Impact of austerity - Hindsight won’t solve problems

The scathing comments of IMF troika team member Professor Ashoka Mody, on the negative impact of austerity underlying Ireland’s bailout package, have long been foreshadowed in these columns.

It is hard to resist the temptation to say ‘we told you so’ but it has been patently clear that the rescue programme is so harsh as to resemble a form of national punishment.

According to Prof Mody, a familiar figure on the streets of Dublin during the bailout negotiations, serious mistakes were made when so many austerity measures were inflicted on the Irish people. That skewed approach is seen in graphic terms up and down the country. Some towns have been struck by a blight that will leave its mark for years to come. A stroll down any main street would show him that the retail and small business sectors have been decimated. Ireland’s fiscal sovereignty has been sacrificed and the taxpayer is crucified with an unsustainable burden.

The IMF has consistently argued that growth, not austerity, is the answer, and Prof Mody reiterates the widespread belief that the troika got it wrong when constructing the country’s rescue package. Over the course of a revealing interview on Morning Ireland, he insisted they had choices other than austerity. And with the 20-20 vision of hindsight, he suggested that bondholders could have been brought in to bear some of the cost of the ‘sovereign distress’. Too late.

The reality is that when the bailout deal was being hammered out the ECB protected bondholders, warning that the implications would be disastrous if they were burned. Any contrary suggestion was jettisoned. However, echoing the view currently held by many economists, Prof Mody said “we are seeing a belated recognition of the fact that the constraint imposed only by austerity was untenable. Clearly the experience, if experience was needed, has demonstrated that reliance on austerity is counterproductive”.

That austerity has been directly responsible for a destructive blitz of unemployment and socially withering emigration is undeniable. It has brought untold suffering to vulnerable people on the margins of society. A new poor has been created with tens of thousands of middle-class citizens drowning in a sea of mortgage arrears. People are struggling to put food on the table and young working couples are at the pin of their collars to fund childcare costs.

There are compelling arguments for paying higher taxes in this country. And inevitably they will have to include water charges if a long neglected system is to be repaired, and a property tax to replace the rates cynically scrapped by Fianna Fáil in an election-winning ploy. But with the exchequer coffers empty, higher taxes alone will not remedy the plight of disabled people, or boost employment, or enhance an under-funded education system, or improve a pothole-riddled road network, or provide childcare facilities that families in other EU countries enjoy.

Looking to the future, Prof Mody warned that Ireland’s debt burden, and Portugal’s, remain very large. He stressed that dynamic growth is needed to get the ailing economies back on track. That process must start today with full agreement by EU finance ministers meeting in Dublin to put back the deadline for repaying the sovereign debts by at least seven years.