Tomás Ó Flatharta

Show Me The Money

The Yes side’s key argument is that if we don’t vote Yes, we will not be able to access ESM funds for a potential second bailout Therefore, they suggest, we will not be able to access any funds and the result will be a need to close the deficit gap in one year – hence more austerity.

They have been assisted by the media in turning this into the question of the debate, rather than debating the actual contents of the Austerity Treaty, the austerity it imposes, and the attack on democratic rights.

We need to be able to answer this question in such a way as to not turn it into the 18 billion euro question, and instead to turn the discussion back to austerity. When they say “show us the money” we should say “show us the cuts”.

The first thing we should say is:

1. Seeking another bailout us an admission that government policy has failed. It is ludicrous of the government to tell us that we must take all of the pain associated with austerity so that we can get back to the markets and regain our sovereignty and at the same time tell us we must vote yes so that we can have another bailout and give up our sovereignty yet again. The need for another bailout is because austerity has failed. Therefore we need an alternative to austerity.
   
2. A bailout will come at a cost. Firstly we are committed to providing €11b to the ESM if required. Secondly any money that comes from the fund will come with demands for more cuts, privatisation etc. As the Amendment to Art 136 says “The granting of any required financial assistance under the mechanism (ESM) will be made subject to strict conditionality”

But we should be clear that:

1. The government has colluded in linking the treaty to the ESM
2. It has a veto on the ESM.
3. There are other sources of money if the government really wants them
4. The EU has given commitment to further funding in the future perhaps for its own reasons.

1. The government have colluded in linking the treaty to the ESM and is engaging in blackmail

The ESM Treaty was agreed unanimously at the European Council in February. Therefore the government did not oppose it. The government are presenting the link between the two treaties as an unfortunate reality. The link was not in the original ESM Treaty of July 2011.

2. It has a veto and can stop the blackmail

The establishment of the ESM requires an amendment to Article 136 of the Treaty on the Functioning of the EU (TFEU). This is needed to give a legal basis to the ESM.

The reason that it needs this amendment is that otherwise it would be in breach of Article 125 of the TFEU which is the ‘no bailout clause’.

The Department of Finance disputes this and suggest the ESM could be set up even without this amendment. In that case, however, why are they doing the amendment?

Is the government really saying that it will go ahead and ratify a treaty which, following a No vote, will lock us out of EU funding?

3. There are other sources of money if the government really wants them

We should be careful with this argument as we do not want to holding up the EU or the IMF as benevolent in any way.

But it’s the government who is arguing the need for another bailout. So we should say if it wants to get money there are other sources there.

Michael Taft and Tom O Donnell have dealt with all of this at length. The key points are:

1. New funding is available from the EFSF until June 2013. It has a remaining lending capacity of €248 b and will remain in place to administer its programmes until they they are all wound down.

2. The IMF operates an exceptional access policy whereby countries can gain access to funds above the quota assigned to it. A key argument being made by the yes side is that we have exhausted our quota. Taft and O Donnell argue that Ireland fulfils all four criteria for “exceptional access”:

(a) The member is experiencing or has the potential to experience pressures resulting in a need for Fund financing that cannot be met within the normal limits.

(b) There is a high probability that the member’s public debt is sustainable in the medium term. However, in instances where there are significant uncertainties that make it difficult to state categorically that there is a high probability that the debt is sustainable over this period, exceptional access would be justified if there is a high risk of international systemic spillovers.

(c) The member has prospects of gaining or regaining access to private capital markets within the timeframe when Fund resources are outstanding.

(d) The policy program of the member provides a reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment.

They also argue that given our “austerity poster boy status” the IMF might be loath to start suggesting that its too risky to give us additional resources. As they say “Would Ireland be penalised by the IMF for adhering to a programme that the IMF helped design”.

4. The EU has given commitment to further funding in the future.

Ireland’s continuing access to institutional funding beyond the current bail-out programme has been guaranteed not once, but twice, by the Heads of States and Government; first, on July 21st of last year when the establishment of the European Stability Mechanism was agreed, and most recently on January 30th of this year – after the Fiscal Treaty was signed:

‘We welcome the latest positive reviews of the Irish and Portuguese programmes which concluded that quantitative performance criteria and structural benchmarks have been met. We will continue to provide support to countries under a programme until they have regained market access, provided they successfully implement their programmes.’

In this context it should noted that access to the ESM fund can be activated: “if indispensable to safeguard the stability of the euro area as a whole”. So it might not just be in Irelands interest to provide access to funding through the ESM. As Terrence Mc Donagh, (Prof of Economics in UCG) said in the Irish Times on May 2:

“ A disorderly Irish default would threaten the stability of the European banking system. A European Central Bank intervention to restabilise the system would be considerably more expensive than a second bailout of what is a small country. It is highly unlikely Europe would ignore its self-interest in order to spite the Irish electorate”.

Arguing the Alternative

From our perspective all of the above is to miss the point.

We should argue that austerity is not working and there is an alternative and across Europe people are now looking for a radical alternative.

To indicate the extent of failure of austerity we should use a number of key facts:

1. The deficit is rising.

Deficit reduction is the stated aim of austerity yet we know that the exchequer deficit has grown:

2007 1.6 b

2008 12.7 b

2009 24.6 b

2010 18.7 b

2011 24.9 b

When the government says it is falling it using a figure called General Government Deficit which does not include payments to the banks including promissory note payments.

2. The number signing on have gone from 198, 000 in 2007 to 443,000 at the end of 2011. We have lost 114,600 jobs since Lisbon 2. 60% of the unemployed are now long term and 30% of young people are out of work. Yet private investment has fallen by 63% since 2007 (by €36 b).
   
3. The Credit Union estimates that 47% of adults have less than €100 to spend a month after bills are paid. That’s 1.5 m people. Demand in the domestic economy is falling. GNP (which does not include the repatriations of multinationals) fell by a massive 7.1% in the last three months of 2011 compared with the same period in 2010.
   
4. Poverty, deprivation and inequality are all rising. There are now 700,000 people at risk of poverty, the number suffering deprivation has grown from 14% to 23% (2009 to 2010) while in the same period the incomes of the top 10% grew by 8% while the income of the bottom 10% fell by 26%.

The Alternative

The alternative must focus on breaking with austerity, investing in jobs and making the rich pay for the crises. We should avoid getting locked into a discussion on an alternative budget. The key issue that a focus on the deficit will not get the economy moving again.

Our alternative should three key dimensions:

1. A focus on deficit reduction will not increase employment. In fact jobs will be lost. Given the collapse in private investment public investment is needed to create jobs. But over the next three years public investment will be cut by €1.4 b. In total that will lead to a loss of 14,000 direct jobs. (Figures from Michael Taft).
   
2. The unsustainable debt burden must be eased. The burden of debt is sharply manifested in two ways:

1. The requirement to make interest payments which in 2012 will be €7.5 b. This is almost 40% of the expected exchequer deficit of €18.8 b;
2. The requirement to pay €3.1 b in promissory note payments. It is estimated that interest on the note will be €1.85 b in 2014.

(Figures are from Oireachtas Library and Research Service).

In light of the above we should demand, as Syriza in Greece has, a halt on all interest payments and demand the money be put into jobs. We should also call for the promissory note payments to stop.

More broadly we should argue for debt relief as was granted in Greece with a 53% reduction in debt agreed as part of the second bailout.

3. The tax take from the rich must increase:

The tax take in Ireland is below the European average. Taxes on wealth and high incomes are under exploited. If we were to move towards the European average tax take of 35% of GNP, as Social Justice Ireland have argued we should, tax revenue would increase by €6.5 billion in 2012.

In our budget statement we called for:

1. A wealth tax of 5% on the top 1% of wealth owners to bring in €10 b.

We noted that net financial assets had increased by €45 b between 2008 and 10.

2. €5b to be raised from high earners. We noted that those earning over €100,000 had earnings of circa €20 b but paid less than €5 b in tax. That’s less than 25%.

It should be noted that in 2009 the average effective tax rate of those earning over €500,000 was 20% the same as someone on €40,000.

The effective rate for those between 250,000 and 500,000 was 12%.

The minimum effective tax rate should be increased significantly. It is currently set at 30%.

Tax exiles should also be forced to pay their share. Denis O Brien is now worth €2.5 b , has four houses in Dublin and is a tax exile.