Ireland Should 'Do an Argentina'

When a firefighter or medical team make a rescue, the person is
usually better-off as a result. This is less clear when the rescuer is
the European Central Bank (ECB) or the IMF.

Ireland is currently experiencing a 14.1% unemployment rate. As a result of bailout conditions that will require more cuts in government spending and tax increases, the unemployment rate is almost certain to go higher. The Irish people are likely to wonder what their economy would look like if they had not been rescued.

The
pain being inflicted on Ireland by the ECB/IMF is completely
unnecessary. If the ECB committed itself to make loans available to
Ireland at low interest rates, a mechanism entirely within its power,
then Ireland would have no serious budget problem. Its huge projected
deficits stem primarily from the combination of high interest costs on
its debt, and the result of operating at levels of economic output that
are well below full employment - both outcomes that can be pinned
largely on the ECB.

It is worth remembering that Ireland's government was a model of fiscal probity prior to the economic meltdown. It had run large budget surpluses for the 5 years prior to the onset of the crisis.
Ireland's problem was certainly not out of control government spending;
it was a reckless banking system that fueled an enormous housing
bubble. The economic wizards at the ECB and the IMF either couldn't see
the bubble or didn't think it was worth mentioning.

The failure of the ECB or IMF to take steps to rein in the bubble before
the crisis has not made these international financial institutions shy
about using a heavy hand in imposing conditions now. The plan is to
impose stiff austerity, requiring much of Ireland's workforce to suffer
unemployment for years to come as a result of the failure of their
bankers and the ECB.

While it is often claimed that these
institutions are not political, only the braindead could still believe
this. The decision to make Ireland's workers, along with workers in
Spain, Portugal, Latvia and elsewhere, pay for the recklessness of their
country's bankers is entirely a political one. There is no economic
imperative that says that workers must pay; this is a political decision
being imposed by the ECB and IMF.

This should be a huge warning
flag for progressives and, in fact, anyone who believes in democracy. If
the ECB puts conditions on a rescue package, it will be very difficult
for an elected government in Ireland to reverse these conditions. In
other words, the issues that Ireland's voters will be able to decide are
likely to be trivial in importance relative to the conditions that will
be imposed by the ECB.

There is no serious argument for an
unaccountable central bank. While no one expects or wants parliaments to
micromanage monetary policy, the ECB and other central banks should be
clearly accountable to elected bodies. It would be interesting to see
how they can justify their plans for subjecting Ireland and other
countries to double-digit unemployment for years to come.

The
other point that should be kept in mind is that even a relatively small
country like Ireland has options. Specifically, they could drop out of
the euro and default on their debt. This is hardly a first best option,
but if the alternative is an indefinite stint of double-digit
unemployment, then leaving the euro and default look much more
attractive.

The ECB and the IMF will insist that this is the road
to disaster, but their credibility on this point is near zero. There is
an obvious precedent. Back in the 2001, the IMF was pushing Argentina to
pursue ever more stringent austerity measures. Like Ireland, Argentina
had also been a poster child of the neoliberal crew before it ran into
difficulties.

But the IMF can turn quickly. Its austerity
programme lowered GDP by almost 10% and pushed the unemployment rate
well into the double digits. By the end of the 2001, it was politically
impossible for the Argentine government to agree to more austerity. As a
result, it broke the supposedly unbreakable link between its currency and the dollar and defaulted on its debt.

The
immediate effect was to make the economy worse, but by the second half
of 2002, the economy was again growing. This was the start of five and a
half years of solid growth, until the world economic crisis eventually
took its toll in 2009.

The IMF, meanwhile, did everything it could to sabotage Argentina, which became known as the "A word". It even used bogus projections that consistently under-predicted Argentina's growth in the hope of undermining confidence.

Ireland
should study the lessons of Argentina. Breaking from the euro would
have consequences, but it is becoming increasingly likely that the pain
from the break is less than the pain of staying in. Furthermore, simply
raising the issue is likely to make the ECB and IMF take a more moderate
position.

What the people of Ireland and every country must realise is that if they agree to play by the bankers' rules, they will lose.