Friday, November 29, 2013

Angie-nomics in Ireland

Yanis Varoufakis in The Emerald Isle remains in chains 11/22/2013 provides a reality check on the latest assumption by the Very Serious People that Ireland is an austerity success story:

Contrary to conventional wisdom, Ireland was never bailed out and, moreover, it is nowhere near escaping the debt prison to which it was confined by its, supposed, ‘bailout’.

After the burst of the property market bubble, following the post-2008 credit crunch, Europe’s Central Bank demanded that the government shift the losses of five Irish banks, worth €60 billion, onto the shoulders of the taxpayers. Of citizens that had neither a legal nor a moral duty to burden this load. Why? So as to shield the fragile German banking system from the repercussions of taking large losses. The Irish took their wrath out on their government and elected another one which, nonetheless, saw as its priority the full implementation of the savage austerity program that came attached to the huge loans that the government accepted in order to repay the banks’ losses. The result was a catastrophic downward spiral for Ireland’s social economy and its people.
Varoufakis is not impressed with the results of such a supposed success:

For those who do not wish to be economical with the truth, let’s look at some numbers:

  • Number of people employed: Reduced by 12.8% since January 2008
  • Unemployed persons: Up from 107,000 in January 2008 to 296,300 today
  • Annualised domestic growth rate: -1.2%
  • Net emigration: 33 thousand annually
  • Government deficit as a proportion of GDP: 7.3%
  • Public Debt: 121% of GDP in 2013, up from 91.1% in 2010 and 105% in 2011
  • Household debt: 200% of GDP
  • Value of assets underpinning household debt: -56% since the crisis began
  • Mortgages in arrears for more than six months: 17% of all mortgages

Digby likes to say of Republican conservative dogma that in the mind of its true believers, conservatism cannot fail, it can only be failed; failed, that is, by actual office-holders and candidates who weren't faithful enough to the dogma.

Angela Merkel's "ordoliberalism," the austerity dogma that has dominated the eurozone since the beginning of the financial crisis of 2007-8, is similar. Austerity cannot fail, it can only be failed by those who don't practice it diligently enough. At least in the minds of Europe's Very Serious People.

Varoufakis explains that the VSP assumption, to the extent that it's anything other than imagination, is based on two things: "First, Ireland’s spectacular export performance (annual exports exceeding the nation’s GDP!) and, secondly, the collapse of its 10 year government bond yields to levels that make it possible for Dublin’s return to the money markets, rather than a return to the ESM for more bailout loans."

He explains the first as based on Ireland's role as "the largest, floating tax haven on the planet," which is convenient for multinational corporations like Apple who take advantage of it. But it produces little actual tax revenue for Ireland. And the low bond yields are based on the market assumptions that the European Central Bank (ECB) won't let them go bad.

He goes to Phil Pilkington to comment on the Irish issues. Pilkington address those two alleged succes factors this way:

My reading of it is this: Investors are convinced that (i) the Troika/ECB would back the country so long as they adhered to the rules and (ii) Ireland would indeed adhere to those rules. If we assume that these two hypotheses are true, which they probably are, then investors are looking at a 4% yield for almost no risk in an environment where yield is completely dead.

Let me stress: this has NOTHING to do with recovery in Ireland, as the government is falsely proclaiming. Quite the opposite, in fact. The recent growth figures, for what they are, are totally skewed by foreign profits being washed through the country.
The Irish Statistic Office recently a report (Quarterly National Household Survey Quarter 3 2013) that finds, "There was an annual increase in employment of 3.2% or 58,000 in the year to the third quarter of 2013, bringing total employment to 1,899,300." Michael Taft takes a close look at the numbers and thinks they're not especially impressive (Quick Notes on the CSO’s Employment Numbers – Some Commentators Should Look Harder ILR 11/27/2013):

... the employment rise looks to be settled in but it is not spread throughout most categories; it is concentrated primarily in the low-paid hospitality sector with small gains in the manufacturing and professional & scientific sections. The statistical problems will go away in the final quarter of this year so it won’t be until next year until we get a sense of the real trend. Employment will increase but key questions remain: where will it increase, what kind of jobs will be created, what value-added will be produced and what wage levels will be paid?
And in countries like Ireland hard hit by Merkel's austerity policies, emigration of younger workers is also a significant factor in reducing the labor force: "We should expect more than 60,000 people emigrating this year in the key age category of 15-24 years," writes Taft.

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