IMF get their maths wrong so we suffer far more than was predicted

THE myth that crippling austerity measures have been anything other than disastrous for this country was finally nailed by this newspaper yesterday, when it revealed that the IMF hugely underestimated the devastating impact of a relentless programme of tax increases and spending cuts.

The IMF calculated that every €100 of austerity would cost the economy €50 in lost growth and unemployment. This was deemed to make fiscal sense and, lo, the age of austerity was born.

Belatedly discovered “large and significant” errors in the IMF’s maths mean it underestimated the catastrophic impact of austerity by a factor of up to three. Oops.

In reality, the economy is robbed of between €90 and €150 for every €100 that is slashed from budgets — so, every cent crudely gouged out of the economy plunges the country deeper and deeper into the mire.

Coupled with this depressing analysis came the unwelcome news, from our own crack team of economists in the Department of Finance, that our European partners haven’t tired of kicking us around yet. An imminent deal on our €64bn bank debt, we were told, was being “downplayed” by Michael Noonan — civil servant speak for “there’s more chance of a reunion between arch-nemeses James Reilly and Róisín Shortall than a deal on the debt”.

It was all so different in July when Enda Kenny heralded the mooted separation of bank and sovereign debt as a “seismic shift” for the State. Eamon Gilmore, not to be outdone in the superlative stakes, declared that the proposed deal was “a game changer”. An October deadline on agreeing the deal has come and gone and the latest spin is that we can expect this seismic game-changer at some unspecified time in the new year — after another round of swingeing cutbacks in December’s budget wreaks further havoc on an economy on life-support.

The message from the EU and the Government is clear: Suck it up and sabotage your own recovery by bailing out bust banks and paying off bondholders — an economic thesis reminiscent of the logic in medieval witch trials, when women tossed in lakes were only deemed innocent after they’d drowned.

Despite a puff piece in Time magazine trumpeting plucky Ireland’s brave recovery at the hands of our fearless leaders, the unvarnished figures have always revealed the insanity of the troika’s economic prescription.

UCD economics professor Karl Whelan, in a scarifying blog this week, said that since the coalition assumed office 18 months ago, the ratio of debt to GDP has rocketed from 106.5% to 117.5% and is expected to peak at 120.3% next year; unemployment has climbed from 14.1% to 14.8%, despite the “safety valve” of 87,000 people emigrating each year; and real GDP, in the second quarter of this year, was 1.1% lower than last year.

The recovery is non-existent, a myth being propagated by self-serving TDs and bureaucrats in Europe who want us to stay compliant long enough to pay off the unsustainable debts of the Irish banking system. An objective appraisal of the evidence reveals that, after four years of incessant austerity, things are getting progressively worse and will continue to get worse unless someone shouts stop.

The constant mantra from the Government is that we don’t have a choice and must adhere rigidly to the bailout programme agreed by the last coalition of incompetents, but, in truth, there are important decisions to be made.

A seminar, hosted by the National Women’s Council of Ireland and economic think-tank Tasc, on Monday, compared and contrasted Ireland and Iceland’s responses to their respective banking disasters.

Iceland was the first casualty of the global financial crisis in 2008, and the response of their government, supported by the IMF, was the polar opposite of the calamitous policies pursued by this country.

Banking debt was repudiated, its currency was devalued, and capital controls, preventing billions from leaving the economy, were instituted.

While tax increases and spending cuts were inevitable, they were carefully designed to ensure that the most vulnerable in society were protected from the harshest of the consolidation measures.

So, basic unemployment benefit, social assistance allowance, pensions, and the minimum wage were all increased.

The net result of these progressive policies was that couples in the highest income bracket suffered the most vertiginous drop in disposable income, down 38% between 2008 and 2010, while the poorest in society saw their incomes drop by 9% in the same period.

Iceland has now returned to the capital markets and its economy will this year outgrow the 17-member eurozone. In the words of Nobel Prize-winning economist Paul Krugman, Iceland successfully emerged from the crisis with “its society intact”.

In contrast, Ireland, where quaint notions of social solidarity were set alight along with the borrowed billions that were poured into the banks, a range of draconian spending cuts was devised in tandem with some of the most regressive taxation policies in Europe.

WHILE Iceland did its best to protect the vulnerable from the worst of the cuts, in Ireland figures reveal that it is the wealthiest in society who have fared best, with their incomes increasing by 8%, while the most vulnerable have seen incomes drop by 26%.

Unsurprisingly, deprivation rates between 2008 and 2010, the most recent year for which figures are available, increased from 14% to 22%, while continual targeting of low-income families means that 20% of households now at risk of poverty have someone in paid employment.

This kind of gross iniquity cannot be blamed on outside agents and is a directresult of policies that have been pursued by politicians in this country — the so-called “difficult decisions” that we hear them bleating about on a daily basis.

While politicians pay lip service to the ideal of equality, UCD’s Ursula Barry says the focus on ethics that ordinarily informs social and economic policy has been absent in recent years, with budgetary initiatives driven by panic, fear and base threats.

Despite the preponderance of independent evidence of the carnage its myopic plans are wreaking on the country, the Government trundles on, never deviating from its course of pre-determined cuts and tax increases, insisting that it’s locked into an agreed programme with no room for manoeuvre — a tired excuse that was torpedoed by Tom Healy from the Nevin Economic Research Institute.

In conversations Mr Healy has had with the troika, there has been an acceptance that the ratio of cuts and tax increases can change as long as the balance of adjustments, €7.8bn between 2013 and 2015, remains the same. Instead of being straitjacketed into never-ending of cuts leading to recession necessitating more cuts, it is not too late for the Government to learn the lessons of the last miserable four years and pull the country back from the brink while there’s still something left to save.

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