By Harry Browne · 28 Nov 2010
The Chains of Capital are Only as Strong as the Weakest Link
Around here lately there’s been much talk about the Easter Rising. It’s nothing particularly interesting: just the “Men of 1916” turning up as the stars of a series of rhetorical questions that boil down to: “Was it for this that they gave their lives?” The Irish Times, bitter enemy of those rebels 94 years ago and rarely friendly toward them since, bundled the refrain into an editorial last week, and has since featured extra letters pages under the “Was it for this?” heading.
It’s not surprising that the struggle for national independence might come to mind as this state begs/negotiates a loan from foreign bankers so that it can pay off foreign bondholders. Just today Sinn Fein – the party that most loudly proclaims its inheritance from the freedom fighters of 1916 and subsequent War of Independence -- has scored a stunning victory in a by-election on the rocky terrain of Donegal South West.
But the mood of despair and anger here feels like something far beyond nationalism. Sinn Fein won in Donegal because (1) its candidate, Pearse (there’s 1916 again) Doherty took a court-case to force a long-overdue by-election against the wishes of a government desperately clinging to a narrow parliamentary majority; and (2) as a party it has found the guts to oppose the austerity consensus that governs the other major parties, and also guides the current bailout talks with the IMF, EU and European Central Bank.
It is in that sort of stance, and in the growing popular mood here to “burn the bondholders” – the global creditors of the Irish banks that imploded when the property bubble burst – that we can begin to discern the real potential significance of this moment, and of Ireland’s role in it.
In 1916, after all, Ireland did not merely fight for its own self-determination. It stabbed the British Empire in the back while it was fighting its own ‘Great War’. By the time independence for 26 of the island’s 32 counties was conceded by the British in 1921, the reverberations were being felt around the world. Anti-imperialists from Gandhi to Ho Chi Minh would later cite the seminal importance of the Irish struggle, and its victory, so close to the heart of the Empire. The global colonial edifice proved to be a house of cards, and when Ireland whipped one away the whole structure wobbled and began to collapse.
Today Ireland is paying for its dangerous and vulnerable place in the global empire of capital. For the last 20 years, with the encouragement of its multinational partners, this state has been a haven not merely for big companies looking for a European base with low corporate tax rates – at one time the Irish state, excluding the British-controlled North, had more than a quarter of US foreign direct investment in the EU, at a time when we had barely over 1 per cent of the EU’s population – but for financial players looking for a barely-regulated bolthole for the most questionable parts of their business. Dublin became one of the world’s hedge-fund capitals. Those famously prudent German bankers did things here that they could never have done at home.
But for this very reason Ireland is well placed to strike a blow against that empire. Our global masters know it: it is surely one of the reasons that in September 2008, as Lehman fell, the EU encouraged Ireland’s novice finance minister, Brian Lenihan, to issue in a blanket guarantee to protect the investors in all of Ireland’s banks – including, notoriously, Anglo Irish Bank. Anglo was a nouveau riche institution that had essentially become a casino for the country’s property developers as the bubble inflated. The more established banks, AIB and Bank of Ireland, followed its example; but they at least also had functioned as conduits of credit for other parts of the economy. Anglo was more like a private club with no systemic importance. Nonetheless, Lenihan guaranteed it, at a cost to the Irish state that we now expect will top €30 billion. We now know too that Anglo’s list of bondholders is a who’s who of European capital.
By guaranteeing those banks, the Irish state turned its ‘sovereign debt’ – the much-used word ‘sovereign’ has triggered some of the same emotions as the 1916 references – into an extension of the banks’ debt. And that’s the main reason that the bond markets don’t want to touch us. It is also true that the state, after years in the black, is suddenly running big deficits: this is a simple consequence of the neoliberalism that guided us toward low income-tax and high reliance on transaction taxes for property and other goods and services. Those latter taxes meant the state was awash in money during the buying frenzy of the early 2000s; in the absence of frenzy, the coffers are empty. And of course neoliberalism continues to dictate that there can be no solution that involves much higher taxes for the rich, nor has the state the ideological inclination to ‘stimulate’ in an economy where significant domestic capitalists play a relatively small role. Exports continue to be strong – the main reason why Ireland’s GDP doesn’t look as bad as you’d expect from looking around the place – but the last three years have shown definitively that exports can only do so much for the ‘real economy’. The government’s new four-year plan for austerity shows how little the domestic economy matters to those making decisions for our future.
Those decision makers now officially include the IMF, EU Commission and European Central Bank, and much as they try to be polite, the mask sometimes slips – like when the Finnish-born EU commissioner for economic affairs Olli Rehn warned us that our government really had to present a national budget before a general election could be called.
At the moment they must deal with a genuine groundswell from across the political spectrum calling for Ireland to default. An article from no less than Bloomberg offering that very advice (‘Bust is Better than a Bailout for Irish Patient’) has exploded across the Irish parts of the internet over the last three days. It seems more likely than not at this stage that some small concession will have to be made, if only to set a precedent for the next wave of bailouts across the EU and make the pretense of ‘shared pain’ more plausible. Bank senior boldholders could perhaps be offered a deal involving swapping debt for equity, though God knows who would want to hold shares in Irish banks.
It’s obvious by now that Ireland, like Lehmann two years ago, has exposed the fragility (aka criminal recklessness) that still underlies the world’s financial arrangements. Politically, it’s crucial that Ireland uses its pivotal position at this moment of crisis to ensure not merely its own survival, but an end to the drip-drip of immiseration that is sure to keep sweeping Europe and the world if this sort of ‘bailout’ – in reality another wealth transfer to the already rich – is allowed to be the norm. We can’t be satisfied by some face-saving bit of pain-sharing with the bondholders who bet on our banks, or rather who calculated that this was a ‘bet’ that their political partners in crime would never let them actually lose in any significant way.
And if Ireland saying “no deal!” causes the house of cards to collapse, well, so be it.
The balance of forces politically in Ireland makes that unlikely. The main centre-right parties, Fianna Fail (in government) and Fine Gael (in opposition) are basically on board with austerity and serving financial masters. So too are the Green party – Mike Whitney’s otherwise excellent article yesterday may have given the impression that they’ve tried to pull the plug on the government they’ve supported for the last three-and-a-half years, but in fact the Greens said they’d go only after they finish doing the damage over the next few weeks.
However, the resurgence of a newly tough-talking Sinn Fein (party leader Gerry Adams is moving his own political base south of the Border to run in the next parliamentary election here) and the birth of a new formation, the United Left Alliance, to the left of our hopelessly pipsqueaking Labour party, give some genuine cause for optimism. The best hope for real change in reality, however, is for us to internationalize the resistance in the same way that ‘the markets’ have internationalized the crisis. We’re hearing a lot in recent days about the ever-upward movements in Portugal’s bond yield, but very little about that country’s general strike on Wednesday.
This weekend the Irish trade-union movement attempts to emerge blinkingly from the decades-long darkness of its ‘social partnership’ with governments and employers, by staging what is likely to be an enormous demonstration in Dublin on Saturday afternoon. Also this weekend the government is likely to announce the terms of its deal with the IMF & Co. (It is a measure of the country’s confusion and self-abasing self-absorption that even a week ago many people were likely to welcome the IMF as more competent than any Irish institution to resolve this crisis. IMF spokespeople are highly plausible, and its supporters are on standby to assure us that the fund is not nearly so extortionate to countries that come to it for help as it used to be.) By Monday we will know much more about the levels of resistance and quiescence, as well the levels of poverty and peonage, that will determine the future direction of this crisis.
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The Washington Consensus
Why is it that men in expensive business suits who have masters degrees in economics fail to see simple economic truths, including our celebrated Manuels and pravins? If a company fails due to poor management and poor business decisions, let it fail and better players will emerge to provide a better service.
But this rule does not seem to apply to banks. Taxpayers have to bail them out when they get into trouble and they continue to create havoc all over the world and continue to receive huge bonuses to boot!
My small business is struggling to meet it's commitments. Can I get some of that bail out action please?
@ Washington the answer is simple! Monty Python our modern day prophets warned what would happen...watch their Flying Circus skits to see how idiots, the sons and daughters of nouveau riche got in via the back door. Mommy and Daddy purchased their degrees and diplomas and their standing...the age of peasants...so they may have degrees and diplomas, which are questionable but they do not have the acumen! They are worse than the decadent immoral corrupt aristocracy of the late 1700's who were romancing the vile bourgeouis (peasants who think they are royalty by virtue of their cash) and forgetting the poor. It is the borgeouis at work here. They HATE the poor and love ONLY money. And like a fat spider they look after each other.
But, the Almighty has got them nicely. Spending their vile ill-gotten profits on luxury villas and hotels and gambling houses at the sea-side will see all of it disappear shortly - under the sea. But, do you think the Insurance companies will pay out to ordinary people caught by climate catastrophe caused by the immoral decadent western society?! No never! They'll just try to get the ordinary citizen to bail them out of this one too.