Sinking Ireland

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 percent 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 five 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 before the 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, to 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 neo-liberal crew before it ran into difficulties.

But, the IMF can turn quickly. Its austerity program lowered GDP by almost 10 percent 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 the 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 getting 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 realize is that if they agree to play by the bankers’ rules, they will lose.

DEAN BAKER is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This column was originally published by The Guardian.


More articles by:

Dean Baker is a macroeconomist and co-director of the Center for Economic and Policy Research in Washington, DC. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University.

Weekend Edition
March 16, 2018
Friday - Sunday
Michael Uhl
The Tip of the Iceberg: My Lai Fifty Years On
Bruce E. Levine
School Shootings: Who to Listen to Instead of Mainstream Shrinks
Mel Goodman
Caveat Emptor: MSNBC and CNN Use CIA Apologists for False Commentary
Paul Street
The Obama Presidency Gets Some Early High Historiography
Kathy Deacon
Me, My Parents and Red Scares Long Gone
Jeffrey St. Clair
Roaming Charges: Rexless Abandon
Andrew Levine
Good Enemies Are Hard To Find: Therefore Worry
Jim Kavanagh
What to Expect From a Trump / Kim Summit
Ron Jacobs
Trump and His Tariffs
Joshua Frank
Drenched in Crude: It’s an Oil Free For All, But That’s Not a New Thing
Gary Leupp
What If There Was No Collusion?
Matthew Stevenson
Why Vietnam Still Matters: Bernard Fall Dies on the Street Without Joy
Robert Fantina
Bad to Worse: Tillerson, Pompeo and Haspel
Brian Cloughley
Be Prepared, Iran, Because They Want to Destroy You
Richard Moser
What is Organizing?
Scott McLarty
Working Americans Need Independent Politics
Rohullah Naderi
American Gun Violence From an Afghan Perspective
Sharmini Peries - Michael Hudson
Why Trump’s Tariff Travesty Will Not Re-Industrialize the US
Ted Rall
Democrats Should Run on Impeachment
Robert Fisk
Will We Ever See Al Jazeera’s Investigation Into the Israel Lobby?
Kristine Mattis
Superunknown: Scientific Integrity Within the Academic and Media Industrial Complexes
John W. Whitehead
Say No to “Hardening” the Schools with Zero Tolerance Policies and Gun-Toting Cops
Edward Hunt
UN: US Attack On Syrian Civilians Violated International Law
Barbara Nimri Aziz
Iraq Outside History
Wilfred Burchett
Vietnam Will Win: The Long Hard Road
Victor Grossman
Germany: New Faces, Old Policies
Medea Benjamin - Nicolas J. S. Davies
The Iraq Death Toll 15 Years After the US Invasion
Binoy Kampmark
Amazon’s Initiative: Digital Assistants, Home Surveillance and Data
Chuck Collins
Business Leaders Agree: Inequality Hurts The Bottom Line
Jill Richardson
What We Talk About When We Talk About “Free Trade”
Eric Lerner – Jay Arena
A Spark to a Wider Fire: Movement Against Immigrant Detention in New Jersey
Negin Owliaei
Teachers Deserve a Raise: Here’s How to Fund It
Kollibri terre Sonnenblume
What to Do at the End of the World? Interview with Climate Crisis Activist, Kevin Hester
Kevin Proescholdt
Secretary of Interior Ryan Zinke Attacks America’s Wilderness
Franklin Lamb
Syrian War Crimes Tribunals Around the Corner
Beth Porter
Clean Energy is Calling. Will Your Phone Company Answer?
George Ochenski
Zinke on the Hot Seat Again and Again
Lance Olsen
Somebody’s Going to Extremes
Robert Koehler
Breaking the Ice
Pepe Escobar
The Myth of a Neo-Imperial China
Graham Peebles
Time for Political Change and Unity in Ethiopia
Terry Simons
10 American Myths “Refutiated”*
Thomas Knapp
Some Questions from the Edge of Immortality
Louis Proyect
The 2018 Socially Relevant Film Festival
David Yearsley
Keaton’s “The General” and the Pernicious Myths of the Heroic South