Credit crunch: Ireland turns into another Iceland

More than 100,000 workers crammed into the streets of Dublin on 21 February for a protest organised by the Irish Congress of Trade Unions. Public and private sector workers were incensed by the government’s plunder of Euro 7bn from the National Pensions Reserve Fund to bail out Allied Irish Banks and Bank of Ireland. This was money originally set aside to finance the pensions bill of public servants retiring after 2025.

 “We want to see bankers coming out in handcuffs,” said one protester angrily.

The protest took place as the Irish economy was in freefall. With the demise of the once booming construction industry, the banking system is imploding. A collapse of exports and the slump in domestic demand has seen unemployment skyrocket.

Unemployment is 350,000 (up 70% on a year ago to a 15 year high) and may well reach the half million mark by year end. Workers are losing jobs every day – from Dublin Bus and Bus Éireann with losses of 600 without any pension rights, to SR Technics with losses of 1,000, and Dell with 1,900. Celestica, IBM, Boston Scientific, Waterford Glass – the list of companies where workers are being laid off grows daily.

The Fianna Fáil government, under the stewardship of Taoiseach Brian Cowen, presides over an economy that had, since the turn of the millennium, been roaring along on the back of a housing boom. Once hailed as the Celtic Tiger, the joke now doing the rounds is: “What’s the difference between Iceland and Ireland? One letter and six months.”

The construction sector, the previous motor of the economy, is stagnant. At a conference in mid-January, Morgan Kelly – Professor of Economics at University College Dublin – predicted house prices would fall by 80% from peak to trough. In turn the government has lost a considerable sum in taxes and stamp duty.

As a small, open economy, multinational investment formed the backbone of Ireland’s extraordinary export-led growth in the 1990s. This success was hijacked by property interests around the turn of the century, generating a property bubble fuelled by reckless bank lending. In 2007, 20% of our national income and employment came from building houses and commercial property.

The inevitable bursting of the housing bubble triggered a severe contraction in economic activity, a collapse of housing-related tax revenues and the accompanying rapid deterioration of public finances; there was also a marked weakening in the stability of the Irish banking system. The international credit crisis compounded these problems, by pushing many of Ireland’s trading partners into recession, and by precipitating a sharp rise in the value of the euro against sterling and the dollar.

Exports represent about four fifths of our national output, more than double the EU average, which means our fortunes are inextricably linked with those of global and European markets. The country’s export destinations, especially the US and UK, are in sharp recession. Devaluation of the currency to boost exports is out of the question given our membership of the eurozone.

The bond markets are pricing in a disaster for Ireland. Rating’s agency Moody’s has threatened to downgrade the Irish State’s AAA debt rating if the government’s finances deteriorate further. By the end of the year Ireland will owe foreigners at least Euro 90bn, equivalent to half the annual output of the economy and more than double the Euro 41bn the government raised in tax last year.

Default on sovereign debt is a real possibility. The cost of insuring Irish debt is now the highest in Europe, higher even than Italy, one of the most indebted countries in the world. Cowen hopes that with the “Recovery Plan” plus re-capitalisation of banks to tune of approx C= 7bn he will be able to reassure foreign banks that the government will manage the crisis and not renege on its debt.

Facing a huge budget deficit, Cowen has implemented cuts of
Euro 2bn this year, as the first step in a five-year austerity programme. As a start he slashed public sector wages by imposing a pension levy of up to 9% and a pay freeze.

This global mess was created by privatised, de-regulated and ultra-free markets. The Celtic tiger years were a period of buccaneering, tax-cutting, free-spending and huge subsidies to property investors. These actions greatly inflated the bubble and exacerbated the burst. Businesses pay virtually the lowest taxes in the developed world, have the lowest taxes on corporate profits and none on property. Ireland was in effect looked on as a tax haven due to the lax regulatory environment.

There is huge anger among workers at the incompetence of government and the innumerable corruption cases amongst business leaders and politicians. In mid-February opinion polls Fianna Fáil’s support plummeted; they now trail behind Labour. Another poll clearly rejected the recovery plan.

The union chiefs, business leaders and the government were engaged in meetings in January and early February to work out a new three year national wage deal. When the unions refused to agree on the Euro 2bn in cuts in public workers’ pensions, Cowen announced it unilaterally in the Dáil. The dispute was over the amount, union leaders under David Begg, leader of the Irish Congress of Trade Unions (ICTU), had already agreed in principle to cuts in the public sector; no surprise there, as we shouldn’t forget Begg is a board member of the Central Bank!

The so-called “social partnership” between unions and government was pioneered in 1987 with the Programme for National Recovery, under the stewardship of the very same David Begg. Industrial peace was traded for promises which were rarely kept, while wage restraint and productivity increases were delivered up by the trade union leaders.

Mass outrage was there for all to see on 21 February. So intense was it that the union leaders have been forced to organise further days of protest and ballots for one day strike actions, the first scheduled for 30 March.

The chief demand of the unions’ ten point recovery plan is for a resumption of the Partnership Talks. Despite their admission that the government, CIF and IBEC have reneged on the pay deal they negotiated in September 2008 they continue to insist on a “social solidarity pact” with government. The union leaders hope a few demos and limited strike action will allow members to let off a bit of steam and force the government to re-open partnership talks.

Twenty years of social partnership has paralysed worker activism: many have no experience whatsoever of fighting for a pay claim since their wages have been settled nationally. There is a need to build from the grassroots, reaching out to the rank and file in the trade unions and broadening out the struggle to embrace the unemployed, agency workers, students and community groups to oppose cuts in health, education, welfare and local services.

Already a fight back has begun. In Waterford workers have been in occupation of the Waterford Crystal Glass plant for weeks in a bid to stop the threatened closure (see www.permanentrevolution.net/entry/2559). The Civil Public and Services Union (CPSU) is to go on a one day strike on 26 February. The general union SIPTU has voted also for strike action. The teachers are balloting members later in March. There is an urgent need to co-ordinate all the strikes, to bring them forward and turn them from one day strikes into all-out indefinite ones to stop the cuts, the sackings, and root out and punish the corrupt.

Workers must reject the attempt by the bosses to drive a wedge between public sector and private sector workers. We must demand an end to business secrecy and for the opening of the books to workers’ inspection, to see where the money has gone and into whose pockets. Workers must use strike action, occupations and demand the nationalisation without compensation under workers’ control where plants are threatened with closure.

And 30 March must be turned into a general strike to force the government to abandon its pension levy, nationalise industries that announce mass redundancies and agree to above inflation pay deal for this year. If Ireland really turns into Iceland and the developing crisis brings down the government, then Labour must renounce any idea of coalition with Fine Gael, the conservative opposition party and Irish wing of European Christian Democracy. It must govern on its own and base itself on the mobilised workers.

Thu 18, June 2009 @ 17:52