Bailing out the banks and slashing workers’ living standards to pay for the crisis does not bring prosperity—it paves the way for further crisis. That is the simple message from Ireland in the last week.
Ireland is the clearest example of a country whose response to the crisis has been to slash workers’ wages and services while throwing enormous sums of money at the banks.
But as a solution to the crisis it has failed even in its own terms.
The government has attacked benefits, wages and jobs. Last week it pumped even more money to the bankers.
The cost of bailing out the Anglo Irish Bank alone will be up to £30 billion.
The Irish government is saying that its upcoming budget will be more vicious than previously planned. It will be even worse than the three previous slash and burn budgets brought in over the last two years.
There is the serious possibility of the Fianna Fail/Green coalition government falling after the budget.
The same pattern is emerging in Greece, which on Monday announced another round of cuts to appease the money markets.
Many US multinationals declare their international profits in Ireland to take advantage of the country’s exceptionally low tax rates.
This money is never part of the Irish economy, but it inflates and distorts GDP figures. So the real scale of Ireland’s economic stagnation remains unknown.
During the speculative boom, tiny villages were transformed into huge commuter towns as houses, hotels and office blocks were thrown up. They now lie empty or half built.
Bailing out the banks has literally been a waste of money. It is only serving to push up interest rates on the Irish government’s borrowing.
When a government borrows money, it issues bonds and agrees to pay interest rates.
At the moment, Ireland has to pay interest at a rate of 6.4 percent. This is one of the highest rates in Europe.
It is higher because the wealthy who provide the loans think there is a danger that the Irish government will be unable to pay its debts, and default.
Cuts create a vicious cycle. They decrease demand, as people have less money to spend. This hits the tax take—and so the state moves to even more vicious cuts.
So how has the left responded? Workers and community groups have resisted the cuts. But the role of those at the top of the union movement has been disastrous.
Ireland’s Labour Party and trade union leaders accept that the country has to cut its budget deficit.
They argue that the deficit has to be closed by more taxes on wealth, rather than attacks on the poor.
But they also say that public sector workers must give “more for less”.
They accepted a national agreement that means the loss of 17,000 public sector jobs. Agreeing to this in the “national interest” is a retreat, which demoralises people.
George Osborne will offer the same medicine to workers in Britain on 20 October when he announces the government’s comprehensive spending review.
We need to make no compromise about the “need” for cuts.
We have the potential to make sure we don’t pay for the crisis—we need to use it.