Stephen Kinsella: Is the troika more damaging than 800 years of English rule? Discuss

Brutal and bloody riots have become a common sight in Athens. How much more austerity will the Irish tolerate?

March 05 2013 04:02 AM

THE troika aren't our friends. They are not here to help Ireland. They are here to protect the interests of the creditor countries to whom Ireland is in debt. Ireland's banks must be saved to prevent any contagion to other core countries' banking systems.

They think cutting government spending on goods, services and pay while raising taxes is the only way to restore budgetary health and investor confidence. Ireland is a good place to practise this austerity because it worked so well for us in the 1980s.

You hear a version of this argument a lot when talking to people about Ireland's crisis.

Many commentators also work around a version of it. How much of it is true?

Sometimes, caricatures of this austerity-at-all-costs argument come to the fore. David Begg, General Secretary of the Irish Confederation of Trade Unions, recently said that "the troika has done more damage to Ireland than England ever did in 800 years".

I respect David Begg. He and his colleagues have worked hard for their members' welfare for many years.

I'm more than willing to accept Mr Begg was having a particularly bad day, as his comments came during the fraught negotiations around Croke Park II.

But it's not at all credible to say that Ireland's experience from 2010 to today is comparable to 800 years of British rule. You just can't compare the two.

Ireland has bailed out its banks, yes. It has paid bondholders that shouldn't have been paid.

And yes, NAMA was a giant mistake, now getting bigger because of its absorption of IBRC.

To use the exonerative tense, 'mistakes were made', and those responsible for those mistakes still haven't had to account for their failings, which fuels public anger towards the consolidation project championed by Enda Kenny and Michael Noonan.

There is no doubt Ireland's actions helped ensure the stability of the eurozone and its banking system.

But do the troika actually impose austerity? Or do they alleviate it?

In 2010, the troika were brought in because Ireland was running out of cash to fund the State as no one was willing to lend to us at reasonable rates.

The problems were clear: Ireland was borrowing to finance its banks, and borrowing to keep the levels of state services higher than it could afford to.

We'll have roughly €200bn of government debt by 2014.

About three-quarters of all borrowing the State will do from 2008 to 2014 will go to support government services, rather than bailing out banks. The troika did impose a huge drop in expenditure: primary government expenditure will be 22pc down from its 2007 peak by 2015, along with tax hikes.

But without the troika, Ireland would have had to drop its government spending by more than 20pc in one year, not over five years. That's the big difference. The correction would still have had to be made, but much, much more quickly, and without giving people time to adjust. I'm no fan of the austerity approach, but the troika aren't the ones imposing it on us. Simple accounting has dictated it. We'd have had to do it ourselves, in some shape or form.

The problem with medium term – say five years or more – fiscal consolidation, is that people just get exhausted by it. Let's call it 'austerity fatigue'.

When people see that they have more pay cuts to endure, higher prices and taxes to pay, their behaviour changes.

IT happened in Japan in the 1990s and in Iceland in 2010. In Portugal today there are mass protests because the people feel they live within a dictatorship, like their votes don't matter because any new government will still have to enact austerity policies.

Since 2011, Portugal's government – like Ireland's – has decreased consumer demand and pushed unemployment to record levels of 17pc, causing thousands of small businesses to go bust. Greece has had frequent strikes and public demonstrations, and now Italy has effectively ruled out an austerity candidate by giving less than 10pc of their vote to Mario Monti and his allies.

The eurozone is sick and tired of austerity, and as unemployment levels climb across the region – it's nearly at 12pc now – those in power must ask themselves whether they are making the right choices.

In Ireland, however, unemployment is dropping; Ireland's bond yields, reflecting the cost of borrowing for the State, are dropping; and we are close to closing the budget gap between spending and taxes. The question for policymakers is: are there ways to alleviate Ireland's austerity fatigue before the people turn on their rulers?

Stephen Kinsella: Is the troika more damaging than 800 years of English rule? Discuss

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