Irish people still paying the painful price for folly over banks
Opinion: The continent is being reordered along German lines and wages forced down
Europe’s biggest problem is that it seems to expect taxpayers to pay for bank speculation. This is a problem with three aspects: the dominance of banks, the European Union and German chancellor Angela Merkel.
Half a decade ago, we experienced the worst economic and financial crisis since the 1930s, when banks’ operations were swamped by the speculation of their investment bank operations, requiring taxpayer-funded rescues. Even now the European Commission has not been capable of separating the two. Quite the opposite: the European banking union will provide further taxpayer billions for criminal banks to manipulate currency rates and interest rates without liability for their shareholders and creditors.
Merkel, meanwhile, uses EU institutions to set aside democracy, reorder the continent along German lines and drive down real wages for good across Europe. At the same time, German companies have piled up huge export surpluses, financed by our trade partners via loans. This has destroyed the internal market and the euro, while the Merkel doctrine has led Europe into depression and created a lost generation.
Yet if you believe Brussels and Berlin, the Irish economy has reawakened. Yes, Ireland was the first to cast off its euro bailout. Yes, the Irish economy is recovering slowly. But the social disaster and the deterioration of economic wellbeing for the majority of Irish people continues.
Model for disaster
The European Commission celebrates the Irish example as a successful model for others. In the past, it celebrated another Irish model: low taxes for companies and capital from abroad that led to a property bubble and ended in disaster. Not for the banksters and international creditors, of course, but for Irish families, workers and pensioners.
At a January 2012 press conference in Dublin, German ECB technocrat Klaus Masuch praised the economic expertise of taxi drivers. Vincent Browne challenged him by saying Irish people didn’t understand why they had to repay unguaranteed bondholders billions of euro in debts to which they have no relation, to ensure the solvency of European banks.
“If the taxi driver had asked you that question,” asked Browne, “what would have been your response?” Masuch declined to answer and, to date, so have Europe’s bank rescuers.
The European Central Bank forced the Irish to guarantee €64 billion in bank debt. This was like writing a blank cheque to repay criminal business practices conducted, among others, by German private and public banks and European oligarchs. As a result, Ireland’s national debt exploded from 25 to more than 120 per cent of gross domestic product. The Irish people paid the price through tax increases; cuts to pensions, wages and social services; and reduced healthcare and soon water charges. Until the end of their days, hundreds of thousands of Irish people will pay off these loans, simply to ensure that banks didn’t suffer any losses.
One in eight Irish mortgage-holders is in arrears of three months or more, according to autumn 2013 figures. The jobless rate rose from 4 per cent pre-crisis to a peak of 15 per cent. It is falling now – after mass emigration of young people like that in the Great Famine.
British economist Arthur Cecil Pigou once claimed that debtor suffering was insignificant for the economy, as every debt had an equivalent asset. Another economist, Irving Fisher – a fervent speculator until the 1929 crash – contradicted him. Fisher pointed out that debtors are predominantly people with low incomes who use a higher proportion of their money for consumption, while creditors accumulate useless wealth.
Pigou economics will never help the Irish economy back on its feet. To do that, you have to reduce debt. For Ireland that means reducing its legacy debt burden. Across Europe, it means tapping the €17 trillion wealth of the continent’s millionaires to reduce the EU28 combined national debt of €11 trillion.
The euro crisis is not over for the majority of Irish people – nor for the financial markets. Lurking in the accounts of euro area banks are a trillion euro in rotten loans.
The central bank calmed markets with its announcement that it would buy, if necessary, unlimited sovereign bonds from crisis states. Now banks are borrowing money for interest rates of 0.25 per cent to lend at top rates to crisis countries -– or to gamble in the international finance casinos. While European companies struggle for loans for investment, currency speculators borrow cheap money and invest in high-interest countries such as Turkey and Brazil.
As soon as the US federal reserve tightens its monetary policy, however, turbulence is likely in developing countries. European exports to these countries will collapse and the brutal regime of austerity and Europe’s “competitiveness” drive will collapse like a house of cards.
Serious vs investment banking
If Europe doesn’t break the power of banks, the euro will break up. Debts have to be written off before they are shifted to all taxpayers via the European Stability Mechanism rescue fund. Investment banking has to be separated from serious banking. Only ordinary savings, pensions and serious loans should be guaranteed. The ECB should be granted a fixed framework for lending directly to euro member states to end the profitable business with state debt and break the power of financial markets.
We need a Europewide levy on millionaires, a Europewide public investment programme and higher wages – particularly in Germany. The answer to Europe’s biggest problem is this: bail out your people, not your banks.