Ireland is in its third year of recession, and income per person has already declined by more than 20% since 2007. Unemployment has more than tripled from 4.3% at the end of 2006 to 13.9% today.
One day, the bankers who control the bond markets are happy because the government is cutting the budget and laying off workers; the next day, they relearn their national income accounting and realise that this will shrink the economy, and make the deficit and debt burden bigger relative to GDP. So they impose higher interest costs making matters even worse. http://www.guardian.co.uk/commentisfree/cifamerica/2010/nov/19/ireland-bailout-brian-cowen
Unfortunately, the European authorities do know what they want: they want to squeeze Ireland, they want more fiscal tightening and they want to shrink the size of the government. And they want it now, even if it means that Ireland will sink further into recession.
Is there an alternative? Yes – in fact, there are many. It is perfectly feasible for the European authorities to help Ireland recover from its recession without subjecting the economy – and the people – to further punishment.
With a small fraction of the funds already set aside for this purpose, the European authorities and IMF can loan Ireland any funds needed in the next year or two at very low interest rates. We are talking about some 80-90bn euros over the next three years, out of a 750bn euro fund.
Once these borrowing needs are guaranteed, Ireland would not have to worry about spikes in its borrowing costs like the one that provoked the current crisis, in which interest rates on their 10-year bonds shot up from 6 to 9% in a matter of weeks. This creates self-fulfilling prophecies in which a debt burden becomes unsustainable – because the "bond vigilantes" think it might be.
The European authorities could scrap their conditions and instead, allow for Ireland to undertake a temporary fiscal stimulus to get their economy growing again. That is the most feasible, practical alternative to continued recession.
Instead, the European authorities are trying out a process of shrinking the economy and creating so much unemployment that wages fall dramatically, and the Irish economy becomes more competitive internationally on the basis of lower unit labour costs.
This is the race to the bottom that the Banking and Finance sector demands of governments to impoverish popultations in order to raise profit levels. There must be a global demand from the trade union and labour movement for monetary reform so that money becomes a public utility to aid the return to an economy of manufacturing, one of high quality goods and green energy solutions.
