progressive-economy@tasc

Google and Ireland's tax regime

noreply@blogger.com (Nat O`Connor) — Fri, 17 May 2013 09:09:00 +0000

Jim Stewart was on RTE radio 1 Morning Ireland today talking about Google and Ireland's tax regime. This can be heard here.

Ethics and regulation: complements, not alternatives

noreply@blogger.com (Sheila Killian) — Wed, 15 May 2013 17:25:00 +0000

Last week former Taoiseach and President of IFSC Ireland, John Bruton, said that the banking industry needed "to focus on ethics rather than regulation". As someone who strongly supports the idea of ethical codes and a more central role for ethics in business, I found this remark and the casual way it was accepted unhelpful on many levels. Ethics are not an alternative to regulation; rather regulation is needed to support ethical behaviour.

First, what do we mean by ethics in business? There are many approaches; to illustrate why ethics are not an alternative to regulation, consider just three.

You can take a deontological approach, like that that of most religions, and impose an absolute moral code. Something is either right or it is wrong, no exceptions. You can see aspects of this in some corporate codes of conduct: some things such as fraud, insider trading or forced labour are simply prohibited, regardless of the consequences at the time. These things are unethical – everything else is OK. Because of the inflexibility of prohibiting an action, the list tends to be a short one, and not very useful for complex “grey area” situations.

In contrast, a utilitarian or consequentialist approach hinges on the idea that the morality of any action is completely determined by its consequences. So in its purest form, faced with a decision, you could weigh up the impact on all parties and choose the course of action that minimises harm or maximises good. So while stealing might be “wrong” under a deontological approach, utilitarian ethics might allow it under some circumstances, such as the theft of food from a profitable business to save the life of a starving child. This is pragmatic and useful, but depends on the person making the decision having been really well trained; unless business schools and professional institutes put serious weight behind teaching the process of ethical decision-making, it is unreasonable to expect individual employees to respond in the best possible way when making snap decisions in a fast-moving and high-pressure environment.

As a final example, a virtue-based approach to ethics comes from Aristotle’s ideas of how to be, rather than what to do. A decision on a particular situation could be reached by asking, “Am I the sort of person who would ...?” or, “Are we the sort of organisation that ..?” This can work really well for individuals, but won’t work in business unless everyone in the organisation is aware of and supports the sorts of virtues or values that the firm as a whole espouses. Since these values are not based on rules, they must be embodied by the leaders within the organisation – a kind of ethical role-modelling which be either positive or negative, depending on who’s in charge and how they behave.

Now the question is: which of these approaches, bearing in mind that they are only three of a myriad of ways of describing and understanding business ethics, could credibly act as an alternative to regulation in an industry as cut-throat and prone to moral hazard as banking?

The absolute moral code of deontological ethics is barely compatible with capitalism, and would be either limited or diluted by its application to profit-seeking financial innovation. The utilitarian approach is pragmatic but time-consuming, and depends heavily on training. Virtue-based ethics comes close to a personal ideal, but depends on individuals to an unsustainable degree.

They are all good to have in an industry, but will never work alone.

The trouble with ethics in isolation is that unless they seem coherent with the overall climate in which an individual is working, he or she will lack the confidence to “do the right thing” even where the “right thing” is clear. I might know that stealing is wrong, for example, but if all of my peers are routinely cleaning out the stationery cupboard and falsifying expense claims, then my personal belief is constantly challenged by the daily experience. This is where regulation – clear rules of law with penalties and consequences for non-compliance – will support ethical standards, reinforcing rather than replacing them.

Of course regulation also has the happy advantage of being effective even for people who would never embrace an ethical code. Even sociopaths fear the law. In that sense, regulation has a wider impact than business ethics, and is a baseline if we are to expect better corporate behaviour. Without punishments, some people will never obey rules. But most employees are not sociopaths, so training in ethical decision-making will also have a useful effect, enhancing the impact of regulation, and ensuring that it is implemented in spirit as well as in statute.

What the industry needs is not "to focus on ethics rather than regulation," but to enforce regulation and resource ethical training. Then we might see the change we need.

Sheila Killian

@islandtotheleft

Stiglitz on the need to reform our (their) economic models

noreply@blogger.com (Nat O`Connor) — Fri, 10 May 2013 09:14:00 +0000

Paul Sweeney: Stiglitz on the need to reform our (their) economic models, on Social Europe Journal here. A bit long but a good analysis.

TASC-FEPS Conference 'Reconstructing the European Economy (June 14th)

noreply@blogger.com (Nat O`Connor) — Thu, 09 May 2013 09:47:00 +0000

The TASC-FEPS Conference 'Reconstructing the European Economy' will take place in the Conference Centre Croke Park on Friday 14th June. We hope you can join us at what promises to be a very lively debate on the European crisis.

To register for the event please email Sylvia at sbyrne@tascnet.ie

Reconstructing the European economy will need evidence-based policy making and a willingness to challenge the status quo and prevailing conventions. The annual TASC-FEPS conference is an opportunity to hear progressive, evidence-based ideas on how sustainable economic recovery can be achieved in the European and Irish economies.

The Conference will be opened by Minister for Communications, Energy and Natural Resources, Pat Rabbitte TD.

Confirmed speakers include: Mr Lars Andersen, Managing Director, ECLM Denmark; Dr Hannah Bargawi, Researcher CDPR SOAS, University of London; Professor Malcolm Sawyer, Professor of Economics at Leeds University; Dr Susan Newman, Lecturer, Department of Economics of Sustainable Development at Erasmus University Rotterdam.

The afternoon keynote address will be given by Professor John Weeks, Professor Emeritus and Senior Researcher at CDPR, University of London.

Context
The European economy remains in crisis. Unemployment in the Euro zone has reached a record high of 12 per cent. Almost one third of Euro zone member states have already been forced into official bail-out programmes, while other member states’ economies remain enfeebled. The financial sector remains dysfunctional and the Euro zone itself is characterised by structural competitiveness imbalances and widely diverging economic prospects. The economic crisis is a systemic crisis that requires systematic solutions. The official response to the crisis has been insufficient and often incoherent. The current responses have been preventive and reactive rather than building the institutional and economic foundations of a system that would put European on a different developmental trajectory where job creation and equitable growth takes centre stage.

A Europe facing the prospect of stagnation and high unemployment needs innovation and reindustrialisation from modern evidence-based industrial policy together with alternative macroeconomic policies. Likewise, the institutions of the Euro zone proved to be inadequate to deal with the scale of the catastrophe in Europe’s financial institutions, and inadequate to prevent the explosion of public and private debt. Fundamental changes to ECB and Euro zone rules may be required if the currency is to assist job growth and a strong European economy in future. Design flaws must be rectified.

The quality of the economic policy debate must be strengthened at national and European level. Reconstructing the European economy will need evidence-based policy making and a willingness to challenge the status quo and prevailing conventions. The annual TASC-FEPS conference is an opportunity to hear progressive, evidence-based ideas on how sustainable economic recovery can be achieved in the European and Irish economies.

Neither Fair or Equitable - The Impact of Government Cuts on Traveller Services

noreply@blogger.com (Aoife) — Tue, 30 Apr 2013 10:26:00 +0000

Pavee Point published a report yesterday, on the impact of cuts over the last five years on Traveller projects and services. The report, authored by Brian Harvey, can be downloaded here.

Pavee Point asked us to provide a brief response to the report at the launch yesterday, here is the text of that response:

One of TASC’s main roles is to analysis Government budgets and to make alternative policy proposals. We also focus on transparency and democracy. This report, published today by Pavee Point, has relevance for all those issues.

After five years of austerity policies, we should not be easily shocked. However, the details and figures contained in this report are extremely stark and tell a story that exceeds in its bleakness, many of the reports we have been hearing since the crisis began.

Where government spending has been cut by 4.3 per cent, the voluntary and community sector is seeing a yearly cut of 8-10 per cent. Cuts of this level have a devastating effect on the communities these programmes and organisations serve.

However, cuts in the magnitude of 86 per cent in Traveller education and 85 per cent in Traveller accommodation, 63 per cent in Traveller organisations over the same period far outstrip those made in other areas and it is difficult to see an explanation for this level of cuts focused on a single community other than that of marginalisation and exclusion.

In drawing together these figures and presenting a picture of cuts over five years, this report has made it possible to view a more comprehensive and honest picture of how the Traveller Community has been disproportionally affected by Government policy.

However, as the report itself outlines, the compilation and analysis of these figures was a difficult task. The budgetary process and the lack of sufficient information and data released by Government hampers contemporary research and analysis into Government spending and outcomes.

Even by Ireland’s standards, Budget 2013 was backwards step in terms of budget transparency, with some departments, such as Justice and Equality, Environment, Community and Local Government and Education and Skills providing a weaker level of detail, or spending under subheadings than the previous year.

We had to wait months until the revised estimates gave greater information, by which time, most of the budget measures have been passed and the media debate had moved on. This makes it very difficult for civil society, communities and citizens to engage and mobilise on decisions which affect them.

As the report further demonstrates, much of the support available to the Traveller community comes by way of supports available to disadvantaged communities and is not Traveller specific. This means that again, it is difficult to assess the level of support accessed by the Traveller community and therefore the level of cuts suffered by it.

In 2013 there should be no excuse for the poor level of statistics in relation to Traveller participation and outcomes in the education sector and the monitoring of the consequences of the withdrawal of services as outlined in the report.

The current Programme for Government agreed by Fine Gael and Labour contains a strong commitment to openness and transparency. Not least, on page twenty three, the pledge that “We will open up the Budget process to the full glare of public scrutiny in a way that restores confidence and stability by exposing and cutting failing programmes and pork barrel politics.”

However, confidence and stability also comes from debating and understanding the rationale, and possible consequences of budgetary decisions.

A proper system of equality budgeting would assist in this task.

One of the consequences of the closed nature of budgetary decision-making over the past few years is that budgets are passed in a vacuum, where the multiplicity of impacts on certain groups in society is not adequately considered or debated.
If you decide to target secondary benefits for example, there is a good chance that those who are most dependent on social transfers will suffer the most.

This report demonstrates the cumulative effects of decisions made across different departments on one such group. Budgets should be examined for the cumulative effects on specific groups, including Travellers, across departments and on a multi-annual basis, rather than lurching from year to year.

One of the most disappointing aspects of Government policy during the crisis is that it threatens to roll back progress made in the preceding years. Progress, as stated in the report, which was hard fought and hard won.

The Government’s main task during this crisis, as articulated by the Government (previous and current) itself, the media and our European partners is to reduce the deficit and return to growth.

However, disinvestment in Traveller services and facilities, in particular, education and accommodation, is a false economy. A return to growth demands investment, in particular in education and in capital projects.

It is not clear what is to be gained in the long-run by further marginalising a community or disinvesting in its future.

Over the past number of years, many organisations and groups (e.g. TASC, SJI etc.), have provided alternative policies for closing the deficit, ones that would not increase inequality.

There is no need for any group in our society to bear the disproportional impacts of cuts that the Traveller community has, these are political choices, not economic ones.

Debt, Growth and Coding Errors

noreply@blogger.com (Tom McDonnell) — Wed, 17 Apr 2013 08:41:00 +0000

Tom McDonnell: Reinhart and Rogoff's finding that the growth rate starts to decline once the public debt to GDP ratio exceeds 90% has become embraced as a stylised fact by the commentariat and in particular by the austerians. However, a recent paper by Thomas Herndon, Michael Ash and Robert Pollin has critiqued this finding. As Slate reports here, Herndon et al. find that the Reinhart and Rogoff result is attributable to a coding error, and they also raise other methodological objections. Herndon et al. find that overall the evidence contradicts Reinhart and Rogoff's claim that public debt loads greater than 90% of GDP consistently reduce GDP growth.

It will be interesting to see how Reinhart and Rogoff respond to the Herndon critique.

Optimal taxation of top incomes

noreply@blogger.com (Tom McDonnell) — Tue, 16 Apr 2013 16:08:00 +0000

Tom McDonnell: You can find an interesting paper on optimal top marginal tax rates here. The authors find that the optimal top marginal tax rate converges to about 2/3. You can read a synopsis of the findings here.

Bringing Balance to Imbalance

noreply@blogger.com (Tom McDonnell) — Tue, 16 Apr 2013 09:17:00 +0000

Tom McDonnell: The results of the EU Commission's review of macroeconomic imbalances can be seen here. Andrew Watt attacks the partiality and findings of the report here.

Conference on "Understanding the Changing Worlds of Capitalism", May 1st

noreply@blogger.com (Seán Ó Riain) — Mon, 15 Apr 2013 12:32:00 +0000

Understanding the Changing Worlds of Capitalism:
New Perspectives on the Political Economy of Work, Production and Employment Regimes

A Research Conference
NIRSA/ Sociology
May 1st 2013, Renehan Hall, NUI Maynooth

Workshop on Industrial policy in Comparative Perspective, Thursday April 25th

noreply@blogger.com (Seán Ó Riain) — Tue, 09 Apr 2013 20:52:00 +0000

Whither Industrial Policy? The Future of Public Institutions and Economic Development

3-6 pm, Thursday April 25^th 2013
Institute of Bankers, 1 North Wall Quay, Dublin 1
Sponsored by NUI Maynooth (NIRSA/ Sociology) and UCD Geary Institute

Globalisation, regional economic clusters, open systems of innovation, financialisation, legal restrictions on state aid and a range of other factors appeared to have consigned industrial policy and the developmental state to history. However, as economies struggle to restore growth and seek models of sustainable prosperity, there is renewed interest in the role of public institutions in promoting industrial and regional development. Moreover, recent decades have seen significant experiments with new forms of ‘old’ institutions – ranging across the industrial development agencies of Israel and Taiwan, the state investment banks of Germany and Brazil and the diverse network of agencies promoting innovation in the US.

This workshop explores the new forms of industrial and innovation policy that have emerged in recent decades. It examines their distinctive features, limitations and potential and asks what futures there might be for a developmental role for public institutions.

3-4.20 Public Institutions, Innovation and Growth in the Knowledge Economy

Chair: Seán Ó Riain, Sociology/ NIRSA, NUI Maynooth

Danny Breznitz, College of Business, Georgia Tech

“The Diverse Paths to Rapid-Innovation-Based Growth: The Strategic Role of the State”

Shiri Breznitz, School of Public Policy, Georgia Tech

“The Fountain of Knowledge? University Technology Transfer and Economic Development"

4.20-4.45 coffee

4.45-6 Round-table Discussion

The Role of the State in Development Strategies in a Changing Economic Landscape

Chair: Niamh Hardiman, Geary Institute and SPIRe, UCD

Short contributions from the following will be followed by discussion.

Seán Ó Riain, Sociology/ NIRSA, NUI Maynooth

Philip O'Connell, Geary Institute, UCD

Aphra Kerr, Sociology/ NIRSA, NUI Maynooth

Patrick Paul Walsh, School of Politics and International Relations, UCD

The workshop is funded by the European Research Council and the Irish Research Council for the Humanities and Social Sciences. It is sponsored by the ‘New Deals in the New Economy’ project at NUI Maynooth (NIRSA/ Sociology) and ‘The Political Economy of the European Periphery’ at UCD Geary Institute.

Registration is free but places are limited. To register please email geary@ucd.ie with the subject line “Industrial Policy” before Monday April 22nd.

Information on Venue and Transport is available here

'Social Security for All'

noreply@blogger.com (Nat O`Connor) — Thu, 04 Apr 2013 15:31:00 +0000

Nat O'Connor: Compass in the UK have produced a short briefing document entitled 'Social Security for All' as a way of (re)making the case for the welfare system/welfare state. Although they are writing in a UK context, a lot of the principles and basic challenges they highlight are very relevant for Ireland.

What's a Euro anyway?

noreply@blogger.com (Sheila Killian) — Tue, 26 Mar 2013 14:24:00 +0000

Is a euro in a Cypriot bank, locked down by withdrawal limits and capital controls, the same as a euro in an Irish or French bank?

Is a euro sitting in, say, a payroll account in Laiki with a balance of more than €100,000 (and subject to an unspecified “haircut” on Thursday ) the same an “Irish euro”?

They’re both euro, both promises to pay the bearer, but honestly, do you have a preference? Of course you do. You’d prefer your money to be outside Cyprus. You’d prefer an Irish euro to a Cypriot one. So they’re not the same. Do we even have a single currency now, then? What does the Euro mean?

And how did this happen? At least in part, it happened because all the finance ministers of the Eurozone sat around earlier this month and let the Cypriots leave the room with a proposal to make depositors pay for bank losses, including insured depositors with balances of less than €100,000. They rowed back on that part, but you can’t undo the damage of their having taken it seriously to begin with. Imagine a snowed-in family just once agreeing “if we get really hungry, we can eat the rabbit”. You can take that back all you like – everybody knows the rabbit’s not safe any more. He’s not just a pet, he’s protein. Depositors aren’t just protected customers now, they’re also a source of money to save the bank.

We sat back and let that happen – all the Eurozone countries did. We let deposits in Cyprus undergo that subtle shift in meaning. We let their banks be closed for ages, with devastating impact on small firms and families. We let their tax rate be changed. We let them hang out there, hoping it would save us, the rest of this uneasy union. Where does that leave solidarity, in this European Project under our presidency?

Just now, you’d prefer an Irish euro to a Cypriot one. Remember that feeling, because, as Martin Niemöller might have written were he more interested in money, and living in more peaceful times, “First they came for the Cypriots ...”

Sheila Killian

@islandtotheleft

Drivers of progressive tax

noreply@blogger.com (Sheila Killian) — Tue, 12 Mar 2013 11:41:00 +0000

A recent OECD report olooks at the progressivity of income tax systems in their 34 member countries. A progressive tax is often simply defined as one where you pay a higher rate at higher income, but the OECD goes a little further, incorporating social security contributions, child benefits and some other measures. They also consider different sorts of taxpayers – single people and single-income couples, both with and without children. The big limitation of their analysis is that they only look at how progressive the tax system is up to the level of twice the average wage. This matters because countries with a welfare system targeted at low earners will tend to be progressive at those levels. In fact, across the OECD, taxes are more progressive at low incomes, and less so as incomes rise. Despite this caveat, the report has interesting analysis, and gives a really interesting picture of where Ireland is, albeit at lower income levels.

So how do we fare, as a country? Well, we stand out in a number of ways. The headline result is that on average our tax system looks really progressive – we’re at or near the top of most tables across the OECD. When you drill into our individual charts, however, you can see that this is largely driven by how our system works at the lowest income levels. We are progressive here, particularly when social security contributions are taken onto account because the USC is charged a lower rate in this level. As you reach and exceed the average industrial wage, our progressivity drops dramatically, which is why in Ireland in particular it would be nice to see this study extended into higher income brackets.

We show a few interesting kinks in our system especially when you compare tax wedges and tax rates for taxpayers with and without children. Much of this kicks in at income levels of around €50,000 and probably derives from the shift from the low to the high tax bracket.

The analysis is tantalising, but because it only looks at incomes up to around €85,000, it sheds no light on the fairness or otherwise of higher taxes on the higher-paid. The full report is available here

Sheila Killian

@islandtotheleft

Effects of the minimum wage on the jobs market

noreply@blogger.com (Tom McDonnell) — Wed, 06 Mar 2013 16:40:00 +0000

Tom McDonnell: TASC made a short submission last week to the Labour Court review of the JLC wage agreement mechanisms. The submission is available here.

The Joint Committee on Jobs, Enterprise and Innovation published a report in February on actions to address youth and long-term unemployment. It can be found here. One of the recommendations (Number 26) states that there should be an investigation into the effects of the minimum wage (both positive and negative) on the jobs market. This is a sensible recommendation. The independent Low Pay Commission (LPC) in the United Kingdom does this every year. What does the evidence suggest?;

The LPC's 2012 Annual Report is here and their discussion of the minimum wage's impact on the UK's labour market begins on page 48 of the pdf. They state that: The general consensus...is that the NMW (i.e, the national minimum wage) has not significantly affected employment .

Both the theoretical and empirical literature are ambiguous concerning the impacts on employment. While the standard competitive model suggests there should be a negative effect on the jobs market, institutional models and dynamic monopsony models both suggest that the effect is actually much less clear cut. Increased aggregate demand and reduced search costs are just two reasons why the effect on net employment might be minimal or non-existent. Recent empirical work suggests minimum wage have little or no overall effect. See for example this study by Arindajit Dube, William Lester and Michael Reich.

John Schmitt asks why the minimum wage appears to have 'no discernible effect' on the minimum wage here while Barry Hirsch, Bruce Kaufman and Tatyana Zelenska try and explain the lack of effect on employment here through the framework of differing 'channels of adjustment'.

While innovative solutions to the jobs crisis are needed, reduced levels for wage floors are unlikely to be helpful in reducing unemployment. The major effects would likely be to increase financial hardship and vulnerability for low wage workers, and increasing income inequality, without any meaningful impact on overall employment.

Pension Fund Charges

noreply@blogger.com (Nat O`Connor) — Wed, 27 Feb 2013 16:20:00 +0000

Jim Stewart, School of Business and Bridget McNally, NUI Maynooth, have written "A Note on Pension Fund Charges in Ireland". This is Working Paper No. 5 from the TCD Pension Policy Research Group.

A PDF is available on their website (click here).

London Debt Agreement

noreply@blogger.com (Tom McDonnell) — Wed, 27 Feb 2013 13:39:00 +0000

Tom McDonnell: Today marks the 60th anniversary of the start of negotiations concerning post war debt relief for Germany. The "London Agreement on German External Debts", also known as the London Debt Agreement, was a crucial component of Germany's post war economic miracle. You can find the text of the agreement here. The guardian has coverage here and Deutsche Welle has coverage here.

Martin Wolf

noreply@blogger.com (Nat O`Connor) — Wed, 27 Feb 2013 10:20:00 +0000

Nat O'Connor: Martin Wolf, chief economics commentator at the Financial Times, was in Dublin yesterday, to deliver a talk to the TCD Phil society. TASC helped sponsor the event. The topic of his talk was "The State of Economics". Despite refering to this as the "most arid" of the topics that he had offered to speak about (and you can blame the TCD Phil committee for the choice), Mr Wolf made a number of observations that confirm, in his estimation, the need for a major rethink of economics.

"We did not know what we thought we knew" about the economy. That was one of the strong themes of Martin Wolf's presentation. He talked about his own, belated, interest in the work of Hyman Minsky. Minsky posed a deceptively simple (and for years ignored) question to macroeconomists. Minsky argued that for any model of the economy to be realistic, it had to allow for a Great Depression as one possible outcome. Yet, orthodox macroeconomic models of recent decades were simply incapable of allowing for that. In other words, no matter what configuration of variables were used in those models, they did not and could not allow for a major crash. Little suprise then that the crash was not predicted and, moreover, that many prominent economists thought that inflation control had eliminated the possibility of such a major crash occuring.

Mr Wolf has come to the conclusion that the macroeconomic paradigm "failed" and the orthodoxy was simply "wrong", in relation to the importance it gave to inflation targeting and the mistaken belief that "cleaning" after a crisis would be cheaper than "leaning" against one, in terms of Government policies to prevent a crisis from occuring.

What this implies, he said, is that a good deal more leaning against risky behaviour is required by governments, including regulation of banking, less risky financing of property, and much larger counter-cyclical capital investment.

In hinting at what a new economic paradigm might look like, Mr Wolf used the analogy of a bridge building project. Although the fundamental laws of physics apply to the construction of bridges, we do not ask theoretical physicists to undertake their design. Rather, we employ the profession of engineers, who have an array of practical skills, including rules of thumb, that better qualify them to oversee the construction of a durable bridge in the real world. By analogy, we need more "economic engineers" in future rather than theoreticians to advise governments and business about how the economy works in reality, rather than according to the idealised, orthodox models (the same models, I might add, that failed to allow for the possibility of the major economic crash that we just experienced).

In relation to Ireland, Mr Wolf noted that the interests of taxpayers were "sacrificed" for senior bondholders, seemingly due to pressure from the EU. He described this as "insane" and "immoral" and noted that the blanket guarantee was a "catastrophe" that resulted in Ireland holding a great deal of debt that we shouldn't have. With that said, Mr Wolf did express the view that Ireland's economy was doing better than others, such as Spain, with their unemployment over 25 per cent and youth unemployment over 50 per cent. He also expressed concern about the French economy. Crisis in France would of course strike to the heart of the Euro zone and EU economy, which will accelerate the need for changes to EU-level economic policy.

The question I would then pose is whether the EU is capable of seeking a new paradigm, with a greater role for practical "economic engineers", or whether EU policy (to Ireland's disadvantage) will continue to be dictated by a failed, theoretical economic orthodoxy.

Ireland Drowning in Private Debt (4 of 4)

noreply@blogger.com (Nat O`Connor) — Tue, 26 Feb 2013 10:54:00 +0000

Paul Sweeney: Ireland has many core strengths. It has a well-educated workforce, albeit with too many unemployed, skills are being lost, there is high emigration and very high debt, much of the public which was run up as private corporate debt. It one of the most open economies in the world; we export a high proportion of our GDP and these exports are high value added and are largely recession-proof, and include a high proportion of service exports. We are running a balance of payments surplus. The programme of public sector reform is progressing well.

In spite of the severely damaged reputation of Irish business, the World Bank listed Ireland as 9th best place to do business out of 183 countries. Taxes are extremely low on business and employers’ social contributions are amongst the lowest in the world. Ireland has a barrage of state agencies devoted to assisting businesses. The rise in productivity (ULC) and on the much more useful wider definition of competitiveness , Ireland performs very well, though there are issues with our international reputation for business, and also serious problems for domestic firms in access to credit and also due to the collapse in domestic demand. The official “pro-business” culture was so uncritical that it contributed in a major way to the economic collapse and to the collapse of many viable businesses too. That mind-set needs to be addressed.

This relative stability in real incomes, in welfare rates and in public employment is the key to the explanation of why there has been no rioting in Ireland, despite our travails. In the circumstances, these are equitable income and welfare policies.

It is crucial that the core EU economies which are performing well should act in solidarity and not in punishment to the underperforming peripherals.

The best action would be an EU-wide coordinated stimulus. There is no shortage of social and infrastructural needs and refurbishment in Europe. But the cut in the EU Budget last week does not auger well for such intelligent action at EU level. However, large countries may yet take action, individually or in concert.

A Common Fiscal Policy in Europe (and a coherent Banking Union) is key to addressing inequality, sorting out the banks and boosting demand by underwriting an EU-wide stimulus programme. It may begin with a small budget overall, but a small budget in EU terms is still a lot of cash.

It would be preferable to have tax coordination rather than harmonisation where member states may set rates within bands, though a common tax base for companies makes sense in a single market. This means that Ireland’s low Corporation Tax regime should be re-negotiated as part of the deal on the socialised bank debts as we move towards greater fiscal union. The Irish government is making a policy error in its undying defence of its low Corporation Tax rate and against the FTT, while it simultaneously seeks assistance on Ireland’s unsustainable bank debts.

So what can the IMF as a key part of the Troika do to further assist the Irish people?
It is the view of Congress that the IMF has been the least negative member of the Troika in Ireland, with more pragmatic view of what needs to be done. However, there are some issues on labour market “reforms” with which we are unhappy.

It is our impression that the IMF would have insisted that the Irish people should not carry the total burden of the banking adjustment alone. Regrettably, the ECB, while moving considerably from its initial position, has insisted that the Irish Government/taxpayer repay the bank bondholders in full, in order to safeguard the European banking system. Last week’s deal on the promissory notes on the two dead banks, while a great improvement, still means the bondholders are left untouched.

While the EU banking reforms are progressing, it is unclear whether they will go far enough to address the Geithner Doctrine that no big bank must fail nor any bondholder must be left behind. It is vital that the sovereign and public debts are separated and that Europe assists Ireland on its socialised debt. We are being punished for being the first in dealing with our failed banks and for the foolishness of the government which guaranteed all the creditor as well as the depositors of the banks. The people threw that government out for that and for its appalling economic policies, which squandered much of the real sustained progress of the Celtic Tiger period.

Without a significant deal on Ireland’s €64 billion bank debt burden, there is little chance of economic recovery in the near future. Figures from Eurostat show that Ireland has paid more for the bank crisis than any other EU state. So far, the bank bailout has cost us €41 billion, while Germany – with an economy almost 20 times our size – has paid €40 billion. We have also paid more than the UK, France, Portugal and Spain.

The Irish people’s recent experience of capitalism is that when wealthy bankers and bondholders take risks that fail, the public bails them out. Combined with the decline in labour’s share of national income over the past three decades, economic policies and governance must change fundamentally.

While the IMF is not in favour of domestic stimulus, especially in crisis countries, there is a strong case for an EU-wide action for a stimulus. The IMF commendably revised it multipliers in the light of the depth of the recession and other factors and this means that a stimulus in Europe would work every effectively in reducing its vast unemployment of 26.06 million.

However, the lack of interest by the European elite in dealing with the vast level of unemployment in Europe threatens its institutions, including democracy itself.

Ireland Drowning in Private Debt (3 of 4)

noreply@blogger.com (Nat O`Connor) — Mon, 25 Feb 2013 12:15:00 +0000

Paul Sweeney: Employment is the key indicator of a successful economy. Unemployment is very high at 14.6%. This is up from 4.3% for many years. Employment peaked at 2.1m but is now down to 1.77m. The number of unemployed was 325,000 persons at Q3, 2012.

Emigration is taking the heat of increased unemployment. The number of job losses was 360,000 down from peak in 2007. 87,000 people left Ireland in year to April 2012 and 53,000 entered, leaving a net figure of 34,000.

Labour market participation is down as people are staying at home or in education. A key indicator of unemployment is those who would like to work but who stay in education or at home because they are discouraged workers. The total of those who would like to work was up to 25.6% at end September 2012 as Figure 2 shows.

FIGURE 2:

Source: CSO, Indicators of Potential Labour Supply in QNHS QNQ32

We have seen that industrial employment has been in decline each year since the Crash of 2008 and it has not stabilised yet. If we are lucky, we may stabilise on job losses in 2013.

However, the real issue here and in Europe is that there is a growth of precarious employment, as the following graph (Fig 3) shows. As full time jobs declined – rapidly and by 360,000 since peak in 2008 – there was a rise in part time employment. Indeed, one could believe that many once full-time jobs had become precarious jobs. It can be seen that the rise in part time jobs was around 15 per cent while full time jobs fell by over 21 per cent.

FIGURE 3: Growth in GDP, GNP, Full-Time & Precarious Employment

Source: CSO National A/Cs & QNHS

This growth of long term unemployment is illustrated in the following graph.

FIGURE 4: Growth in Long Term Unemployment, 2007-12

Source: CSO & M Collins, NERI

The future outlook is hardly encouraging. It appears to be for more or less jobless growth, according to official data including the IMF as Table 1 below shows:

TABLE 1: Unemployment Projections and Estimates of the Unemployed, 2012-2017

Source: NERI QEO Autumn (2012:9) and M Collin’s calculations.
Note: Estimate assumes the labour force remains constant to 2017 at the average level for the four quarters of 2011 (2,113,975 individuals).

The key issue is how are we dealing with the unemployment problem? The shift to active labour market policies is welcome, but we in the unions constantly ask, what is the point in training people when there are few jobs? We are constantly told by workers who have been trained that it is really demoralising when they end up with no jobs after “training”.

Policy should be informed by the existing situation, its likely duration and the composition of the workforce. All economic forecasts in recent times do appear to be overly-optimistic and that should inform a realistic outlook on employment.

Figure 5 below shows that the jobs being created and found by young people in Europe are not exactly high-paying, with most jobs being in catering, shop work, personal care and domestics.

FIGURE 5:

Source: EU Vacancy Monitor Jan 2012

In 2010, the latest data available, on average approximately 4.9 million people aged between 18 and 29 found a job in the EU27. Interestingly, the top four occupations for young people in 2010 were the same as for all age categories. While these jobs have relatively ease of entry and so offer prospects for new entrants (youth) to the labour market, they are not the best jobs. Significantly, 23 of the 25 top jobs for young people were also in the top 25 occupations in terms of job-finders for all age categories.

An important indicator is the job vacancy rate. The chart below (Figure 6) show that there are 7.4 unemployed per job vacancy in the EU27, but in Ireland, there are 31 unemployed. It is not as bad as Portugal, Greece, Spain and Latvia, but this scale of unemployment is at a dangerous level.

FIGURE 6: Vacancy Rate in European Countries 2010

If all the jobs were filled instantly, 30 of the 31 in Ireland would still be unemployed; i.e. there are so few jobs that no amount of training will have a significant effect. This illustrates the depth of the crisis; it would be different if we were close to full employment.

In conclusion, this indicator of growth and employment reinforces the view that it is demand which is required.

Ireland and the future of the European Union

noreply@blogger.com (Aoife) — Fri, 22 Feb 2013 10:37:00 +0000

Tom McDonnell: Presentation to the Oireachtas Joint Committee on European Union Affairs, Thursday 21st February 2013: “Ireland and the future of the European Union” National Debate 2013

It is important to consider the implications for Ireland of increasing financial, budgetary, and economic policy integration within the European Union. But what will this integration look like? The answer to that question depends on the changing structure of the Economic and Monetary Union (EMU). We know that EMU as constructed was fragile, incomplete, and highly flawed:

There was no centralised authority responsible for the supervision, regulation and, if necessary, resolution, of financial institutions
There was no fiscal transfer mechanism to deal with asymmetric shocks; no ‘automatic stabilisers’ at Euro zone level to replace those lost at the domestic level; and no mechanism for offsetting competitive imbalances or for preventing them in the first place
There was no Lender of Last Resort for member states and therefore no ‘circuit breaker’ to protect against negative feedback loops of spiralling borrowing costs. Member states were at the whim of massive and destabilising credit inflows and outflows

The long-term viability of the European Union’s Economic and Monetary Union depends on correctly diagnosing and resolving the EMU design flaws and ending the three interlocking crises – the sovereign debt crisis; the banking crisis; and the real economy crisis of low growth, high unemployment and high private over-indebtedness.

To understand what EMU will look like in ten years’ time we must understand what the different solutions to these problems look like.

We have already seen a number of official policy responses and changes (or proposed changes) to EMU in recent months. These include:

European Central Bank (ECB) interventions in the secondary bond markets through their Securities Market Programme (SMP) and through their new Outright Monetary Transactions (OMT) initiative. (In other words, the ECB has been indirectly buying government bonds through the SMP and has agreed to do ‘whatever it takes’ through the OMT);
Special purpose vehicles have been created in the form of the EFSF and ESM (European Financial Stability Facility and European Stability Mechanism respectively) to preserve the stability of the Euro by providing emergency funding lines to sovereigns;
Numerous initiatives including bank recapitalisations and cheap liquidity have sought to stabilise the European banking system;
The parameters of a Single Supervisory Mechanism (SSM) have been agreed and from the start of 2014 the ECB will be legally responsible for supervising 6,000 banks.

Responses to the sovereign debt crisis have thus far been somewhat insufficient. For example, the structure of the ESM is inherently fragile. Nevertheless, the ESM is an important crisis stopgap.

It is often forgotten that the historical rationale for a central bank was not to stabilise prices by controlling inflation, but to stabilise the entire economic system itself by providing backstop or ‘last resort’ liquidity to banks and to sovereigns. The OMT initiative was therefore a crucial step and reflects the critical need for the Euro zone to have a Lender of Last Resort (LOLR) for sovereigns – for that is precisely what the OMT represents. The announcement and formulation of the OMT in August and September 2012 was when the Euro was saved. The detail of how each measure is implemented will be very important.

But this set of measures remains critically incomplete. Little has been done to ease the growth and employment crisis. Pro-cyclical policies of internal devaluation have taken hold in the periphery. These policies were undertaken to deal with fiscal and competitiveness imbalances but have not been matched by countervailing measures in the core. The overall effect has been ‘deflationary’ (i.e. it has caused economies to contract rather than grow). This has exacerbated and elongated the jobs and growth crisis in Europe.

In the medium term, a permanent mechanism is needed so that the so-called ‘multiple equilibria problem’ of sovereign borrowing costs spiralling out of control is eliminated for any state showing a willingness to pursue a sustainable fiscal path. Different versions of Eurobonds have become fashionable as an idea. But moral hazard concerns mean they are not the solution. A better solution would be to assign a banking licence to a special purpose vehicle, for example the ESM, and then to use this vehicle as a de facto conditional Lender of Last Resort for sovereigns. This would be a key institutional development.

How can we break the link between sovereigns and banks? The next few years will see the gradual construction of a banking union for the Euro zone, and this of course will have major implications for the EU as a whole. A centralised banking union is a necessary component of any viable monetary union. In practice this means independent centralised supervision, regulation and resolution of financial institutions at the Euro zone level. This will have major implications for member states. In addition, protecting taxpayers and depositors in the future, while also dealing with capital flight, will require a centralised deposit insurance scheme modelled along the lines of the FDIC (Federal Deposit Insurance Corporation) in the United States. This would end the differentiation between banks in the periphery and the core and help create a genuine banking union.

So we are looking at further integration in the form of a Euro zone banking union and possibly the creation of a Euro zone lender of last resort.

A more fundamental question is whether Euro zone member states can align monetary and fiscal policies to the goals of employment and growth. The answer to that question is yes. But only at the level of the Euro zone itself. The broad framework required involves intergovernmental coordination of policies to prevent competitiveness and domestic fiscal imbalances from growing too large. An example of this is the new European semester. In order to help offset regional recessions and asymmetric shocks, such a framework will require a centralised fiscal fund. This is because member states have lost much of their power to use their own budgets as a countercyclical ‘automatic stabiliser’, while also losing control over other macroeconomic policy levers such as exchange rate policy and monetary policy. These lost policy tools need to be replaced in some form.

Safeguarding democratic legitimacy and accountability within a full fiscal union would require a fundamental overhaul of the treaties and far greater power for the European Parliament and its committees.

However, what I have described is very far from a complete fiscal union. While greater integration and coordination between EU member states is inevitable under EMU, full fiscal union is unnecessary.

It is important to note that in parallel to the formal development of the EMU, other more ad hoc forms of integration will occur. A good example is the Financial Transaction Tax (FTT) – also called the Tobin Tax or Robin Hood tax – which has been signed up to by 11 Euro zone member states, but not Ireland. The European Commission tabled its proposals on 14th February of this year, confirming a levy of 0.1% for shares and bonds, and 0.01% for derivatives. The FTT is an example of the enhanced co-operation procedure permitted under the existing EU treaties. These types of procedure may become more common in the future as it becomes increasingly difficult to reach agreement between the soon-to-be 28 EU member states. However, they also represent the risk of a fragmentation of economic policy across the EU, with multi-lateral agreements replacing common EU-wide policies.

The attitude and position of the United Kingdom within the EU is of great economic significance for Ireland. It seems unlikely that the UK will actually leave the EU but that is a political question perhaps better answered by my colleague. I am limiting my response to the likely consequences of particular outcomes rather than speculate on the future of the UK’s relationship with the rest of Europe.

In sum, this is a critical decade for the European project. Catastrophic errors were made in the design of the EMU. Economic history and economic theory were both ignored. I have sketched a brief outline of the type of policies needed to create a durable EMU.

The Star Pupil

noreply@blogger.com (Tom McDonnell) — Thu, 21 Feb 2013 17:33:00 +0000

Social Europe Journal has a caustic analysis of the narrative that Ireland has been in some way a star pupil and success story here.

Meanwhile, starting on page 181 of this compendium, you can find Daniel Finn's critique of the Irish policy response to the economic crisis.

GDP Growth and Wellbeing: what is the relationship between economic growth and welfare in Ireland?

noreply@blogger.com (Aoife) — Thu, 21 Feb 2013 11:01:00 +0000

Guest Post by Eilís Lawlor: It is sometimes argued that under conditions of austerity and economic hardship discussions of issues relating to quality of life and wellbeing are inappropriate. And there is something in this. With the figure for those at risk of poverty in Ireland continuing to rise, you could be forgiven for arguing that the objective of raising material incomes should be centre-stage.

Even if you accept the criticisms of GPD as a measure of progress, you may also think that whilst an over-focus on GDP got us into this mess, a relentless emphasis on raising it again is the only way to get us out of it. After all, it would raise investor confidence, increase tax revenue and reduce unemployment. Yet the Irish economy has begun to grow, and Ireland continues to be regularly cited as a success story of austerity.

Reflecting on this uptick in growth last year, I made the case that that GDP growth might not be the answer to our problems in spite of the recession. Instead, I argued that Ireland remains a stark reminder of where an emphasis on growth at all costs, and a systematic sidelining of quality of life issues can lead. The legacy of chaotic planning, ghost estates, empty motorways, poor public transport, investment-starved public services, and a weak banking sector - all products of previous growth agenda - cannot be erased by a few percentage points of positive growth. Neither is growth as measured by GDP necessarily the solution to rising debt or lower living standards. It simply creates a false choice between material and non-material ends.

It is to investigate these issues further that I have begun a three-year research project at the University of Sussex in the UK with a particular focus on the relationship between economic growth and welfare in Ireland. The aim is to build an index of progress and compare it to movements in GDP over the past twenty years to look at where GDP predicts positive change and where it does not. The first step in constructing this index is to find out what kinds of things matter to people. To this end I am surveying people about the things they value in life. You can take the survey here. The results will be posted on the same space as they emerge.

I will post again when the analysis is completed later in the year. In the meantime, you can read more about the project here.

Ireland Drowning in Private Debt (2 of 4)

noreply@blogger.com (Nat O`Connor) — Thu, 21 Feb 2013 10:06:00 +0000

Paul Sweeney: We will demonstrate why austerity is failing by looking at key economic indicators, with a focus on the most important indicator, employment, in the next post. The bailout package made economic recovery more difficult than it needed to have been. The level of the adjustment and the mix of the cuts and taxes (2:1) is wrong and should be reversed. The deflationary impacts of the measures in the package are such that growth has been negligible and this not largely due to the recession in Europe.

However, those economic factors which are positive will be examined first.

The deal on the Promissory Notes agreed on 7th February 2013 will be of significant benefit to Ireland. Secondly, the Government is on track to meet its fiscal deficit targets so far. The key and almost singular area of interest to the Troika is that Ireland meets its fiscal target of 3% by 2015. The Irish government has met all targets set out by the Troikas in each review since end 2010. To achieve this target €24bn has been taken out of the economy by end 2012 and a further €9bn will be taken out in the next three years. This is equivalent to cutting over a quarter of our GNP.

Thirdly, Irish exports are holding up and the Balance of Payment is in surplus. Exports are driving what little growth we have. After six quarterly declines to end 2009, exports have been rising. This is not a great achievement as Ireland’s exports are largely non-cyclical, being ICT, pharma and food. Labour costs in many exports are not significant. However, imports are down (by 25% from peak) as people have little to spend on them. The Balance of Payments are now healthy with a big surplus of exports over imports. But it is due in part to imports collapsing, due to lack of domestic demand.

A fourth positive factor is that the rate of interest on 10 year bonds is down and will stabilise after the deal on the Promissory Notes.

Productivity is also up substantially, i.e. unit labour costs were down by 23% since mid 2008 (real HCI) and this has been achieved without a fall in averaging hourly earnings for most workers (i.e. it was achieved without a painful internal devaluation for labour). Thus it is due to a) less people at work; b) better use of capital and labour; c) to the decline of low productivity construction and on the other side to d) the dependence on apparently high productivity multinationals, due perhaps in some measure to transfer pricing.

The fifth positive factor is that the Purchasing Managers index continued to rise. Sixthly, the level of inflation at end 2012 was slightly lower than it was in 2008. Prices fell by -4.5% in 2009 and again by a lesser -1% in 2010 but rose since then. Prices are rising by 1.2% now and are likely to pick up.

Moving from the positive to neutral we look at incomes. In spite of two cuts in the pay of all public servants averaging 14%, average hourly earnings in the total economy have not fallen in real terms. It was seen that the previous government tried an experiment in Internal Devaluation. It cut public service wages and the minimum wage by a massive 12%, expecting that private sector wages would follow.

This did not happen and private sector earnings have been relatively stable. About 24% of employees have had pay rises, c. 22% have had cuts and most have had no or little change in hourly earnings. The number of hours worked has dropped and so weekly earnings including overtime and other premium payments had fallen slightly. However, the latest data saw weekly earnings rise by 1.1% in the year to Q3, 2012. We have seen that productivity has risen substantially since the Crash of 2008.

A recent study of how employers dealt with the total wage bill found that there had been cuts, but “however, these cuts were primarily achieved though employment reductions with relatively low contributions at the aggregate level from changes in average hourly earnings and average weekly paid hours.”

This relative stability in real incomes of those who kept their jobs since the Crash of 2008 has also been extremely important in ensuing that the huge collapse in domestic demand – of one quarter in five years – was not worse. This is because averagely paid workers generally spend most of their incomes. The last government also cut the minimum wage by 12 per cent but the new government reversed this immediately. It also did not cut welfare rates and there is a deal with the public service whereby there will be no further pay cuts (two of which had averaged 14 per cent) provided there is support for substantial change, which is occurring.

These are all important indicators of performance, but others factors are far less impressive.

Economic Growth
The economic growth figures, either GDP or GNP, have been scraping along the bottom for some years, which is better than the collapse. The next chart (Fig.1) shows the fall in domestic demand, which is so important for employment. It is still in decline.

FIGURE 1: Domestic Demand has COllapsed

Source: CSO, National Income A/Cs.

Most conservatives have focused on the one positive economic development which is the performance of Irish exports. Exports have performed very well, but exports alone are not sufficient to pull the economy out of recession when domestic demand is being driven down by domestic economic policies. Without growth there will be no new jobs. Without new jobs, generating incomes, taxation and confidence, the burden of austerity could overwhelm us.

The large gap between Ireland’s GNP and GDP is growing and rose from 14/16% to 27% of GDP. Thus GDP appears to be faring much better but it is a poorer indicator of welfare for Ireland.

A key part of the lack of demand is due to the flatness of wages. The reversal of the cut in the Minimum Wage did help. The government sought “reforms” of wage setting mechanisms the Employment Regulation Orders (EROs) and Registered Employment Agreements (REAs), and instructed the Labour Court to undertake the review with an academic economist who was to assess their impact on jobs. He found that most had minimum impact on jobs. So this dialogue was reasonable.

However, some of Ireland’s wealthiest employers in the fast food industry, the Quick Food Alliance , successfully fought a case to the High Court to abolish the Joint Labour Committee in the fast food industry and Employment Regulation Order of the Labour Court which had set the minimum pay and conditions of workers outside Dublin, as unconstitutional. The law courts are blunt instrument in dealing with industrial relations as the outcome is generally stark. The effect of the judgement is that while all JLCs remained in existence their EROs became unenforceable and ceased to apply. As a result the National Employment Rights Authority (NERA) could not enforce the minimum pay and conditions of employment prescribed in EROs in force at the time of the High Court decision. The Government amended the legislation in response to the court ruling. A review of the JLCs is taking place now and the unions await the outcome before they determine if the legislation meets the requirements of workers in these sectors.

Public and Personal Debt
The socialisation of the bank debt has pushed Public debt up and it was 118% GDP at end 2012 and will peak at around 121% in 2013. On top of high public debt, private debt is very high too. Household net worth has fallen by 37.7 per cent since the peak in Q2, 2007. Household debt is at €180bn or €39,999 per household. As a ratio of disposable income, it stands at 210 per cent thought it has reduced from its peak at 220 per cent in Q3, 2011.

Very Low Investment
A real worry must be the extremely low level of investment in Ireland. Total Irish investment is the lowest in the EU27 member states in 2012 at around 9 per cent of GDP compared to an average of 18.5 per cent. Ireland is even below Greece at 12 per cent. It may fall further in 2013 with the 2013 Budget cutting the Capital Programme by a further €0.55bn, though the Central bank thinks investment will begin to grow - but not until 2014. This very low level of investment in Ireland does not auger well for the future.

The Unhelpful Mister Rehn

noreply@blogger.com (Tom McDonnell) — Wed, 20 Feb 2013 12:32:00 +0000

Tom McDonnell: Mr. Rehn's recent open letter on fiscal multipliers; the effects of discretionary fiscal consolidation; and the relevance of economic theory and evidence, was a truly dispiriting and perplexing intervention.

It is easy to understand why the handling of the Euro crisis has been such an unmitigated shambles with people like Mr. Rehn running the show. We deserve better.

The Commissioner is taken to task by Jonathan Portes here and by Karl Whelan here. Both contributions are well worth a read.

Confidence indeed.

Ireland Drowning in Private Debt (1 of 4)

noreply@blogger.com (Nat O`Connor) — Tue, 19 Feb 2013 15:23:00 +0000

Paul Sweeney: There is little or no recovery after five years of austerity in Ireland, especially when judged by the key factor of unemployment. Ireland does appear to be on target to reduce its budget deficit to 3 per cent. But at great cost to the rest of the economy and to society.

Last week’s deal by the Irish Government on the private bank Promissory Notes will give a boost to confidence in Ireland. However, it was a deal which should never have had to be done and it should not have totally protected the private bank creditors of the two dead banks, Anglo Irish and Irish Nationwide. There should have been burden-sharing by the private creditors who were stupid enough to lend to these banks.

Ireland has institutionalised the “Geithner Doctrine” which is that top banks must not fail and that no bondholder will be left behind. The Geithner Doctrine is deep-rooted in EU governments, as Ireland has shown.

Leading economist Morgan Kelly said that in December 2010, “at a conference call with the G7 finance ministers, the haircut (of Irish bank bondholders) was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are” Irish Times, 11 May, 2011. Geithner was worried that if Ireland refused to repay bank bondholders then, according the UK Daily Telegraph (10 June 2011), “that could have spread contagion to the entire European system, to which American-backed “credit default swaps” were exposed to the tune of €120bn.”

The Minister for Finance used an elegant metaphor in explaining his deal on the Promissory Notes. He talked of the mortgage on his own home and said he had turned a harsh term loan into a long term mortgage and by the time it will be fully repaid, it will not be so costly. What is missing is that he at least has a home. The Irish citizens get little or nothing for their payments.

Ireland will now get up to 40 years to repay the debts of the private banks and at lower interest rates. But our 1.8 million at work will repay over €35bn, which is more than the total tax paid last year (€33.7bn) in Ireland. For this we will get absolutely nothing in return – not one school building, not one teacher nor even a hospital bed. Such deal may satisfy the ECB and the EU, but it undermines respect for democracy.

Ireland‘s economic collapse in 2008 was not due to poor competitiveness, nor to public sector profligacy, but to gross irresponsibility by a small elite in the private sector, operating within what had become an ultra-liberal economic system. It was the private banking collapse, which the government foolishly under-wrote which brought Ireland down. Commissioner Rehn demanded, in Latin, “pacta sunt servanda” and in English that the Irish taxpayers “respect your commitments and obligations.”

But these debts are not ours, but those of the private defunct banks, which our sacked previous government guaranteed, in our name, without our consent. Prior to this, European banks queued up to lend to our reckless banks, while the ECB looked on benignly. Tax policy – cutting direct taxes on incomes and profits, tax breaks especially for property investment and tax-shifting – also contributed substantially to Ireland’s current economic crisis. The third factor was de-regulation.

This series of four blog posts results from Paul Sweeney's presentation to the IMF in Washington, February 2013. Three case studies were discussed (Portugal, Romania and Ireland). This was part of a wider meeting between the International Trade Union Confederation, the IMF and the World Bank