Ireland is a young country, established only 88 years ago after centuries of domination by its powerful neighbor the United Kingdom. After liberation, the country remained largely in the shadow of its former colonial master, serving as a source of cheap immigrant labor. Irish youth would leave their homeland, portrayed in popular lore as a quaint land of small villages and crude agricultural economies, for work in London or other UK cities. The more ambitious would venture to the US, where the earlier successes of millions of Irish immigrants elevated a few to the upper echelons of wealth and power.
But with the emergence of a new era of intense capitalist growth spurred by unfettered and ever-expanding markets, technological advances, and financial daring, Irish policy makers decided to join the race to success promised by this developmental model.
Enthusiastically, successive Irish governments followed the scriptures of neo-liberal dogma. Possessing an educated, but low-wage work force, they enticed transnational corporations to locate in Ireland by offering them an obscenely low corporate tax rate, the lowest in the euro-zone except for Bulgaria. Tax rates for the wealthy were lowered, including a constantly shrinking capital-gains tax.
Given domestic growth, the financial sector was encouraged to exploit the newly found prosperity with an orgy of lending and investment in housing, commercial real estate, and the new, exotic instruments common to the financial sector over the last thirty years.
As a result, Ireland and the Irish economy were heralded by opinion makers, politicians, and the gatekeepers of capitalism, the World Bank and the IMF. With a public relations flourish, they dubbed Ireland the “Celtic Tiger” of the world economy.
Today, the tiger is on its deathbed.
Slammed by the global economic downturn, Ireland now stands as an example of all that is rotten in the global economy, all that is misguided in the neo-liberal program, and all that is painful in an unfounded faith in capitalist social relations.
With the pace of economic activity decelerating rapidly in 2008, the Irish government recognized that declining tax revenues placed stress on its budget. Where some governments sought to use public funds to stimulate growth, Ireland began a process of government austerity that would please the financial world and hew to the most dogmatic of neo-liberal principles – the budget was substantially in balance at the end of 2007.
But overlooked by Irish officials, the banks were carrying enormous debt with little prospect of realization. As in the US, the Irish financial industry had supported an orgy of real estate development that could only prove of value if the “Tiger” kept its furious pace of growth. Foreign banks, principally in the UK, France and Belgium, added their capital to stoke the fires of speculation. When this growth collapsed, the prospect of recovering these loans also collapsed. In addition, Irish banks, like their US and Icelandic counterparts, engaged in a risky speculative game with the flashy, but risky financial instruments invented in recent years. The potential losses were staggering. The banks tried to hide their losses. Officials pretended they didn’t exist.
As late as May 2008, Irish regulators assured the public that the banks were “sound and robust.” But early the next year, the government injected around 7 billion euros of public funds into the banking industry. And for the next two years, the Irish government denied that the banks were collapsing while adding billions more of public funds to rescue them.
In the fall of 2010, the Irish finance minister called for a final, honest accounting of the costs to the public for the bankers’ folly. The figure – undoubtedly an underestimation – totaled 50 billion euros or roughly US$ 50,000 per household.
While it is true that the collapse of the Celtic road to prosperity is an indictment of the policy choice of free market “cowboy” capitalism - the zealous faith in the dogmas of neo-liberalism - there is more to this tragedy. Unspoken in accounts of the Irish developmental debacle is the role of international finance capital in exploiting the crisis and driving Ireland into the hands of the European Central Bank and the IMF with a painful loss of national sovereignty.
Over the last thirty years, the financial industry has constructed and employed new, sophisticated methods of garnering profit from betting on negative outcomes as well as success. Hedge funds, private-equity firms, as well as big banks gain as much or more from exploiting weakness and economic vulnerability as they once did from supporting strength and growth. Consequently, they pounce on wounded economies, driving up borrowing rates and risk assessments while betting on default. This financial attack creates a disastrous, unending escalation of the costs of financing and refinancing debt that chokes off a government’s ability to fund even its most critical functions.
We saw this process in Greece last fall and winter. And we saw it again in Ireland this summer and fall: since the summer of 2010 the spread between the yield necessary to sell Irish government bonds and the yield of stable German bonds has jumped four-fold. This is an instance of financial aggression, pure and simple, with the next target undoubtedly the economic sovereignty of Portugal.
Inevitably, a country under this withering attack from the financial sector must turn to others for debt relief. In the case of Ireland, the European Union and IMF are staving off the assault with an 85-billion euro loan. In return, the Irish people surrender their sovereignty and submit to a severe further dose of austerity: the minimum wage is to be slashed by 12.5%, welfare benefits will be cut, pensions reduced, health care denied, public workers’ jobs eliminated, and the costs of education increased. This comes on top of an existing 14% unemployment rate. Once again, Irish youth are leaving in droves.
Ireland and its economy are effectively under the stewardship of the European Union and the IMF.
It is common, especially on the Left, to blame the Irish tragedy on the foolish belief that markets and business-friendly policies will bring prosperity to a poor country competing in a world of rapacious corporations and more advanced economies. While this is true, it misses the important point that the predatory international financial sector looms over a country’s effort, ever ready to pick the bones should that country falter. There is capitalism and then there is vulture capitalism.