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Socialism Today 126 - March 2009

What follows the Celtic tiger?

The ‘golden age’ of Irish capitalism, the famed Celtic tiger, has come to a shuddering halt. The underlying fragility of this boom, based on massive finance and property bubbles, has been exposed. As MICHAEL MURPHY and KEVIN McLOUGHLIN report, this has opened up an unprecedented economic, political and social crisis.

IT IS PREDICTED that unemployment could hit the 500,000 mark by the end of this year. That would be 25% of the workforce, a figure reminiscent of the great depression in the US. The government’s budget deficit this year is €18 billion out of a total projected spend of €55 billion. It will have to raise one third of its budget through tax increases, borrowing or impose huge cutbacks – or all three.

The banking system is teetering on the brink of collapse, with every attempt by the Fianna Fáil/Green Party government to get a grip on the situation just resulting in a new and worse crisis. The collapse of the property market and international recession have torpedoed the Irish economy. The growth in jobs and the economy from 2000 to the start of 2008 was based on a contrived construction boom. Tax revenues ballooned. Consumer spending mushroomed, based on a massive extension of credit linked to the property market. All the factors that drove economic growth are now collapsing.

To indicate the depth and speed of the crisis, in Britain, in January, unemployment rose by 74,000 but in Ireland, with one fourteenth of the population, it jumped by 33,000. The Irish economy is expected to contract by as much as 6% this year. That is on top of the 3% contraction in 2008. The speed of the change is staggering – in 2007, the economy actually grew by 6%.

This banking system crisis is unparalleled in Irish history and is a threat to the survival of the government. The prospect of the collapse of Anglo-Irish Bank forced the government to nationalise it in January. A collapse of Anglo would have had a devastating effect on the entire banking system, and the state would have been hit with a massive bill for Anglo’s bad debts because of the guarantee the government gave last September. That would have raised very serious questions about the solvency of the country itself.

Now the recapitalisation of Allied Irish Bank (AIB) and Bank of Ireland (BOI), Ireland’s two main banks, with €7 billion of taxpayers’ money, is an attempt to shore up the banking system and get credit flowing. But all Irish banks are on very shaky ground.

Eighteen months ago, shares in BOI were trading at over €17. Now, along with those of AIB, their value can be counted in cents, clearly illustrating that investors have no confidence in them. Both banks are very exposed to the collapsing property market, particularly the commercial sector. The €7 billion recapitalisation is not enough. Factoring in the latest economic forecasts, which may be out of date in weeks, the potential for bad debts in the banks is now being put at between €20-40 billion.

On that basis, the position of the banks will decline and they are unlikely to pass on the capital in the form of new loans to businesses or individuals. As a result, the economic crisis will worsen. In this scenario, the state may have no option but to take effective control or even to nationalise both the AIB and BOI. Such a development would cause a profound change in the political situation in Ireland.

As the economy collapses, all government estimates for revenue are useless. Even the returns for January are 10% less than the revised estimates put forward in December. The banking crisis, the scandals and corruption endemic in the financial system, and the exploding government deficit have all meant that Ireland’s status has sunk in the international financial markets. Ireland has one of the worst credit ratings in the EU, paying 3.5% more for the money it borrows than Germany.

Fraud-fuelled anger

GIVEN THE EXTENT of the economic collapse and the certainty that the state will have to foot the bill for bad debts, financial collapse and insolvency are a very real prospect. Recent leaks from a report to the government by Price Waterhouse Cooper (PWC) have revealed a series of huge scandals within the Anglo-Irish Bank. Another bank, Irish Life & Permanent, put €7 billion into Anglo in September before the end of its financial year. The money was then withdrawn ten days later.

This is fraud, an attempt to artificially strengthen Anglo’s capital-to-loan ratio at a time when the bank was in mortal danger. Information has come out that Anglo loaned ten businesspeople €300 million of its own money so they would buy Anglo shares in an attempt to stop further damage to the bank. This was on top of the well-known fact that Anglo directors gave themselves loans totalling €190 billion.

The finance minister, Brian Lenihan, did not reveal these scandals even though he was in possession of the report for some time. His defence was that he had not read that part of the report! If true, that is utter incompetence. However, it is also convenient for Lenihan to say that he did not know. It remains to be seen if this is just incompetence or if the government is implicated in the shady goings on in Irish banking. While the PWC report only pertains to Anglo, there is no reason to believe that similar antics did not go on in the other banks.

These antics and the government’s bailouts of the bankers have caused huge anger and are pushing people to the left, towards activity and struggle. Many are disgusted that the government rushes to bailout those who caused the financial crisis while they are feeling the brunt of job losses and wage cuts. At the same time, the propaganda of the media and government and the impact of the crisis have knocked people back. Along with anger, there is also fear and confusion about what can be done.

Having lurched from one crisis to another since he became Taoiseach early last year, Brian Cowen’s government is attempting to assert its authority with a huge programme of cuts and attacks on the public sector. It could well be its last chance to get a grip on the situation. In favour of a huge offensive against the working class, but fearful of the response it might ignite, the government is attempting to divide public- and private-sector workers.

It is exploiting the collapse of the private sector to say public-sector workers are privileged, and to demand that their pay, conditions and jobs should also be slashed. The trade unions must respond to the attacks on both sectors. A united movement must be built.

In particular, the government’s pensions levy on public-sector workers and the outrage it has provoked have rocked the trade union leaders. This is a de facto pay cut in the guise of increased pension contributions. At a stroke, an average public-sector worker would lose 5-6% of their wages through this levy. It has caused the trade unions to withdraw from the talks with the government and bosses, which had been convened with the goal of coming up with an agreed approach to dealing with the economic crisis.

The Civil and Public Service Union (CPSU), in which the Socialist Party has members on the executive and some influence, has called a one-day strike against the levy. This has undoubtedly influenced others and there has been a flood of strike ballots across other public-sector unions.

Workers in Dublin Bus and Bus Eireann are balloting for strike action against cuts in drivers and services. Workers at Waterford Crystal are still occupying the factory, fighting to save jobs, pension and redundancy entitlements. PDFORRA, the representative body for rank-and-file soldiers, has said that soldiers will not do the work of public servants who take action against the pensions levy.

Inaction at the top

THE ANGER ON this issue has compelled the Irish Congress of Trade Unions (ICTU) to respond, and it has been forced to call a national demonstration in Dublin against the government’s measures, under the meaningless slogan: ‘There is a better, fairer way’. It is responding to pressure primarily from the public sector, but the ICTU and individual unions are doing precious little to fight the effects of the crisis in the private sector.

This inaction is disgraceful and can assist the government in its divide-and-rule plans, possibly helping it to get a certain echo for its attacks on the public sector. A recent opinion poll showed that 47% of people were opposed to the levy while 41% supported it. In reality, these figures mean that a large majority of the working class, including private-sector workers, oppose the levy – and that is after months of unprecedented propaganda against the public sector. This shows the potential to build a mass movement, if a lead was given.

While the anger and opposition to what the government is doing is huge, in the absence of a lead, there are also doubts among public-sector workers about engaging in major strike action because of the fear of what affect that might have on the economic crisis and how other workers would perceive it. However, events can develop their own momentum, and the danger of the situation spiralling out of the control is a factor in why the ICTU has called the national demonstration, to let off steam.

The ICTU is dismayed at the more offensive approach of the government and the bosses, and is desperate to put Humpty Dumpty (social partnership) back together again. Ultimately, this position of acquiescence from the trade union leaders is untenable. Already, their policy platform has been undermined by the crisis. Their hope is that a mass demonstration will force the government to backtrack on the pensions levy for some lower paid public-sector workers. If, along with that, the government took some measures against the bankers and big business, ICTU may feel it can resume its approach of social partnership.

But the material basis for the social partnership deals over recent years has been job stability and concessions on pay. The conditions have fundamentally changed. The only social partnership that is now on offer is one where the working class pays the price for an ever worsening crisis in the form of draconian attacks on jobs, pay and conditions – a return to the poverty conditions of decades ago.

Privately, trade union leaders argue that, while they are opposed to what the government is doing, they do not want to bring it down because they fear that the alternative government, one dominated by Fine Gael along with Labour, would be worse. They have drawn a comparison that the militancy of the ‘winter of discontent’ in Britain in 1978/79 paved the way for more than a decade of Thatcherism.

Without any alternative to the capitalist market, the union leaders are doing nothing for workers in the private sector, some of whom are facing war-like conditions. But such is the collapse of the private sector, workers will be forced to resist at some point with or without a lead from the union tops. If the current opposition to the pensions levy does not fully develop to its potential, fundamentally undermining social partnership with struggle, the worsening crisis and attacks from the government and bosses will create new movements that will.

Even though it may only be rhetorical, the fact that some union leaders are talking about the possibility of social unrest, and the ICTU has restated its call that all the banks should be nationalised, shows that the material basis is being created for mass class struggles as well as a shift to the left. It is inevitable that the issues of nationalisation and the need for state intervention in the economy will come onto the agenda.

Fragile government

THE ECONOMIC TURMOIL and the government’s response to it have fundamentally undermined its support. In a recent opinion poll, 82% said they were dissatisfied with the government. Fianna Fáil has dropped to 22% from 42% only seven months ago, its lowest rating in history. Fianna Fáil came third in the poll behind Fine Gael and, for the first time, Labour.

A general election is not formally due until 2012 but is likely to take place much sooner, even in the next few months. The government is vulnerable to scandal and could be hammered out of office by a movement of the working class. In the poll, the combined government support was just 26%. That the government has such a weak and declining social base is a huge problem for the capitalist establishment given the programme it wants to implement. The Green Party has defended every cutback and every attack on the working class. It has jettisoned any principle it claims to have stood for, unashamedly clinging to power at all costs.

The Labour Party was the big winner in the recent poll, up 10% to 24%, the highest in its history – more than the 19% it received in 1992’s ‘Spring Tide’ (under the then Labour Party leader, Dick Spring) when 33 Labour TDs were elected. This is more about a movement away from the government than a movement for the opposition. However, on the surface, Labour has adopted a more left posture in recent months. It was the only Dáil party to oppose the bank guarantee and it supported the pensioner, teacher and student marches against cuts last autumn. It is clear that Labour will do very well in the forthcoming local and European elections.

Fine Gael continues to be the largest party in the polls despite the fact that, if in power, it would implement much of what the government is implementing. However, it is benefiting from being in opposition as people feel they have limited options if they want a change in government. An important reason why Labour was the biggest beneficiary in the last poll is that it is still seen as less tainted than Fianna Fáil and Fine Gael, is more for ordinary people and of the left. Many public-sector workers moving away from the government were more likely to support Labour than Fine Gael, which said that the government was not going far enough.

Local and euro elections

JACK O’CONNOR, president of the Services Industrial Professional and Technical Union (SIPTU), the most powerful trade union leader in the country, has continually raised his fear about Fine Gael in power. Clearly, he would prefer an arrangement between Fianna Fáil and Labour, and possibly Sinn Féin. What configuration of parties will form the next government is impossible to predict. Labour may feel, given the volatility, that it has an opportunity, if not to outpoll Fine Gael, to be the main beneficiary in an election and thereby wield more power in a coalition with Fine Gael than ever before.

It is difficult to see how Labour could go into coalition after an election with a hated Fianna Fáil. In 1997, Labour paid a terrible price for doing exactly that. Alternatively, a decimated Fianna Fáil, shaken to its core and ‘reformed’ under new leadership, could possibly be a partner for Labour. Given the illusions in Fianna Fáil among some in the leadership of the unions, such a government may even try to claim to be left leaning or radical, incredible as that may seem.

A second Lisbon referendum will take place at some stage in 2009. The latest poll indicates that, given the seriousness of the crisis, most people at this point probably feel it would be best if Ireland maintained its position in the EU. Fifty-one percent would now vote yes to Lisbon on the basis that there would be some limited changes to the EU treaty, 33% said they would vote no. However, that could change and how the campaign and a vote will go is still open, at this stage.

The frustration and anger of the working class has been building for years. This has been held in check by the boom and the role of the trade union leaders. Now there is fear of what the economic crisis will bring and some despondency at the type of conditions that are being imposed.

However, if there was a fighting lead from trade unions and a real left/socialist alternative, the political and social situation could be transformed. Having been blocked industrially and politically for so long, explosions of struggle and leaps of consciousness are likely in the months and year ahead.

The defining characteristics of the crisis have been its speed and depth. What is certain is that Ireland will be a different place in six months’ time and different again in a year. The government and bosses have no solutions to the crisis. In fact, they have continued with a neo-liberal agenda and these policies will make the situation much worse. The economic decline will not be bottomless but there is no strong productive sector in the indigenous economy capable of pushing things forward.

The government and bosses want to use the crisis to make the economy more competitive so that they can quickly benefit from an international upturn in the future. However, it is unclear what exactly will be left of the economy whenever that happens. Even more than other ‘advanced’ countries, Ireland is facing a long and severe crisis. Inherent in this situation is the possibility of national state insolvency.

The historic weakness of Irish capitalism, illustrated in the inglorious and catastrophic collapse of the private sector, will be reflected politically as well as economically and industrially. The Fianna Fáil/Green government is extremely weak and a battering for the government parties in the local and European elections in June could end it.

There is clearly a need for a new mass party to represent working-class people. Whatever new government may come after the next election, it will be exposed as being incapable of dealing with the worsening crisis. It is likely that there can be a dramatic shift to the left and the creation of the ripe conditions, not only for the launch of a new mass party but also for the Socialist Party to become a very significant force in Irish society.


Thousands rally against attacks on public sector workers

Overwhelming vote for strike action

IN RESPONSE to the economic crisis, the Irish government has launched a savage assault on living standards. A ‘pension levy’ on all public sector workers, regardless of income, has been announced by the government. In effect, this represents a slashing of wages, to make up for the reckless, neo-liberal policies of the Irish government during the ‘Celtic Tiger’ boom years, when pensions were gambled on the casino capitalist market.

Around 4,000 public sector workers held a lunchtime protest outside the Dáil (Irish parliament) on 18 February to demand that the price of the economic crisis be paid by those responsible – bankers, speculators and bosses – rather than workers. The protest was addressed by speakers including the Socialist Party’s Denis Keane, a Civil and Public Service Union (CPSU) national executive committee member. Since the protest, 83% of lower paid civil servants voted for a one-day strike, on Thursday 26 February, in a ballot with a 90% turnout. Earlier, Irish bus workers decided to take indefinite strike action against attempted cuts and hundreds of sackings. Irish workers are demonstrating their intention to use their industrial power to fight attacks on living standards.

19 February 2009


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