For a decade, Ireland was heralded by the most ardent partisans of neoliberal capitalism as a model to be imitated. The “Celtic Tiger” had a higher growth rate than the European average.
Tax rates on companies had been reduced to 12.5% and the rate actually paid by the transnational corporations that had set up business there was between 3 and 4% — a CEO’s dream! By comparison, the company tax rate is 39.5% in Japan, 39.2% in Britain, 34.4% in France and 28% in the US.
Ireland’s budget deficit was nil in 2007. In this earthly paradise, everybody seemed to benefit.
Workers had jobs (though often highly precarious), their families were busy consuming, benefiting as they were from the prevailing abundance, and both local and foreign capitalists were enjoying inordinate returns.
In October 2008, just before the Belgian government bailed out the big “Belgian” banks Fortis and Dexia with taxpayers’ money, Bruno Colmant, head of the Brussels stock exchange and professor of economics, wrote that Belgium had to follow the Irish example and further deregulate its financial system.
Colmant said Belgium needed to change the legal and institutional framework so as to become a platform for international capital, just like Ireland. A few short weeks later, the Celtic Tiger was crying mercy.
In Ireland, financial deregulation triggered a boom in loans to households, especially in real estate. On the eve of the crisis, household indebtedness had reached 190% of gross domestic product (GDP).
This helped boost the island’s economy, especially in the building and financial industries. The banking sector experienced exponential growth with the establishment of many foreign companies and the increase in Irish banks’ assets.
Real estate and stock market bubbles started forming. The total amount of stockmarket capitalisations, bond issues and bank assets was 14 times bigger than the country’s GDP.
What could not possibly happen in such a fairytale world then happened: in September-October 2008, the card castle collapsed and the real estate and financial bubbles burst.
Companies closed down or left the country. Unemployment rose to 14% in early 2010.
The number of families unable to repay their creditors swiftly increased too. The whole Irish banking system teetered on the edge of bankruptcy and a panic-stricken government blindly guaranteed bank deposits for 480 billion euros (that is, about three times the Irish GDP of 168 billion euros).
It nationalised the Allied Irish Bank, the main source of financing for real estate loans, with a transfusion of 48.5 billion euros (about 30% of GDP).
Exports slowed down. State revenues declined. The budget deficit rose from 14% of GDP in 2009 to 32% in 2010. More than half of this due to the huge bailout of the banks: 46 billion euros in equity and 31 billion euros in purchases of toxic assets.
At the end of 2010, the Irish government was bailed out by the European Union (EU) and International Monetary Fund (IMF) with a package of 85 billion euros in loans (22.5 billion euros from the IMF).
But it is already clear this won't be enough.
In exchange for the loans, a radical cure was forced upon the Celtic Tiger in the form of a drastic austerity plan.
This will drastically lower households’ purchasing power, with a resultant drop in consumption. It will also slash public expenditure on welfare, public servants’ salaries and infrastructure investments (to facilitate debt repayment).
As a result, tax revenues will drop.
On the social level, the austerity plan is nothing short of disastrous. It includes:
• cutting 24,750 positions in the civil service (8% of the workforce);
• newly recruited public employees earning 10% less;
• lower family and unemployment allowances, a significant reduction in the health budget, a freeze on retirement pensions;
• a rise in taxes, to be borne mostly by the majority of the population, already a victim of the crisis: notably a value added tax (similar to GST) increase from 21% to 23% in 2014; creation of a real estate tax (affecting half of the households that were formerly tax-exempt);
• a 1 euro reduction in the minimum hourly wage (from 8.65 to 7.65, or 11% less).
The interest rates on the loans to Ireland are very high: 5.7% for the IMF loan and 6.05% for EU loans.
These loans will be used to repay banks and other financial bodies that buy bonds on the Irish debt, borrowing money from the European Central Bank at a rate of 1% — another windfall for private financiers.
AFP said IMF managing director Dominique Strauss-Kahn claimed it would work, though of course “it would be difficult because it is hard for people who will have to make sacrifices for the sake of budget austerity”.
Both in the streets and in parliament, opposition has been very determined. The Dail, Ireland’s lower house of parliament, voted up the 85 billion euro rescue plan by a mere 81 to 75.
Far from relinquishing its neoliberal orientation, the IMF declared that among Ireland’s priorities is the adoption of reforms to do away with structural obstacles to business — to support “competitiveness” in the coming years.
Strauss-Kahn said he was convinced that a new government after the elections in early 2011 would not change anything: “I’m confident that even if the opposition parties, Fine Gael and Labour, are criticising the government and the program ... they understand the need to implement the program.”
In short, the economic and financial liberalisation aimed at attracting foreign investment from multinationals has utterly failed.
To add insult to the damage the population must bear as a result of such a policy, the IMF and the Irish government are persevering in the neoliberal orientation of the past two decades.
Under pressure from international finance, the government is subjecting the population to a structural adjustment program similar to those imposed on Third World countries for the past three decades.
Yet these experiences should show what must not be done — and why it is high time to enforce a radically different logic that benefits people and not private money.
[Reprinted from www.cadtm.org . Translated by Christine Pagnoulle in collaboration with Judith Harris.]