Friday 26 December 2014

Jody Corcoran: Cypriot crisis shows that solidarity in Europe is but a false impression

It's every country for itself in this unchanging game where regimes come and go but the authorities will not yield.

Published 24/03/2013 | 05:00

Politicians in Cyprus will soon discover what politicians throughout Europe have already discovered – that the yoke of austerity is relentless and will render useless their pretentions of power.

Until last week, it was tempting to believe that a shift was under way, that the tumbling of governments had made space for the legitimacy of democracy.

Some had pointed to the election of a new Pope as an arbiter of change, but there is another way of looking at that: German-educated, of Italian extraction, he is from a default country once bankrupt, who makes virtue of a lifestyle of austerity – and is said to be soft on dictatorship too.

Are they trying to tell us something?

The events in Cyprus tell us that the voice of the people is still spoken through a ventriloquist's dummy.

The financial markets pull the strings and always will. Nothing has changed, will change, other than the brazenness of it all, the pretence that savings are safe.

In France, Nicolas Sarkozy, once a strutting bantam cock, the smaller half of Merkozy, has gone the way of presidents before him, under formal investigation for the acceptance of cash stuffed into brown envelopes.

His socialist replacement, Francois Hollande, just a year in office, is now almost as unpopular.

In Italy, Mario Monti, a technocrat's wet dream, has been defeated, but is still there, because there is nobody to replace him other than a comedian and a bad joke.

In Spain, Mariano Rajoy, over a year in office, complies with the rules, but faces calls to resign in a welter of claims that he and other senior officials had received secret payments for almost two decades.

The prime ministers of Romania, Bulgaria and Slovenia have also been ejected by mass protest.

But nothing has changed.

In Ireland, after 80 years of virtually unbroken power, Fianna Fail has been ridiculed and dumped; the polls tell us that its replacement, Fine Gael and Labour, will almost certainly go the same way.

The polls also tell us that more than half of voters here are desperate in their search for another answer.

But the events in Cyprus tell us that the issue steadfastly remains the same: regimes may come and go but the authorities of Europe will not yield.

So if the game will not change, what is there to do? A start would be to tell the truth.

Within the rules as laid down, the Government has played a reasonable game. The events in Cyprus last week also tell us that.

Those who set the rules shower the Taoiseach with accolades for his acquiescence: the cover of Time magazine declared 'The Celtic Comeback' and in Germany they made him European of the Year.

But here is the truth: Ireland accounts for 1.2 per cent of the population of the eurozone and less than two per cent of GDP, but has paid 42 per cent of the total cost of the European bank- ing crisis.

The public debt-to-GDP ratio has increased from less than 40 to almost 100 per cent and will hit 120 per cent at the end of this year by the time Troika funding runs out.

Since 2008 the economy has experienced a shocking implosion, and is now flatlining.

A concerted attempt is under way to talk it up, but the truth is that the economy has just slipped back into a recession from which it had never really emerged.

Between 2008 and 2015, the economy will have experienced total cuts of about 20 per cent of GDP.

This Government, and the last, has pursued an orthodox liberal approach: the corporate tax rate, for example, remains unchanged. Ireland hopes to export her way to recovery.

And, indeed, if any economy was ever set up for such a recovery then Ireland's is it, when the markets to which we export also come out of recession – any year now.

Headline tax and social welfare rates have been protected, but the average tax take for all households has been increased through sneaky, indirect means.

VAT has been increased, a universal social charge has been applied, property tax is on the way, and a charge for water; child benefit, carers' allowances, single parent supplements and other transfers and services have been cut so as to further impoverish the vulnerable.

There are now 700,000 people at risk of poverty, which includes – the greatest scandal of all – 220,000 children.

Unemployment has surged from 6.4 per cent in 2008 to nearly 15 per cent last year – more than half now out of work for more than a year; last year alone 82,000 emigrated, an entire generation laid to waste.

In 2009 and 2010, public sector pay was cut by a total of 15 per cent, and further, deeper cuts are proposed: employment in the public sector has been reduced by 30,000 so far, which has and will result in further devastation to social services.

Almost everybody has been affected, but not everybody: statistics show that those at the bottom have been hit hardest – their disposable income has been reduced by 25 per cent, but it has increased by five per cent for those at the top.

The assumption is that this brutal, internal deflation will give rise to the confidence of the markets: it is not just "confidence" that is needed, however, but growth, real growth. After five years, none of the pain has so far translated into real growth.

That is because there can be no growth until the banks are fixed: they are now exposed to huge non-performing household debt, especially mortgage debt.

But there remains no incentive for the banks to so function.

The Government – that is, the citizens – are on the hook to re-pay their massive debt, not the banks, which are content to sit and wait until the country waves the Troika goodbye.

Within the rules, the Government has scored relative success: more than €28bn to bail out Anglo Irish Bank, the so-called promissory notes, has been rescheduled on the long finger.

But the citizens still shoulder a burden of debt.

Last June, Taoiseach Enda Kenny seized on a deal to break the link between sovereign and bank debt that would allow the burden to be transferred to what is called the European Stability Mechanism.

Since then Europe has dragged its feet.

It seems Europe only acts when in crisis. Cyprus has given rise to a crisis and if Cyprus tells us something else, it tells us that solidarity in Europe is but a false impression. It is every country for itself.

Heartless though it may seem, therein lies an opportunity for Ireland to hold Europe to the outcome of the summit last June.

But do not hold your breath.

The Germans go to the polls in September. The odds are that the other half of Merkozy will be returned to power on a promise to continue to make Europe pay – country by country.

What Ireland may regain – competitiveness – Germany will have also done, even more so.

Last week the UK cut its corporate tax rate. Nothing in Europe will change, except this: get ready now for a sustained attack on our corporate tax rate. A precedent is set in Cyprus. This is not over yet.

Irish Independent

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