10 years ago the Troika came to town to bail out the Fianna Fail-led government. What are some of the lessons to be learned from that period?
First Lesson: don’t rewrite history. The Troika did not impose austerity on the Irish economy, or force the government to guarantee bank liabilities and nationalise Anglo Irish Bank. Years before, the Irish government had already commenced a brutal austerity programme. When the Troika arrived, a new austerity programme had already been re-launched. The Troika merely rubber-stamped it. No negotiations, no dictats – everybody was on the same page.
All the Troika did was bail out a government that couldn’t borrow on the international markets anymore (would you lend money to someone who was selling off their furniture to pay the bills while voluntarily taking on their neighbours’ debts?). The Troika was austerity’s lender of last resort.
This is not to dismiss the negative impact of the Troika’s presence. It institutionalised the Government’s policy choices, gave them cover (‘the Troika made us do it’) and buttressed the logic of austerity and private debt socialisation. However, this logic was domestically-driven. The Irish political elite bailed out the Irish financial elite. And we got stuck with the bill.
Second lesson: what goes down, goes up and goes down again. In the financial crisis the IMF, the OECD, the EU Commission and the European Central Bank (ECB) were all beating the ‘expansionary fiscal contraction’ drum (austerity is expansionary; war is peace, and ignorance is strength). And down we went. Now, they are calling on governments to spend-spend-spend in order to prop up the economy. So up we go. But you don’t stay at the top too long.
At least the IMF made some sort of apology, admitting they underestimated the economic and social damage of austerity. But this did not result in a change of policy, reparations or similar contrition from the other international bodies.
So what will happen when the pandemic has passed? Will we be subjected to a one-way conversation about debt levels, spending excesses and market confidence – all with a view to enacting a new round of fiscal contraction? Will finance capital re-assert its prerogatives? Don’t be surprised if our fiscal roller-coaster takes us down again.
Third Lesson: some good things can happen when a central bank starts behaving like a central bank. In the last crisis the ECB took a ‘nothing-to-do-with-us’ approach and allowed interest rates to crush many Eurozone members.Indeed, during the crisis the ECB increased interest rates, twice, fearing the inflation-reds under the bed.
At least now the ECB is actively intervening in markets to push interest rates down, even if their chosen instruments are fuelling wealth inequality. How long will this last? How long will the Bundesbank continue standing back? The monetary hawks are waiting in the long grass.
Fourth Lesson: the Fiscal Rules should be history – or, at least, they should be in a world that still believes 1+1=2. These rules were not rationally based. They were a political compromise to convince the surplus countries to fund bailouts. They are a set of unmeasurable measurements (structural balance, potential GDP, output gap) and are more akin to alchemy. They have been a major contributing factor in the Eurozone’s stagnating performance since the crash.
For the time being the Fiscal Rules have been suspended. However, don’t be surprised if post-pandemic there are attempts to re-introduce the Fiscal Rules, even in zombie form – a will-less, purpose-less set of rules driven by inertia. And, as George Romero taught us, these things can do a lot of damage if they spill out of the graveyard.
Fifth Lesson (and this is a personal bugbear): any commentator or politician who describes current government policy as ‘Keynesian’ has never read Keynes, except for some quotes from the back of a cereal box. How can you spot a Keynesian? It is someone who believes that a) economic investment should be socialised because the capitalist class can’t be trusted to invest over a long horizon; b) the rentier class should be ‘euthanised’ because they are a drain on the productive economy; and c) the Government should pursue a permanent quasi-boom because that maintains long-term growth.
Pop quiz: are any of our Government ministers Keynesians?
Some policy pointers
Learning lessons is the first step to ensuring we don’t repeat the same mistakes. But they don’t necessarily provide a concrete alternative agenda. Here are some policy pointers to start the debate.
1. Ditch the balanced budget fetish. SIPTU has provided some ideas in its Progressive Fiscal Framework; in particular, a long-term deficit-financed investment. This means resistance to the reinstatement of the Fiscal Rules in their current form (a reasonable reform would be to exempt investment from deficit calculations).
2. If you can’t trust international organisations to get fiscal policy right, what about Fianna Fail and Fine Gael? The former pursued an inane fiscal policy prior to the crash, stoking speculative-fuelled growth. Both ran equally inane pro-cyclical policies during the recession. And the latter has presided over a dangerous and growing imbalance between domestic and foreign-owned capital. Who knows what fiscal mischief they’ll get up to together. We need a progressive strategy for long-term debt sustainability which would protect us from both international organisations (e.g. bailouts and their conditions) and home-grown wrecking-merchants.
3. We have little influence over monetary policy but that shouldn’t stop us from putting forward common-sense policies, such as the ECB monetising Covid-related debt. We could dust off the more far-reaching proposals from progressive economists showing how the ECB could treat sovereign debt. Of course, we have only a small influence on monetary policy. But we can at least stop the privatisation of AIB and, instead, turn it into a real public bank serving households and businesses in the productive economy.
4. Taxing the rich to spend more is fine as far as it goes. But the real action is the organisation of the economy and the role of the producers (aka the working class). Low pay and precariousness, collective bargaining, sectoral planning frameworks: the future will be negotiated or it will overwhelm us.
Finally, let’s work on our slogans. The last crisis saw variants of ‘No to austerity’ (Stop austerity, Austerity sucks, etc.). All quite legitimate and accurate, but they didn’t really catch on. Too negative, maybe. So let’s get positive and proactive. How about ‘Liquidate the rentier class’ or ‘Up the productive economy’. My personal favourite is ‘Democratise Everything’. We can let the marketing department work out the best ones.