The German finance minister, under whom the euro was launched, Oskar Lafontaine, earlier this month called for its break-up. He asserted “the current policy is leading to disaster”.
He was referring, in particular, to the impact of eurozone polices on peripheral countries. But much closer to the centre, France — whose credit rating was downgraded late last year — is now deeply mired in a second recession, with no obvious way forward. The Economist has called France “the time-bomb at the heart of Europe”.
In the late summer of 2010, I argued in these pages and elsewhere that if Ireland did not change course, matters would be taken out of the government’s hands. They were. The “inconceivable” happened. The “inconceivable” may be happening again.
The austerity doctrine imposed the burden of adjustment to the post-2008 economic collapse on the labour market. It is an indefensible misuse of economics that the eurozone “authorities” should seek stability on the back of tens of millions of unemployed — this month’s eurozone unemployment figures reached yet another record.
It is equally indefensible that, within an economic epoch characterised by intellectual capital and innovation, youth unemployment should now stand at an average of 25% — and more than double this in some of the peripheral countries which are most in need of their intellectual capital and capabilities.
At this stage in the present recessionary cycle, there is no sense in what is being done to the economy — and what is being planned for forthcoming budgets. After five austerity budgets the deficit has been reduced, at a terrible cost, and with much further to go. The country has been brought to the brink just to impose further cuts of €300m — of which half is slated to come from health including disability services that are already bleeding.
“Adjustment” to an economic shock is never painless. Adjustment to the post-2008 crisis required deleveraging the banking system, restructuring the economy and restoring competitiveness. However, the larger point is that the whole Irish political system proved incapable of delivering a consensus around how we could ourselves undertake these “adjustments”. Instead, it ceded responsibility to our “partners” — and it has used the power of strangers to enforce regressive and counterproductive policies. The policies reflect the self-interests of other and larger powers.
The economies of a still growing number of countries are being impoverished while countries at the centre — Italy and France — are caught in the headlights of a still lengthening recession across the eurozone. The only response has been “we need more integration”, or, to put it another way, more and more power and control to the centre. But it is the policies dictated from the centre that are the cause of the problem, and which are now subverting what the wider European project was originally all about.
Ireland is caught up in this nihilism. We have learned the hard way that no one at the centre is much interested in Ireland, except as a nuisance in terms of its corporation tax (which is now under very real threat). Also, as a “poster child” for policies that have failed and whose failure has, as the IMF have repeatedly pointed out, jeopardised global economic stability.
So, to return to the three primary reasons for a managed exit by Ireland from the eurozone.
The first arises from the fact that, facing into an unprecedented economic crisis, the eurozone “authorities” required countries with very different economies and burdens to conform to the stability and growth criteria — a maximum 3% budget deficit and a 60% debt/GDP. These were originally “indicative”. And yet, in the face of a seismic and accelerating economic crisis, these indicative criteria were transformed into articles of faith, to which all had to conform. It made no sense.
Furthermore, the intellectual underpinning of austerity which the eurozone “authorities” adopted was the Roghoff/Reinhart theorem — that is, above a debt/GDP ratio of 90%, countries enter a kind of “black hole” from which they cannot escape. This has been discredited. Nobel Prize-winning economist Paul Krugman and others have argued that the line of causation probably does not run from “high” debt to low growth but rather from low growth to rising debt. Common sense would indicate that this was surely the case in the post-2008 eurozone.
These fundamental errors were reinforced by the destructive time-table initially required for adjustment. In the case of Ireland, being compelled to even attempt to meet the “stability” criteria by 2014 was deeply damaging — it further exacerbated the underlying problems of adjustment. The eurozone authorities were wrong in their myopic fixation on reducing debt and effectively ignoring what is key to the whole ratio, namely, growing GDP, while simultaneously pushing ahead with, and incentivising, structural reforms.
Instead, there has been a succession of crisis summits involving people with big jobs talking about people with no jobs being “more flexible”.
In recent months, the eurozone authorities have started backtracking: Grudgingly accepting the evidence that their short- term austerity doctrine has been enormously damaging to the eurozone and to global stability. It is a bit late for them to be making speeches on “rebalancing austerity”.
It is little comfort to Ireland or its economy to have “good” school reports from a troika comprised of European institutions whose policies were deeply flawed and an IMF that has no business lending its credibility to an ideologically driven agenda.
It defies common sense that an Irish government should still feel obligated to defend such policies and attempt to impose two more years of “fiscal consolidation”.
Talk of “exiting the bailout” is wide of the mark. The burden of ‘troikanomics’, including onerous debt-servicing costs, stretch into a future that is dominated by those who preached the austerity doctrine in the first place.
Ireland’s growth capacity has been compromised; the best and brightest — our engineers and architects, doctors and nurses, teachers, entrepreneurs — have left and the morale of those remaining is being destroyed. This is not “adjustment”; it is tantamount to self-harm.
The second reason for a managed exit by Ireland is that these same policies are doing enormous damage to two of the most fundamental pillars of a stable and functioning democratic economy. Healthcare and education are the foundations for sustainable growth, innovation and social solidarity. The cuts being imposed arising from the doctrine of austerity are not evidence-based. At the micro-level, in schools and local health provision, they are doing damage that will take years to reverse. The only force that is driving these cuts is short-term book-keeping to appease the troika.
The third reason relates to the damage that is being done to the wider EU project. Ireland is, by its history and conviction, empathetic with Europe and with European solidarity. Austerity has, however, reinforced German hegemony within the eurozone and there is little evidence of the solidarity that was once at the heart of the European project. The UK’s disenchantment with Europe has become significantly more marked. Recent survey evidence demonstrates a deep-seated and widening gulf between the peoples of France and Germany. Expectations of recovery are no longer taken seriously by people in the eurozone.
Recovery cannot be built on a lack of confidence or disillusionment. Ireland has become dependent on the powerful and the peddlers of myths. It does not have to be dependent. It can contribute far more to the European ideal and the single market, outside of the eurozone. Denmark is a case in point.
There is no longer any appetite for the argument that only further integration will solve this crisis. This is a self-serving argument and finds no resonance among national populations. There is always a danger to democracy when the elite — the ‘authorities’ — become semi-detached from the beliefs of the people from whom they get their legitimacy. Riot control is a poor and an obdurate response to the reality that the ‘authorities’ have lost the argument.
In a world a little braver, a bit more far-seeing and one which was capable of learning — and moving on — Ireland would host a meeting of the peripheral countries. They would hammer out the basis for a managed exit from the eurozone for all or some. Those who aspire to national leadership would come out from behind the barricades of “There is no alternative” and would take up again the freedoms and responsibilities of which they are trustees.