry run riot.
that is also why, in a democracy, you get the government *you* deserve. *You* voted for them, so now *you* are getting what *you* deserve.
Do you really believe that? I envy your childlike faith in our ‘democracy’.
David Duff. I was not being deceptive. I note you did emphasise what I personally consider to be a decent society. Well Britain is an example. Without the cuts to services of course. In my basic naivety I do not think those at the bottom of the shit heap should suffer for what those at the top of the shit heap deliberately mismanaged. In any case what is a few billion here or there in the scheme of things!
David Duff. I should maybe mention while we are on the subject that our gob shit First Minister Alec Salmond has almost run out of countries to praise whist slagging aff Britain. Ireland and Iceland were his favourites at first. He is now only left with Norway. Just goes to show that having all the training in banking and economics means sweet fuck all.
The best short article on Ireland I’ve seen was by Peter Boone and Simon Johnson on 2nd Sept:
‘Ireland, simply put, appears insolvent under plausible scenarios with current policies. The idea that Ireland, Greece or Portugal can cut spending and grow out of overvalued exchange rates with still large budget deficits, while servicing all their debts and building more debt, is proving – not surprisingly – wrong. Such policies leave nations burdened with large debt overhangs that effectively tax businesses and borrowers – because interest rates must stay high to reflect risk.
Investors must wonder whether businesses and homeowners can afford these higher interest rates, so banks and investors cut credit lines and reduce lending. This strangles economies, even when the fiscal authorities take tough steps needed to cut deficits.
Ireland had more prudent choices. It could have cut the budget deficit while also acknowledging insolvency and requiring creditors to share some of the burdens. But a strong lobby of real estate developers, the investors who bought banks’ bonds and politicians with links to the failed developments (and their bankers) prefer that taxpayers rather than creditors pay. The European Central Bank, the European Union and the International Monetary Fund share some responsibility; they advocate these unlikely programs in order that European and global banks, which provided the funds to the Irish banks, do not suffer losses from such bad lending decisions.
The Irish government plan is – with good reason – highly unpopular, but the coalition of interests in its favor seems strong enough to ensure that it will proceed, at least until it either succeeds and growth recovers, or ends in complete failure with default of banks or the nation itself.
Under the current program, we estimate each Irish family of four will be liable for 200,000 euros in public debt by 2015. There are only 73,000 children born into the country each year, and these children will be paying off debts for decades to come – as well as needing to accept much greater austerity than has already been implemented. There is no doubt that social welfare systems, health care and education spending will decline sharply.
Watch for renewed emigration from a famously footloose population. If current policies continue, the calamity of the Irish banking system will lead to a much deeper recession and the consequences will be felt for decades. Watch also for further global financial disruption as this kind of deal starts to unravel.’
Worth reading whole thing at http://baselinescenario.com/2010/09/02/irish-worries-for-the-global-economy/
Note that this inverts the standard narrative by arguing for default as the only realistic solution to a deficit of such enormity
Question is who will have the balls to adopt it politically – had PASOK for instance understood the true depth of Greece’s indebtedness before coming into power could they have chosen this line? – and if they had would it have actually given them far greater leverage vis-a-vis the IMF and ECB?
This really is uncharted territory for the Left – or is it?
Argentina unilaterally defaulted on a large part of its sovereign debt in 2002 and appears to have done remarkably well out of it recovering very rapidly from the 4-year recession it had been plunged into by austerity measures.
The other interesting aspect is that they radicalised austerity by placing a ceiling of $3,000 a month on all public sector salaries, selling off the state’s fleet of chauffeur driven cars, the presidential plane etc
Of course being Peronists who knows how far this was implemented in reality – Those Kirchners don’t look as if they’re short of a bob or two – but nevertheless it proved enormously popular.
So why is nobody looking hard at Argentina right now?
And does anyone know of a good recent book on Argentina’s economy?
“Just goes to show that having all the training in banking and economics means sweet fuck all.”
Happy to agree with you, Jimmy.
By the way, I used the word ‘deceptive’ in regard to your previous comment because you used the ‘deceptive’ word “decent”. It is, I’m afraid, one of those poor words whose meaning has been gang-banged out of it by constant rape by politicians. It shares the fate of, amongst others, ‘fair’, ‘Democratic’, ‘Social’, ‘sustainable’, etc, etc.
As just one example plucked from experience, I would describe the main streets of our ‘septic Isle’ on a Friday or Saturday night as anything but “decent”. But, you see, no-one can agree on what is “decent” anymore
Let me just squeeze through the drooling Marxist cretins to proffer a few obvious points:
Corporatism of the sort that has crippled Ireland is an antithesis to free-market capitalism; politicians and policy makers in Ireland have bordered on cronyism in relation to the assuring and recapitalising of Irish banks, why? Because the boom in Ireland was largely fueled through property (a third of all loans and investments made by the big three banks is under surveillance pursuant to the negative equity seen in the current property market), this is something that all major players – capitalists and politicians alike – invested in, that bubble has now burst. The recent financial debacle was not remedied through free-market tenets, rather interventionist ideas were adduced, that is Keynesian economics, this has been offered as the relevant anodyne – free marketers, such as can be seen in the Austrian school, have argued continuously against the assuring and capitalising of failing banks: if you Marxists want to learn about economics I suggest you start by reading about Business Cycle theory – the current mess is symptomatic of the normal ebbs and flows of the market.
Shane. It is not a mess as you say. It will recover for a while then a step back. The rich if they invest cleverly will not lose out. The majority will watch in awe hoping they will not have to dig up rotting spuds.
Here’s a thing – business cycle theory arguably owes considerably more to Marx, his followers (Kondratiev for example) and those heavily influenced by him (Schumpeter frex).
Certainly if Gordon Brown had paid more attention to Marx and less to the neo-classical school that has dominated the pseudo-profession of economics since the 1980s he would never have made the imbecilic claim that we had abolished boom and bust (and can you point to a single ‘orthodox’ economist who disagreed with him?).
But FWIW maybe there is an alternative left narrative that fully accepts everything the right says about the deficit – lets agree that it is an insupportable burden on future taxpayers and draw the logical conclusion from that – that default is the only option available if we are to survive as a nation.
Again the big question is did it really work for Argentina?
Argentina allowed a political space for 30000 workers to occupy and run their own factories, also.
http://en.wikipedia.org/wiki/Argentine_economic_crisis_%281999-2002%29#Worker-owned_cooperatives_and_self-management
A Socialist. The Argies also allowed a lot of Nazis in. The Argie ruling class like Chile allows some concessions to the workers provided the workers do not upset the ruling class! Less the workers suddenly disappear.
>>>Here’s a thing – business cycle theory arguably owes considerably more to Marx, his followers (Kondratiev for example) and those heavily influenced by him (Schumpeter frex).<<<
Which obviously isn't true.
So why is it ‘obviously’true?.
Marx devoted a very large part of Capital to describing cyclical business crises.
(I could give you page counts and references but you are really not worth the effort of my walking over to the bookcase and dragging out my copy).
Kondratiev developed the theory of long wave cycles.
Schumpeter while not a Marxist was by his own admission heavily influenced by Marx and theorised on the inevitability of socialism (although not being particularly enthusiastic about it) certainly made major contributions to business cycle theory.
Clearly you are yet another victim of epistemic closure – you really imagine that economics is a true science and that only the free market propagandists whose views are propagated in every Economics 101 course taught in the Western (or at least Anglophone) world are ‘real’ economists.
Of course we Marxists are not immune to epistemic closure ourselves – but how many of us seek to affirm our own prejudices by trolling right wing sites as you are doing here and as so many of your fellows do on more popular leftish sites?
You’ve at least for the moment won – you are free for the next five years to destroy everything that our forbears created and that we’ve somehow managed to hang on to through all the dark years of Thatcher, Major and Blair – and there’s seemingly fuck all we can do to stop you.
Isn’t that enough for you? – but no, you want to waste our time here as well?
Well you’ve wasted enough of mine – please fuck off back to whatever virtual hole you normally hang out at.
Rather undermined my rant by missing the ‘un-’ before ‘true’ at the start – but who is reading this stuff anyway….
Jimmy what exactly is your point with that Nazi comment? Are you attempting to draw an equivalence between worker operated factories and Nazism?
A Socialist. I was reminding you that Argentina is an extreme right wing country. What a few concessions to the workers has to do with the Irish economic crises is baffling.
Which isn’t business cycle theory.
I’m interested in Marx’s identification of the problems of capitalism but not his critique of it, and certainly not interested in his conclusions.
His ideas on capitalism are derived entirely from the Classical Economists and in particular Adam Smith – unfortunately for Marx, Smith, being the first of the Classical School, Smith is wrong on quite a lot of things (especially value theory and labour wages) – David Ricardo, James Mill and John Stuart Mill, men who represent the fullest development of the Classical School are hardly mentioned. Marx essentially hinged his economic ideas on the redundant theories of Smith.
Kondratiev I’ve never read; Schumpeter is part of the Austrian School – I see no Marxism in his work. Modern Business Cycle Theory – of the sort I’m referring to – was developed by Hayek and Mises – they won a Nobel Prize for it; you also misrepresent Schumpeter: he posited the idea of ‘creative destruction’ whereby the creative spirit that galvanised the middle classes in capitalistic enterprise inverted into itself whereby those same creative forces that once marked it for success proffers the fuel for its ultimate destruction, vis, socialism.
For someone who did actually theorise on the inevitability of socialism I suggest you read J.S.Mill Political Economy – in my humble view the only man to have framed a coherent socialist doctrine was Mills, but I doubt you’d find his socialism to your liking.
No, I don’t think economics is a ‘science’, it believe it is an ‘art’. Please don’t try and assume what I think – it should be obvious from what I’ve posted previously that I subscribe to Austrian economics, that in itself invalidates your presuppositions about me.
lol, why are the left wing so rude and infantile?
Roger – kleins the shock doctrine has some info on argentina.
The thing I find interesting as a marxist is how the right use these crises that they contributed to via the “misuse” of capital to social engineer their agenda – look at New Orleans for example.
As an irish person living in oz I had the pleasure of visiting Ireland in 2005 & found it quite profound that people thought the celtic tiger economy was sustainable – i could see that the wheels were beginning to come loose – maybe it was the benefit of being an outsider, but thats Ireland for you. The diaspora are not only ignored – they are locked out of any positive contribution to the politics of the country – so as a result everytime there is crisis people vote with their feet & leave and don’t come back. Social conciousness in Ireland is lost with each wave of emigration & it’s not welcomed back – because it suits the political class which is the reason why the diaspora is not entitled to vote. Even Italy has 2 senators electable by diaspora living in oz- not that this actually does anything, but i do see how it raises esteem & am jealous how italians wear their links to the home country. Irish people don’t get any of this – on most part we don’t give a shite, we refuse to talk about the situation at home and our contribution to these issues is via sport and going to a plastic paddy pub.
Shane – having read mills & living in an economy that invested a lot of money into infrastructure some of which based on his model – i wouldn’t say I’m living in a socialist paradise. Australia rode out the GFC on Chinas back but there has been benefits for the working class – work, new school buildings – Oz did not go down the austerity road – the working class had been a lot more militant in the past decade & would not have worn any more cuts.
From my perspective 12,000 km away granted – the working class leadership were afraid to rock the boat when things were good and are now reaping the harvest like in the mid eighties.
Mr Osler – if you read these comments – I would like to make some T-shirts displaying
Ireland: a bank with a small country attached
do you mind?
i would of course send you a tastefully designed tshirt as a thanks
Yes Ian, all comments read. Feel free. My size is medium.
“His ideas on capitalism are derived entirely from the Classical Economists and in particular Adam Smith – unfortunately for Marx, Smith, being the first of the Classical School, Smith is wrong on quite a lot of things (especially value theory and labour wages) – David Ricardo, James Mill and John Stuart Mill, men who represent the fullest development of the Classical School are hardly mentioned.”
I have only just read this drivel by drivel master Shane. Is he honestly trying to say that Marx hardly mentioned Ricardo and JS Mill!! Is this guy for real!!! He his the most eloquent ignoramus in Christendom.
I must take issue with David Duff on his use of a metaphor of sexual violence (‘gang-rape’); he needs to remember that he is not in his golf club now (if he belongs to one.).
‘Christendom’, now that’s a term one doesn’t hear every day.