Economy in crisis - Not enough done to avert new pay cuts

AS Greek riot police fired tear gas at workers protesting the latest round of cuts yesterday, Irish public sector workers were warned that further cuts are inevitable despite, or because of, the moderate progress reported on implementing the Croke Park Agreement.

Both events, and the egg-throwing at the Bank of Ireland AGM yesterday, are symptoms of the same malaise: bankrupt governments, and individuals whose investments have failed, trying to manage collapse in a way that keeps the possibility of a medium-term recovery alive. They are the early symptoms of the crisis that befalls any bankrupt society that must turn to outside financial institutions to keep the lights on.

Responding to the first report on the implementation of the Croke Park Agreement, Minister for Public Expenditure and Reform Brendan Howlin warned “the reality is that further significant cuts in expenditure and ... substantial reductions in the numbers employed in the public service are unavoidable”. He cut to the chase, too, in reiterating that the terms of the EU/IMF bail-out mean that, “if we don’t get the savings voluntarily, then we have to resort again to pay cuts”.

Another round of pay cuts will have a very unwelcome impact on public employees and on the services each and every one of us use. If they become unavoidable, then cuts to social welfare and public sector pensions seem probable too.

The initial review found that “solid and measurable progress” had been made, but warned that “more urgency and ambition” will be needed. The Small and Medium Enterprises Association were more direct.

“The agreement should be scrapped ... a lot more needs to be done, including more dramatic cuts in pay, pensions and employment levels. The public sector pay and pensions bill has increased from 10.5% of GNP in 2005 to 13.4% in 2010 ... with pay and pensions accounting for 46% of all voted current expenditure ... deeper cuts are required.”

In the last three years, 16,400 people have left the public service, and the Programme for Government envisages that up to 25,000 more will leave before 2015. This, by the standards expected of a modern society, represents a terrible social failure, but we cannot be blind to the fact that turning 25,000 state employees into pensioners long before they reach retirement age will only exacerbate an already incendiary situation.

While Greek workers were trying to avert more tax hikes, spending cuts and a sale of the family silver, Prime Minister George Papandreou was trying to push through a five-year deficit reduction and privatisation programme to qualify for EU/IMF aid and avoid default after Greece fell behind on its first €110 billion rescue plan. In Brussels, finance ministers remain divided on how to confront the crisis without provoking even greater turmoil in financial markets.

There is a sense that the noose is tightening and that we may be approaching the point where really hard, unpalatable choices have to be considered and ultimately accepted. How we respond will define this society for our time — and our children’s time.

This is not how our Government would have chosen to mark its first 100 days in office. We may not have much say in how they mark 200 or even 400 days but it is impossible to believe that we cannot resolve this crisis.

Rage is understandable, but it is not a solution — it could, however, energise that solution.