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Thursday, 25 November 2010

Ireland Wrecked

The economic chaos into which Ireland has been plunged since the world-wide financial crisis took off over two years ago reached a high point last weekend when the Irish government finally succumbed to generally perceived economic reality and formally applied for assistance from the European Union and the International Monetary Fund. According to conventional wisdom the country had no other choice; with a national balance of payments deficit of nearly a third, the country is practically bankrupt and the interest charges it would have to pay on the international money markets to borrow further had become so high that it no longer made any sense. The EU will give Ireland the money to keep it going but at a high price. Basically, Ireland has had to give up control over its own finances; it has to produce a four-year plan showing how it will reduce the deficit to under 3% (which will mean both deep domestic spending cuts and tax increases) and the plan will have to be approved and its implementation monitored by the EU and the IMF. Even as I write this, the government has just announced the way they propose to do this and by the time I have published and you have read the post, there will have been more events and comments (especially comments, since the Irish are a voluble people and enjoy endless discussions).

In the end, sadly, it won’t matter all that much. Ireland’s new paymasters are not particularly interested in the specific weighting of particular measures (although there are a few things, like Ireland’s corporate tax rates, about which many of the most powerful behind the country’s rescuers have quite strong views), just in the final results. And here they are perfectly within their rights. In the end, it is the taxpayers in the rest of Europe (particularly in Germany) who are paying to bail the Irish out. Moreover, although they may feel genuinely sorry about what the Irish people are going through, their basic motivation is much less altruistic; the policies followed by the Irish, before, during and after the crash have led to a situation in which the stability of the Euro as a common currency (and with it the economic well-being of the whole Euro-zone) has come under threat and so helping the Irish get out of the hole they have dug themselves is a basic issue of European self-interest.

There are very deep issues in the background here, with regard to the way we have abandoned our responsibility for the world to the new gods of “market forces,” with the seeming inability or unwillingness of governments the world over to take on international banking and financial institutions and their merciless preference for quick profits over the common good, even such basic premises as the idea of limitless growth in a (necessarily) limited world. But I won’t go into these here – in later posts, perhaps, if the muse so moves me. Here I want to comment on one specific aspect of the Irish political scene – how badly the Irish people have been served by their elected political representatives, particularly the country’s largest party, Fianna Fail, which has been in government since 1997.

I am Irish by birth and nationality; although I left the country over a quarter of a century ago, I have kept my Irish passport even if some of my reasons for doing so are not completely clear to me[i]. When I left Ireland in 1984, the country was in recession, largely because of the spending policies of the Fianna Fail government from 1977 to 1981. After they had been voted out, the new Taoiseach (Prime Minister) Garret FitzGerald presided over hard years of savings and cost-cuttings. I remember him telling the public at the time that, given the unacceptable level of public debt, the alternative would be the surrender of national sovereignty to the IMF, something which has now, in fact, occurred.

In the 90s many of my generation, who had left the country looking for better prospects a decade earlier, returned as the Celtic Tiger started to grow. In 1997, Fianna Fail was returned to power to preside over unprecedented years of prosperity and an even more unprecedented crash. In 1997 the tiger cub was still healthy, nourished as it was by capital investment transfers from the EU structural funds and the country’s attractiveness as a location for high-tech foreign (mostly US) companies within the EU, with a young, well-educated, English-speaking workforce with moderate wage expectations and, of course, a low rate of corporate taxation. With hindsight, thirteen years later, it can now be said that Fianna Fail mismanaged, overcooked and wasted the boom and have completely wrecked the country following the crash[ii].

How can one explain Fianna Fail to someone who is not Irish? It is complicated. The party was founded by Eamon de Valera and has its roots in the Civil War which followed Irish independence in 1922. It has been in power in Ireland for more than half of that entire period, either alone or – increasingly in recent years – as the largest partner in various coalitions. It has traditionally regarded itself as the guardian of nationalism in Ireland, as the party of constitutional republicanism even, in the words of its perhaps most notorious leader, Charles Haughey, as “the natural party of government.” Hard to categorise in a simple right/left political spectrum, it can be best described as a broad populist party, with certain similarities to the Gaullists in France, Congress in India or the Peronists in Argentina.

De Valera once famously commented that he had only to look into his heart to see what the Irish people wanted. His successors have followed this adage, with a continuing tendency to tune their policies to suit the mood of their electors and potential electors and clients. This tendency helps to explain the events of the past thirteen years. Confronted with the (for Ireland unusual) prospect of rapidly growing prosperity, Fianna Fail tried (successfully) to cosset the Irish people by avoiding unpopular decisions and encouraging the economy to overheat – particularly by doing nothing to stop an rapidly expanding bubble in the building sector. When I was involved in building a house in Germany in the early 90s, my Irish relatives and friends were shocked at the high costs of such a project here. Fifteen years later, they were paying around three times as much for comparable houses in Ireland.

The party and its leadership have also been repeatedly associated with corruption in the past thirty years. Two of its recent leaders (who were also Prime Ministers), Charles Haughey and Bertie Ahern have been implicated in receiving money in irregular circumstances. Haughey, in particular, received millions from various sources and only avoided formal prosecution in the years before his death because of his advanced age and ill health. Various Fianna Fail politicians have been forced to resign because of various financial improprieties, particularly relating to issues of land zoning. Recent years have seen others being questioned regarding their irregular use of their expense accounts to which they are entitled as elected public servants.

The various land-zoning scandals are interesting because they are symptomatic of the kind of relationship between the most powerful members of Fianna Fail and people in the property development area. Some of the most shocking evidence from the various investigative tribunals in recent years shows how Haughey was financially courted by a number of banks and also exposed a system of off-shore accounts. And so indications emerge of cosy connections between the banking world, the world of building and property development and various powerful and influential figures within Fianna Fail – an unholy trinity which presided over the fantasy boom which was the Celtic Tiger since the turn of the millennium and which led to the country massively living beyond its actual means for years. Of course, to complete the picture, it must be added that the Irish people happily colluded in the scam, allowing themselves to be fooled and bought off and re-elected Fianna Fail with regularity.

There is, unfortunately, something in the Irish mentality which has a sneaking admiration for what is called in Ireland the “cute hoor,” the clever personable rogue. The Irish are not alone here; I have often thought that Silvio Berluscone would feel completely at home in Fianna Fail. This, combined with the very intimate nature of Irish politics (one member of parliament for every twenty five thousand people) and a long tradition of clientism, starts to explain some of the success of the party.

But if Fianna Fail has a large responsibility for the course of events leading up to the inevitable crash, it is the conduct of the Irish government over the past two years which is really unforgivable. They have consistently tried to talk down the problem, or even talk it away. When the crisis first loomed, Bertie Ahern, then Taoiseach, suggested that those who were voicing concerns about the economy should commit suicide. A blanket guarantee was given to the banks; their depositors, their shareholders and their bondholders. It is this guarantee which has finally led to the runaway meltdown which has forced Ireland – finally – to put up its hands in surrender. But right up to last weekend, the Fianna Fail government has persistently tried to play down the seriousness of the situation, including recourse to downright lies. Asked last Sunday about the scale of the assistance probably necessary from Europe – seventy billion, eighty? – the Irish finance minister replied – no, nothing like that. Three days later he has confirmed that the figure is likely to be around eighty five billion.

In such a situation in almost any country in the world, the government would have resigned. But the present Fianna Fail Taoiseach, Brian Cowan, refused to consider this until his junior coalition partner, the Green Party, finally pulled the plug. Even now, he is hiding behind the preeminent need to produce a budget and using this as an excuse to stave off an immediate election; the claim is that passing the budget and the necessary supplementary legislation means that elections are not possible before March. And he (and, to be fair, the opposition parties too) are still playing political bluff games.

In fact, elections could be held by the end of the year. Cowan, whose party and government have clearly lost any moral mandate from the people, could talk openly, honestly and completely with all the opposition leaders to have the budget and the necessary ancillary legislation passed in the next two weeks. It might entail the politicians spending ten to twelve hours a day in parliament and working over the weekends but that is what they are (in Ireland’s case extremely highly) paid for. There is no point in arguing about the budget, its parliamentary approval in a shape acceptable to the EU and IMF is a perquisite for releasing the funds and guarantees Ireland needs. If the parties cannot agree on particular specifics, then the government version can be passed with the understanding that a new government may do some fine tuning in these areas. And then let the politicians look for a mandate from the people. Given the hard years for the country ahead, this is absolutely vital.

Sadly, expecting Fianna Fail to do this is like expecting turkeys to vote for Christmas. At the moment their standing in the polls is under 20%. This means that most of their parliamentary representatives will lose their seats. But this is inevitable now that the Greens are pulling out of the government and prolonging the agony only makes the situation for the country worse. What Ireland needs – as quickly as possible – is a new government with a firm mandate from the people. If the government party members had even a smidge of patriotism left they would acknowledge this and act accordingly.

The chance is then there, despite all the hardship and pain, for a new beginning. Ireland has a chance to learn from all this, to grow, to find new ways forward based on the ingenuity and creativity of its people, on solidarity and hard work. And, in my opinion, a positive part of this would be the Irish voters recognising Fianna Fail as part of the old problems rather than the new solutions.

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