UCD economist, Morgan Kelly, was pilloried by the establishment back in May when he said it was no longer a case of whether Ireland would go bankrupt but when.
Four months on, more and more establishment voices are beginning to entertain the notion that he may have been correct.
Despite the massive cuts programme being implemented by the government, the price of borrowing by the Irish state continues to rise. The “markets” demand a heavier price despite the government’s “market-friendly” policies.
This was seen in August when Irish ten-year government bonds reached a spread of 352 basis points over similar German bonds – the highest seen at any time since 1991.
The state now pays 5.58% on these bonds, more than Greece pays for her debt in the wake of the EU/IMF bailout.
The Standard and Poor’s debt rating downgrade simply reflects the view that there is an increased risk that Ireland will not be able to meet its liabilities.
Alan McQuaid of Bloxham Stockbrokers said last month: “You wonder if Ireland is going down the same route as Greece. The country is haemorrhaging money at an alarming rate.”
Matt Cooper wrote in the Sunday Times: “We seem to have got something of a raw deal: public spending has been slashed, the cost of borrowing is going up, and so too is unemployment. The cost will be met by this and future generations. The width of the chasm in the public finances remains so enormous it is difficult to see how cutting current spending and increasing taxes further will do anything other than send the economy into another tail spin.”
Kelly’s analysis back in May predicted a sovereign debt of 140% of GNP by late 2012 based on the state guarantee to the banks costing the taxpayer €33 billion for written off property development loans (out of a total €100 billion), €7 billion for written off business loans (out of a total of €35 billion) and €7 billion for written off mortgage arrears (out of a total of €140 billion). Quoting the writer Ernest Hemingway that bankruptcy happens “slowly, then all at once”, Kelly predicted that this would result in bank bailouts ten times greater than the bank bailouts in the USA per head of population.
Since then, NAMA’s writedowns for property development loans and the surging cost of the Anglo bailout, now estimated by some observers at potentially €40 billion+, point to the situation being even more serious than that.
It is probably too soon to say that bankruptcy for the Irish state is an inevitability but equally a Greek-style debt crisis here even before Christmas can by no means be ruled out. Socialists need to be very watchful of these developments and fully appreciate all the potential implications.
The lessons for the working class movement from recent developments are clear. The massive cuts and tax increases are not being ploughed into an economic recovery. They are being ploughed into a black hole to feed the banks and the insatiable greed of the “markets”. The movement must reject all cuts and tax increases and deals such as the Croke Park agreement which facilitate them. A struggle must be launched against the economic policy of the ruling class and a campaign to replace the “market economy” with a democratic, socialist system must be launched and vigorously pursued.