Ireland and the House of Cards

The Chains of Capital are Only as Strong as the Weakest Link

Around here lately there’s been much talk about the Easter Rising. It’s nothing particularly interesting: just the “Men of 1916” turning up as the stars of a series of rhetorical questions that boil down to: “Was it for this that they gave their lives?” The Irish Times, bitter enemy of those rebels 94 years ago and rarely friendly toward them since, bundled the refrain into an editorial last week, and has since featured extra letters pages under the “Was it for this?” heading.

It’s not surprising that the struggle for national independence might come to mind as this state begs/negotiates a loan from foreign bankers so that it can pay off foreign bondholders. Just today Sinn Fein – the party that most loudly proclaims its inheritance from the freedom fighters of 1916 and subsequent War of Independence — has scored a stunning victory in a by-election on the rocky terrain of Donegal South West.

But the mood of despair and anger here feels like something far beyond nationalism. Sinn Fein won in Donegal because (1) its candidate, Pearse (there’s 1916 again) Doherty took a court-case to force a long-overdue by-election against the wishes of a government desperately clinging to a narrow parliamentary majority; and (2) as a party it has found the guts to oppose the austerity consensus that governs the other major parties, and also guides the current bailout talks with the IMF, EU and European Central Bank.

It is in that sort of stance, and in the growing popular mood here to “burn the bondholders” – the global creditors of the Irish banks that imploded when the property bubble burst – that we can begin to discern the real potential significance of this moment, and of Ireland’s role in it.

In 1916, after all, Ireland did not merely fight for its own self-determination. It stabbed the British Empire in the back while it was fighting its own ‘Great War’. By the time independence for 26 of the island’s 32 counties was conceded by the British in 1921, the reverberations were being felt around the world. Anti-imperialists from Gandhi to Ho Chi Minh would later cite the seminal importance of the Irish struggle, and its victory, so close to the heart of the Empire. The global colonial edifice proved to be a house of cards, and when Ireland whipped one away the whole structure wobbled and began to collapse.

Today Ireland is paying for its dangerous and vulnerable place in the global empire of capital. For the last 20 years, with the encouragement of its multinational partners, this state has been a haven not merely for big companies looking for a European base with low corporate tax rates – at one time the Irish state, excluding the British-controlled North, had more than a quarter of US foreign direct investment in the EU, at a time when we had barely over 1 per cent of the EU’s population – but for financial players looking for a barely-regulated bolthole for the most questionable parts of their business. Dublin became one of the world’s hedge-fund capitals. Those famously prudent German bankers did things here that they could never have done at home.

But for this very reason Ireland is well placed to strike a blow against that empire. Our global masters know it: it is surely one of the reasons that in September 2008, as Lehman fell, the EU encouraged Ireland’s novice finance minister, Brian Lenihan, to issue in a blanket guarantee to protect the investors in all of Ireland’s banks – including, notoriously, Anglo Irish Bank. Anglo was a nouveau riche institution that had essentially become a casino for the country’s property developers as the bubble inflated. The more established banks, AIB and Bank of Ireland, followed its example; but they at least also had functioned as conduits of credit for other parts of the economy. Anglo was more like a private club with no systemic importance. Nonetheless, Lenihan guaranteed it, at a cost to the Irish state that we now expect will top €30 billion.  We now know too that Anglo’s list of bondholders is a who’s who of European capital.

By guaranteeing those banks, the Irish state turned its ‘sovereign debt’ – the much-used word ‘sovereign’ has triggered some of the same emotions as the 1916 references – into an extension of the banks’ debt. And that’s the main reason that the bond markets don’t want to touch us. It is also true that the state, after years in the black, is suddenly running big deficits: this is a simple consequence of the neoliberalism that guided us toward low income-tax and high reliance on transaction taxes for property and other goods and services. Those latter taxes meant the state was awash in money during the buying frenzy of the early 2000s; in the absence of frenzy, the coffers are empty. And of course neoliberalism continues to dictate that there can be no solution that involves much higher taxes for the rich, nor has the state the ideological inclination to ‘stimulate’ in an economy where significant domestic capitalists play a relatively small role. Exports continue to be strong – the main reason why Ireland’s GDP doesn’t look as bad as you’d expect from looking around the place – but the last three years have shown definitively that exports can only do so much for the ‘real economy’. The government’s new four-year plan for austerity shows how little the domestic economy matters to those making decisions for our future.

Those decision makers now officially include the IMF, EU Commission and European Central Bank, and much as they try to be polite, the mask sometimes slips – like when the Finnish-born EU commissioner for economic affairs Olli Rehn warned us that our government really had to present a national budget before a general election could be called.

At the moment they must deal with a genuine groundswell from across the political spectrum calling for Ireland to default. An article from no less than Bloomberg offering that very advice (‘Bust is Better than a Bailout for Irish Patient’) has exploded across the Irish parts of the internet over the last three days. It seems more likely than not at this stage that some small concession will have to be made, if only to set a precedent for the next wave of bailouts across the EU and make the pretense of ‘shared pain’ more plausible. Bank senior boldholders could perhaps be offered a deal involving swapping debt for equity, though God knows who would want to hold shares in Irish banks.

It’s obvious by now that Ireland, like Lehmann two years ago, has exposed the fragility (aka criminal recklessness) that still underlies the world’s financial arrangements. Politically, it’s crucial that Ireland uses its pivotal position at this moment of crisis to ensure not merely its own survival, but an end to the drip-drip of immiseration that is sure to keep sweeping Europe and the world if this sort of ‘bailout’ – in reality another wealth transfer to the already rich – is allowed to be the norm. We can’t be satisfied by some face-saving bit of pain-sharing with the bondholders who bet on our banks, or rather who calculated that this was a ‘bet’ that their political partners in crime would never let them actually lose in any significant way.

And if Ireland saying “no deal!” causes the house of cards to collapse, well, so be it.

The balance of forces politically in Ireland makes that unlikely. The main centre-right parties, Fianna Fail (in government) and Fine Gael (in opposition) are basically on board with austerity and serving financial masters. So too are the Green party – Mike Whitney’s otherwise excellent article yesterday may have given the impression that they’ve tried to pull the plug on the government they’ve supported for the last three-and-a-half years, but in fact the Greens said they’d go only after they finish doing the damage over the next few weeks.

However, the resurgence of a newly tough-talking Sinn Fein (party leader Gerry Adams is moving his own political base south of the Border to run in the next parliamentary election here) and the birth of a new formation, the United Left Alliance, to the left of our hopelessly pipsqueaking Labour party, give some genuine cause for optimism. The best hope for real change in reality, however, is for us to internationalize the resistance in the same way that ‘the markets’ have internationalized the crisis. We’re hearing a lot in recent days about the ever-upward movements in Portugal’s bond yield, but very little about that country’s general strike on Wednesday.

This weekend the Irish trade-union movement attempts to emerge blinkingly from the decades-long darkness of its ‘social partnership’ with governments and employers, by staging what is likely to be an enormous demonstration in Dublin on Saturday afternoon. Also this weekend the government is likely to announce the terms of its deal with the IMF & Co. (It is a measure of the country’s confusion and self-abasing self-absorption that even a week ago many people were likely to welcome the IMF as more competent than any Irish institution to resolve this crisis. IMF spokespeople are highly plausible, and its supporters are on standby to assure us that the fund is not nearly so extortionate to countries that come to it for help as it used to be.) By Monday we will know much more about the levels of resistance and quiescence, as well the levels of poverty and peonage, that will determine the future direction of this crisis.

Harry Browne lectures in the School of Media at Dublin Institute of Technology and is author of CounterPunch’s Hammered by the Irish. Contact harry.browne@gmail.com

Budget Authority Savings
Relative to the Obama/Gates “Base” National Defense Budget 2010-2020
Billions of Dollars, All Dollars Are “Current” Dollars

 

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2011-2020

Obama/Gates “Base” National Defense Budget (per CBO)

554

574

592

607

624

643

659

677

696

715

735

6,522

Sustainable Defense Task Force (Cong Frank-Paul Plan)

554

553

537

534

537

532

536

542

545

567

586

5,469

SDTF
Reductions

0

-21

-55

-73

-87

-111

-123

-135

-151

-148

-149

-1,053

Coburn Freeze/Audit
Plan

554

554

554

554

554

554

554

554

554

554

554

5,540

Coburn Reductions

0

-20

-38

-53

-70

-89

-105

-123

-142

-161

-181

-982

Bowles-Simpson Co-Chairs Proposal*

554

574

548

550

545

541

554

568

581

592

601

5,654

Bowles-Simpson Reductions*

0

0

-44

-57

-79

-102

-105

-109

-115

-123

-134

-865

Domenici-Rivlin BPC Plan (Base Budget Only)

554

571

571

571

571

571

571

596

622

648

676

5,968

Domenici-Rivlin Reductions

0

-3

-21

-36

-53

-72

-88

-81

-74

-67

-59

-554

 

 

 

 

 

 

 

 

 

 

 

 

 

Domenici-Rivlin w/ Troops Reduced to 30,000 in 2013

715

705

641

610

600

596

596

622

649

677

705

6,401

 

The Sustainable Defense Task Force (also known as the Cong. Barney Frank (D-MA), Ron Paul (R-TX) et. al. study) calculated its savings in 2010 dollars in its report (a 2011-2020 savings of $960 billion in 2010 dollars).  Current dollars are shown here, using the inflation assumptions shown in the SDTF report.  The current dollars savings are $1,053 billion for the 2011-2020 period.  These calculations do not include additional funding to support the wars in Iraq and Afghanistan or elsewhere in 2011-2020.  This plan and its specific program reductions and policy assumptions (including financial management improvements) have been extensively reported in the press.  Find the plan here.

The Coburn Freeze/Audit Plan is a “hard” freeze (no allowance for inflation) at the 2010 level for the entire 2011-2020 period.  The plan would hold DOD spending at this level unless and until DOD passes a comprehensive, independent audit of all major acquisition programs, components, and contractors.  Audited weapon programs, DOD components, and contractors provide the essential data and insights needed for further – data based – program decisions to live within continuing budget restraints.  (The current DOD plan is to be “audit ready” for some relatively simple elements of DOD appropriations by the year 2017.  However, the DOD Comptroller has said DOD will need an extension, and even if the DOD deadline is met, it will not achieve the criteria established in the Coburn Plan.)  The Coburn Plan would not control spending for the wars in Iraq and Afghanistan.  Find the original plan here.

The “Bowles-Simpson Co-Chairs’ Proposal” did not report a specific National Defense spending level except for an “illustrative” $100 billion savings in 2015.  However, the text of the plan appears to describe a 50-50 split in defense and non-defense savings in the total discretionary budget for 2012-2020, and staff working for Commission members have confirmed this description. (All discretionary cuts are shown on p. 16 of the plan, and a 50-50 split is depicted in the table above.) The plan’s self-description for all discretionary funding describes rolling discretionary spending back to 2010 levels in 2012 and one percent cuts in discretionary BA from 2013 to 2015.  Thereafter the plan indexes BA to inflation. It is not clear if this would precisely apply to DOD spending or even whether the implied 50-50 split would continue in that amount between defense and non-defense for the entire 2012 – 2020 period.  Clearly, the plan requires clarification.  The plan does not address spending for the wars and describes it as “outside [the] cap,” which the plan would impose on other discretionary funding.  It articulates various “illustrative” program and policy reductions and terminations (including financial management improvements) in a document titled “$200 Billion in Illustrative Savings.”  Find the plan at here.

The Domenici-Rivlin Plan reports its National Defense savings at $1.1 trillion; this, however, is from a baseline very different from the Obama/Gates National Defense “Base” Budget used in this analysis.  The Domenici-Rivlin Plan compares itself, for defense, to a baseline that includes spending for the wars in Iraq and Afghanistan and more inflation than shown in the Obama/Gates National Defense “Base” Budget.  Using the latter as a basis for comparison, the Domenici-Rivlin Plan calculates to a significantly lower savings for 2011-2020 than any other plan:  $554 billion.   The Domenici-Rivlin Plan describes a five year 2012-2016 “hard” freeze at the 2011 level (without inflation) for National Defense and growth at the rate of projected GDP growth for 2017-2020.  The growth rate for this 2017-2020 period would allow real growth in the “base” budget in excess of the one percent real growth assumed in the Obama/Gates budget.  Thus, the savings for Domenici-Rivlin are significantly more modest than, for example, the Coburn Plan that sets a “hard” freeze at the lower 2010 level for all ten years.  (The Domenici-Rivlin Plan, as stated, also calculates its savings in outlays, not budget authority.)  The Domenici-Rivlin Plan, as written, further assumes (and would cap) funding for the wars in Iraq and Afghanistan: “troop levels [are] reduced to 30,000 by 2013” and are held at 30,000 until 2020 (See pp.101-102).  To make the plan comparable to the others assessed here (that do not address – or cap – spending for the wars in Iraq and Afghanistan), the spending identified for any troops in Iraq or Afghanistan are removed from the analysis here.  Thus, the table above displays “base” budget BA levels used in the Domenici-Rivlin Plan’s calculations and provided by Bipartisan Policy Center staff.   As described by Bipartisan Policy Center staff, the freeze level for the “base” budget assumed in this plan is $571 billion, which is the amount used here for all calculations; after 2016 this level grows with GDP growth – thereby permitting “real” growth in the DOD/National Defense budget for the years 2017-2020.   The Domenici-Rivlin Plan with its projection for funding for troops overseas is shown at the bottom of the table in italics for information purposes.  (The annual funding levels were not shown in the plan as published.)  The plan’s text does not address financial management reform either as a center piece, like the Coburn freeze/audit, or among a list of policy or program actions, like the SDTF and Bowles/Simpson plans.  Find the plan here.

Congresswoman Jan Schakowski has released a “Schakowski Deficit Reduction Plan”. It only addresses the year 2015 and, thus, cannot be directly compared to the plans listed above for the 2011-2020 period.  For defense, the Schakowski plan would effect $110.7 billion in reductions with a list of “Options” shown for achieving them.  The options do not address financial management. The amount and many of the “Options” coincide with most, but not all, of the SDTF recommendations.  Find the plan here.

* Numbers do not add due to rounding.

Winslow T. Wheeler spent 31 years working on Capitol Hill with senators from both political parties and the Government Accountability Office, specializing in national security affairs. Currently, he directs the Straus Military Reform Project of the Center for Defense Information in Washington. He is author of The Wastrels of Defense and the editor of a new anthology: ‘America’s Defense Meltdown: Pentagon Reform for President Obama and the New Congress’.

 

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