The Emerald Isle remains in chains

A conversation with Phil Pilkington on Europe’s disgraceful triumphalism regarding Ireland’s ‘exit’ from its ‘bailout’

Contrary to conventional wisdom, Ireland was never bailed out and, moreover, it is nowhere near escaping the debt prison to which it was confined by its, supposed, ‘bailout’.

After the burst of the property market bubble, following the post-2008 credit crunch, Europe’s Central Bank demanded that the government shift the losses of five Irish banks, worth €60 billion, onto the shoulders of the taxpayers. Of citizens that had neither a legal nor a moral duty to burden this load. Why? So as to shield the fragile German banking system from the repercussions of taking large losses. The Irish took their wrath out on their government and elected another one which, nonetheless, saw as its priority the full implementation of the savage austerity program that came attached to the huge loans that the government accepted in order to repay the banks’ losses. The result was a catastrophic downward spiral for Ireland’s social economy and its people.

But now the newspapers and the electronic media are full of the ‘good news’ that this ‘fiscal consolidation’ program has ‘succeeded’. That Ireland has returned to the markets. That we have the first, tangible proof that the bailout worked. That Ireland is about to regain its sovereignty and the Irish can, once more, look at the Germans, the French, the Dutch proudly in the eye, restored to the land of the free and the creditworthy.

Alas, a far as I can see, all that has happened is that, after five years of a continuous comedy of errors, Europe’s leadership has now decided to declare victory, with Ireland as Exhibit A that the combination of bailout loans and severe austerity work. And if this required being economical with the truth, so be it.

For those who do not wish to be economical with the truth, let’s look at some numbers:

  • Number of people employed: Reduced by 12.8% since January 2008
  • Unemployed persons: Up from 107,000 in January 2008 to 296,300 today
  • Annualised domestic growth rate: -1.2%
  • Net emigration: 33 thousand annually
  • Government deficit as a proportion of GDP: 7.3%
  • Public Debt: 121% of GDP in 2013, up from 91.1% in 2010 and 105% in 2011
  • Household debt: 200% of GDP
  • Value of assets underpinning household debt: -56% since the crisis began
  • Mortgages in arrears for more than six months: 17% of all mortgages

How can anyone claim that this economy constitutes a ‘success story’ and a cause to celebrate the end of the debt-deflationary spiral? Two are the arguments on which EU triumphalism is built. First, Ireland’s spectacular export performance (annual exports exceeding the nation’s GDP!) and, secondly, the collapse of its 10 year government bond yields to levels that make it possible for Dublin’s return to the money markets, rather than a return to the ESM for more bailout loans.

Let’s unpick these two great success stories, beginning with exports.

Ireland is the largest, floating tax haven on the planet. Companies like Google and Apple famously launder their revenues via Dublin in a manner that reduces massively their tax payments while bolstering to ridiculously fictitious levels Ireland’s GDP. Anyone who disputes this must offer an alternative explanation of the fact that each of Ireland’s Google  employees produces €4.8 million of revenues annually! All this means that the wonderful export statistics translate neither in corporate taxes nor in a significant number of jobs from the which the government can claim income and indirect taxes so as to service its debts.

Turning to the government bond yields, an interesting question arises: Why are they so low when the data above reveals that Ireland, in view of the sluggish domestic economy, remains perfectly incapable of refinancing its gargantuan public debt? Why are bond dealers no longer dumping Irish government bonds (like they were doing in 2011 and until June of 2012)? The answer is simple: Because they gathered that the ECB and Berlin will never let Dublin default given Europe’s desperate need to proclaim Ireland as ‘proof’ that their policies are working. Bond dealers, put simply, trust that the ECB, via Mr Draghi’s OMT or otherwise, will find ways of allowing Dublin to redeem its bonds even if the Irish people and their government remain firmly lodged in debt prison.

With these thoughts in mind, I turned to Phil Pilgington for his views on the matter. Have I missed something crucial here? Here is his answer to me question: “Phil, what is your reaction to ‘news’ that Ireland has exited successfully from its troika program?”

Phil Pilkington’s perspective:

Ah, Ireland’s return to the land of the markets… Let’s divide your question into two parts: economics and politics:


First of all, 10 year government bond yields. They were around 5% in Ireland until early 2010 in the lead up to the 2010 bailout. They then spiked around the beginning of 2011 due to the bailout and the uncertainty surrounding that action. But they quickly came down as investors realised that the country wasn’t going to go bust due to its access to said bailout funds. By 2012 the interest rates were close to 6%. And with the announcement of the OMT in that year they crawled down to under 4% in the beginning of 2013.

What does this mean? My reading of it is this: Investors are convinced that (i) the Troika/ECB would back the country so long as they adhered to the rules and (ii) Ireland would indeed adhere to those rules. If we assume that these two hypotheses are true, which they probably are, then investors are looking at a 4% yield for almost no risk in an environment where yield is completely dead.

Let me stress: this has NOTHING to do with recovery in Ireland, as the government is falsely proclaiming. Quite the opposite, in fact. The recent growth figures, for what they are, are totally skewed by foreign profits being washed through the country. I show this clearly here:

In summary: The claim of a successful Irish Program is complete rubbish. The Irish government has gotten its interest rate down through a mix of Troika/ECB backing and confidence in the government’s ability to follow the rules, but all the underlying economic problems are still there and will not go away. The Irish debt-to-GDP will continue to rise in the foreseeable future.

Will the inevitable rising stock of debt prove problematic politically in the EU? No one can predict the political repercussions at the moment the Irish and German electorates realise the truth of the matter.

Now, onto the politics…


The problem here has become ever more clear to me as time moves forward. But in order to understand it I think you need to understand the Irish political style.

Since the 1980s Ireland has tried basically to run its economic policy by appealing to the rest of the world. That is, by “sucking up”. Whatever everyone else is saying, Ireland will do with gusto. Mix this with a little bit of clever behind-the-scenes diplomacy and you have Irish economic policy.

After the crisis, the new government basically followed the formula that (supposedly) worked so well in the 1990s and 2000s. So, when the IMF/Troika/ECB said gGet your bond yields down through compliance…” the Irish government did exactly that.

There is a widespread belief in Ireland that this will automatically lead to economic growth. This belief is, of course, entirely irrational, but that matters little. The politicians have convinced themselves that, as long as they achieve this target, all else will be well. This is the typical delusion of politicians who are given an arbitrary target of some form.

So, what will happen in Irish politics now that this target has been reached and nothing changes? That is an interesting question and difficult to answer, but I shall have a go.

I think that leftwing parties like Sinn Fein and former right-wing parties like Fianna Fáil, who have re-branded themselves as center-left, are going to gain massively. I think that people will come to ask questions now that the government’s target, which has been pursued ruthlessly for nearly five years, has been reached. They will ask: Why has it made no difference to the real economy? They are bound to become agitated. As a result they will switch parties and throw those in government out. What will happen then? I have no idea. But the seeds have been sown.

So, it seems that Phil’s view from Dublin is not that different to mine. The Emerald Isle remains in the same prison of the original debt-deflationary cycle. And what seems to be a bright light shining through the cell’s cracks is just the neon light of Europe’s propaganda.

28 thoughts on “The Emerald Isle remains in chains

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  6. Firstly Yanis, can I thank you for pointing out the propaganda being produced by the European politicians and their incurious echo-chambers in the media in Ireland and further afield for what it is.

    What is more, the fact that the Irish ‘growth’ strategy is based entirely on transnational tax avoidance, has to be shouted from the rooftops for all to hear. This policy is a morally repugnant theft from the public purse of Europe and the worst type of begger-my-neighbour nationalism.

    And you are right to highlight the social costs of the slavish acceptance of austerian deflationary diktats.

    However, it was not the ECB who ‘ordered’ the initial action which led to the socialisation of so much speculative debt in Ireland. On the subject of who ordered the blank guarantee of all creditors, down to the most subordinate debt, I would recommend that you read Donagh Brennan’s article in the current issue of the Irish Left Review entitled “Guaranteeing Recidivism”. (Incidentally his ‘Sins of the Fathers’ is the best, bar none, recent economic history of Ireland and is now in its second edition.)

    Until I read Brennan’s analysis of the information that has leaked regarding that fateful decision, I was among the many that believed that, to put it crudely ‘it was the ECB wot made us do it, in order to rescue German banks’. And this is the myth that has been put about by mainstream political circles and their mouthpieces since then.

    Brennan shows, however, that the decision was made independently in Ireland, primarily to protect a small Rentier Irish capitalist elite. This tiny group of people (less than 100 serious players) had used largely City of London money-market and shadow-banking funds to finance aggressive speculation in international property, especially in London. The German banks had largely taken their lumps in the Depfa Bank debacle in 2007. Insofar as speculative finance capital can be said to have a ‘nationality’, the creditors at risk were Anglo and to a certain extent American.

    The ECB did not approve of the blanket Guarantee, to put it mildly, preferring concerted action, but the not very bright and utterly amoral Irish political establishment (think Pasok & New Democracy with more cattle and less shipping) could not resist the opportunity to ‘shaft the Germans’, as they mistakenly imagined the process, and the transfer of deposit money to bankrupt Irish banks from the rest of Europe, on which this cunning plan was based, quickly dried up.

    Since being burned by this experience, yes, successive Irish governments have been shamefully obedient to diktats from the Troika, but the original sin seems to have been an indigenous one.

    Why did the government decide to favour this small elite of speculators – at the price of destroying the chances of at least one generation of ordinary Irish citizens? Because these were the same people who financed both of the main ‘Civil War’ parties – Fianna Fáil and Fine Gael. Not surprisingly the politicians acted in their interests. Again, think Pasok/New Democracy and their relationship with the Greek oligarchy.

    That the Irish Labour Party and the Irish Green Party were complicit in this staggering betrayal of Irish people has destroyed the latter and is in the process of destroying the former.

    • Hm.. Point of correction regarding “Sins of the Fathers”. It’s by Conor McCabe. And, yes, it’s well worth a read, if you are interested in recent Irish history.

    • Enya,

      Great piece and largely accurate. The initial decision to guarantee the liabilities of the entire Irish banking system in Sept 2008 was indigenous, however the ECB did intervene at a later stage .As the 2 year blanket bank guarantee was close to expiring during the summer of 2010, the ECB coerced the Irish government into full repayment of all bank bondholders from senior secured right down to junior unsecured under threat of withdrawal of liquidity funding from the Irish banks.

  7. Would you mind to bolster your claim that all this was just done to support the German banking system with veryfiable facts?

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  11. “…the scenario has been played so many times, that someone could easily predict what would happen. Ireland has been praised as a model economy and the “Celtic tiger” took the place of the “Asian miracle”. But, as expected, the tiger died. An amount equal to 22% of the GDP of the whole country has been given to save just one bank. Today, Ireland is under close supervision, suffering from a monstrous total debt. In 2008, the Greek government rushed to give 28 billion to bailout banks, even before the arrival of crisis, and this was just the beginning.”

  12. Irland is bankrupt. The only reason it is not apparent, is that debt was restructured via the INB/ECB into a bond that becomes due not “now” as the original debt, but in 2038! So interest payment is currently much lower and repayment is “after we are dead”.

  13. Just to clarify, ‘Fine Fael’ is a typo. But a rather funny one. As I wrote on my blog this morning…

    “Note the Freudian slip wherein I misspell ‘Fianna Fail’, who are the former center-right party of governance that are now trying to re-brand themselves as center-left, as ‘Fine Fael’ which looks remarkably like the spelling of the present governing party, Fine Gael. It doesn’t take a psychoanalyst to figure out what that slip is all about.”

  14. Yanis;

    Good description! The mix of inside austerity and external surplus must be inverted immediately. What about to share a common smart program for the next euroelections? I’m contacting Syriza and would like to spread contacts all over Europe, while I’m trying to convince catalan leftwing parties.

    Your MP could be the base of the program.

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  16. ” former right-wing parties like Fine Fael” I assume the writer here means Fianna Fail. The two biggest parties in Ireland are Fianna Fail and Fine Gael, the former not so much ideological as entirely populist when it doesn’t interfere with funnelling favours to their mates in construction and business, and the latter a vaguely centre-right party who only ever get elected when Fianna Fail have screwed up the economy so badly that they have to spend a season out of government as a slap on the wrist (and always in collaboration with Labour, a very vaguely centre-left party who face annihilation in the next election).

  17. One small clarification to Philip’s ‘Politics’ contribution above. Fine Gael are most certainly not a ‘former’ right wing part trying to lay claim to the centre-Left. They are a viciously right wing party in matters of economics and class, have been since 1923, who are firmly of the centre Right and they are the dominant party in the Irish governing coalition. If anything the younger generation of Fine Gael parliamentarians are extreme neo-liberals who are itching to tear what’s left of the Irish welfare state and social economy to shreds.

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  19. Reblogged this on Arjen polku and commented:
    A double treat: Yanis Varoufakis and Phil Pinkington’s perspective on the ‘triumph’ of Ireland ‘returning to the markets’. Once more, it is all about setting the discourse.

  20. “and former right-wing parties like Fine Fael, who have re-branded themselves as center-left, are going to gain massively.” Can I assume that this is typo? Fine Gael ARE the government (in coalition with the Labour party) and it is they that are implementing the Troika policy of austerity.

    Fine Gael, Labour and Fianna Fail (who initially guaranteed the banks and were then slaughtered in the 2011 election) will not be forgiven for what they have done to our country, come the next General Election in 2016.

    • Just out of curiosity, how are you going to “punish” them – a ruling parties? By voting for another transnational (oligarchical) wing of liberal politics in Ireland (and elsewhere) known as a “left”?

  21. I’d be interested in you or someone else debunking the Greek “success” story being peddled by Samaras and co. as succinctly as this article as done it for Ireland.

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