Tag Archives: socialist programme

Default on the debt – part 2

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This post was largely written before the latest initiative of the EU, which has been hailed by Government parties as a major breakthrough for Ireland although we can be confident there will be no slacking in the austerity programme.

The devil in these deals is always in the detail, or so the cliché goes, but this is only partially correct.  The deal will also do little to reverse the austerity agenda in Europe, which is the big picture, and without this the crisis in the Eurozone will not be resolved.

The plan appears to involve the funds in the European Stability Mechanism going straight to the banks instead of the National State beforehand, thus avoiding the immediate burden on the State through increased sovereign debt and pressure on interest rates.  This was demanded by Spain and Italy and Germany has backed down.

The Irish now hope to piggy-back on this to get similar treatment, except this approach would have to be applied retrospectively as the EU demanded exactly the opposite in the Irish deal.  Since the Irish State owns the banks the debts of the banks are the debts of the State, which workers are expected to pay.  Michael Noonan has claimed that when the EU takes over lending to the Irish banks it will take over the asset side of the banks as well, in other words it will own them.  Whether this would involve the EU owning the shipwreck that is Anglo-Irish and Irish Nationwide is an open question and the deal may mean no more than extending the repayments and a little lower interest rate.

In any case socialists must exploit any concession to demand more, as the post below argues, and should draw attention to the concern in the EU statement about the sustainability of the Irish debt to demand that it be repudiated.  The post below is mostly about the tactical way this may be put forward and is therefore timely.

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So what should socialists demand now?  Should we demand repudiation of all the debt even that incurred before the economic crash?  What would be the rationale for this?  Should this include the debt currently being piled up to pay for day to day expenditure on public services?  Should we limit our call to repudiation of that part of the debt that is a result of the bank bailout, or add to this the pension savings wasted on buying the banks?  Who do we take this latter money from since it involves an arbitrary decision on who the state would otherwise have borrowed from instead of using the pension reserve?  In other words default on a sum of money that wasn’t actually borrowed!

It might be that some socialists believe that it is a betrayal of the working class if we do not always demand repudiation of all the debt, although these socialists would still be ignoring costs of bailing out the banks that didn’t result in debt creation while including repudiation of debt that had nothing to do with the banks.

But this brings us back to our point about socialists more or less ignoring the private debts bearing down on workers while not demanding that they be defaulted on. Is this a betrayal of the working class also?  One possible answer to such a charge is that to seek this as well would be to conflate two questions, that of the burden of debt generally and of the specific austerity drive resulting from the explosion of State debt in particular.  This would seem to me to be a valid argument.   It has to be recognised however that in making this argument we are making a political judgement.  It is not primarily about the absolute effect of debt on workers.  It is not a moral argument.

It should therefore be accepted that it may also be permissible to demand repudiation of the bankers’ debt while not believing that it is politically best at all times and in all places to call for rejection of all the debt.  This might be because doing so might no longer allow particular emphasis to be placed on the argument about acceptance of the bankers’ debt.  While it may be claimed that the huge deficits incurred, and to be incurred over the next number of years, are more or less a direct result of the bankers and developers crash we would be obliged, if we accepted this logic, to still accept payment of the debt that was not the result of the financial crisis.

In the end however the left must accept that whatever the advantages of propaganda in opposition to the debt of the bankers, or specifically on the promissory notes, this can really only be a matter of presentation for propaganda or educational purposes.  It cannot represent a deeper policy or strategy.  If successful this approach would anyway have to recede and give way to stronger arguments if it proved successful in winning workers to reject paying the debt.

To agree that the debt created by the budget deficits are simply an indirect result of the banking crash, if not the direct result of assuming banks’ gambling debts, means not explaining what has just happened.  This crisis is not ultimately the result of gambling debts but an abnormally large crisis of overproduction which is a form of crisis that is anything but abnormal in capitalism.  In other words the deficits are the result of a capitalist crisis and socialists should not be diverting workers from this fundamental truth by claiming it is the result of individual bankers or individual banks.

This is also true of the direct debts of the banks themselves that the left has prioritised.  In the last analysis the irrationality of the behaviour of Anglo-Irish and Nationwide banks etc is simply an expression of the irrationality of the system as a whole and it is this we want workers to learn.  The obvious greed, recklessness and stupidity of the individuals and banks involved must be held up as typical examples of the whole rotten and bankrupt system not particularly egregious exceptions.

So if we highlight the direct debt of the banks as the centre of a campaign to repudiate the debt this in no way means acceptance that workers have a duty to pay any of it, any more than we think workers should take responsibility for any other result of a capitalist economic crisis.  It is a matter of what we think are the political demands that will allow workers to come to an understanding of the causes of the crisis and mobilise in their own defence.  This is the decisive criteria for determining the demands that socialist should raise in respect of the debt. It is a tactical decision how we raise the question of debt repudiation, although it’s only a question of tactics if we reject responsibility for any of it.  It is rather like prioritising resistance against some particular item of austerity while not thereby accepting any of it.

We are not at the point where we can realistically hope to build a movement on the basis that workers do not accept any responsibility for the actions of the Irish State.  Identification with this state is derived in no small way from nationalist and bourgeois illusions in its legitimacy.  So the point is to break these illusions, not engage in political projects that assume they have already been erased.

If we believe that the debt is still so large after repudiation or amelioration of the bankers’ debts that the austerity demanded to repay it, or to narrow the State’s budget deficit, will still cripple workers then it would be wrong to accept this debt.  In this case it might be necessary to use the fight over the bankers’ debt as only one step to challenging payment of any of the debt.  (This might be the opportunity provided by the latest putative deal)  We would then be making clear that workers face a choice – acceptance of the legitimacy of the state’s demands or the legitimacy of their own needs.

Arguments around the origin of some of the debt arising from the banks would then play a subsidiary role to the contention that we simply can’t afford to pay these debts and will not pay them.  These arguments however might greatly assist this larger purpose.

This is the situation we are now in.  The level of debt is simply not supportable and the word restructuring will be applied where the word default would be more accurate.  When this happens it should be exploited to discredit the whole exercise, especially the bank bailout, and to push forward the demand for further debt repudiation.

This brings us to what the status of this demand is: why do we demand it and what role does it play in our socialist alternative?  After all, repudiation of the debt is not in itself a socialist demand.  Two of the most recent defaults have been by Argentina and Russia and neither of these were part of a socialist project but rather part of a policy that inflicted deep suffering on millions of workers.

We demand repudiation because of the suffering it inflicts and because if it is accepted workers cannot be in a position to create their own alternative.  We demand it because it puts the needs of workers before the demands of the capitalist system.  We demand it to give workers the opportunity to break with their illusions in ‘their’ State, whether derived from nationalist beliefs in the legitimacy of the nation state or illusions that the state is democratic and legitimate.  If this can best be approached today by putting to the fore the debts being paid on behalf of the banks then this is legitimate and appropriate.

Default on the Debt – part 1

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The key argument of the Yes side in the Austerity referendum was that if there wasn’t a yes vote the state would lose access to the European Stability Mechanism (ESM) needed for a potential second bail out and the ATMs would run dry.  Much of the No campaign responded by saying that we could get access to the ESM, especially if the Government made this a condition of supporting the Treaty changes necessary to allow it to come into force; that the EU had promised to continue to support the Irish State; that anyway it could get money from the existing European Financial Stability Facility until June 2013 or it could access funding from the IMF.

You should know you’re in trouble when you’re putting forward the IMF as a solution.  Just what would the IMF or the EU, or anyone else in a position to do so, ask for in return for a new loan but more austerity?  As an alternative to austerity a new loan made about as much sense as another pub crawl for an alcoholic.

The alternative put forward by the left, which did not feature enough in the campaign, was defaulting on the debt so that the necessity for getting a new loan and suffering austerity to repay the existing ones was reduced.  The argument put forward for this was clear, logical and appealing.  We, the workers, should not pay these debts because these debts were not ours to repay.  We didn’t take out the loans so why should we pay them back?  The gambling debts of the bankers and property developers are theirs to repay.  If European banks were stupid enough to lend money to stupid and reckless Irish banks that lent to stupid and reckless developers then the rules of capitalism say that you take the downside of the risk which you claim justifies your reward.

But there is a problem.  Actually there are two problems.  The first we dealt with in our post on the referendum result.  Most Irish workers knew these arguments and enough of them either discounted them for what they thought were stronger ones or didn’t think they could challenge the forces gaining from paying off the debt – the bankers, developers, Irish State, EU, IMF, US etc.  In our article we stated that in an important way they are correct.

Marxists believe that it is not ideas that fundamentally shape the world but the economic and social forces that shape peoples’ lives and also shape their world view.  No matter how good a Marxist argument or idea is, if the capitalist reality is not challenged by a stronger reality the Marxist argument or idea will not prevail.  This is what the referendum result taught us.  The lesson is that we must create a new reality, one based on working class economic, social and political power if we are to hope to win battles like the austerity referendum and ultimately overcome capitalism.

But this also has implications for the Marxist argument itself.  For if political ideas and arguments are   ultimately only as good as their correspondence to reality and this reality does not currently allow victory for the working class then in what way is the argument presented above deficient?  We should want to know this so that we can clarify our arguments and our programme the better to fight for our ideas inside the working class and help create this new reality.

This does not mean we abandon our ideas but rather understand that to the extent that they do not engage the working class they lack power and to the extent that they do not represent the interests of the working class they will never represent their power.

When we call for repudiation of the debt, what do we mean?  In 2011 total debt equalled 494 per cent of national income, which at the end of the 2010 was roughly €129 billion, so that the debt was roughly €637 billion.  Paying off all this debt, even over 25 years, would lead to a depression which would make the 1930s look like the Celtic Tiger.  No one is seriously suggesting it.  In fact no one would even think of it.  This obvious inconsistency of treatment between public and private debt is a question not just for the ideological advocates of austerity but also for us.

I recently attended a meeting at which I asked why Marxists saw public debt as so very different from other debt, as do the ideologues of the right.  The best answer I got was that there was an assault on working people and their social wage as a result of the government’s austerity agenda which focussed the fight to defend working class interests.   And all this is true.  But it is also true that the financial crisis is not just one of the insolvency of the State but also of the banks which have lent to workers and to businesses.  It is a generalised economic crisis in which the debts of the state are smaller than private debt held by households and businesses.  The share of debt belonging to the State last year was roughly 28 per cent of the total, that of households 30 per cent and of businesses 42 per cent.

Such is the level of indebtedness of the Irish economy that ‘deleveraging’, or paying down these debts, is a necessary part of the system returning to some sort of normality (whatever that is).  There has therefore been a credit crunch and businesses have complained of difficulty in getting loans and those wishing to buy houses, even in seemingly sound financial circumstances, have also found it extremely difficult.  The austerity imposed on households and businesses, just like that imposed to solve the State’s debt crisis, has led to unemployment, reduced incomes and the very real threat of repossession of homes.  These are consequences every bit as severe as many of the measures required to reduce the public debt.  Yet are there calls to repudiate the debt of households, the self-employed and small businesses?  Why not?  The consequences for working people, as I have said, can be equally dramatic.

This may seem an abstruse, pedantic or simply irrelevant point in the context of a political campaign against austerity imposed by the government but I want to make a point which is relevant to it, even ignoring for the moment the issues raised by the exploitation of working people by their entanglement in private debt.

The argument that has been employed by the left has been that workers should not pay for the debts of the gambling banks.  This is a powerful argument that has robbed many of illusions in the current arrangements, albeit they do not see it as being the result of a fundamental flaw of the capitalist system and as yet see no alternative, certainly not one that rests in their own hands.

When the crisis exploded in September 2008 the left denounced the proposed bail out of the banks with workers’ money given with the blanket guarantee.  Even capitalist commentators were simply astounded at its generosity to the banks.  But it went ahead.  So what part of the existing debt is now a direct result of bailing out the banks?

There are different figures for the debt quoted by different authorities at different points in time and having very accurate figures depends on the assumptions made, for example whether to include potential losses in NAMA or whether there are further losses coming down the track from the banks.  All this is very important but not for our purposes where tolerably accurate amounts are only required to make the point.  Before the crisis the debt was €47 billion.  Annual budget deficits between 2008 and 2015 will have generated around €99 billion of borrowings and further borrowings of €13 billion were held in cash at the end of the year.  On top of this the bank bailout will have cost €47billion, making a total debt of €206 billion. (Figures from Seamus Coffey in ‘What if Ireland Defaults?’, Orpen Press 2012)

On the other hand the economist Karl Whelan on his blog has stated that the total outlay and commitments to the bank bailout will be €63 billion.  It is not necessary to try to reconcile the two amounts since they are not measuring the same thing.  For example Whelan’s total includes €20.7 billion invested in acquiring ownership of the banks using money from the National Pension Reserve Fund.  It is a cost of the bank bailout but it did not in itself result in creation of debt.  The state spent €28.1 billion buying shares that Whelan believes are scarcely worth €9 billion now, which will be a loss to the taxpayer but also not a debt.  This underscores the reality that while socialists opposed the bank bailout of September 2008, its implementation  has resulted in losses which have already been paid by workers but do not sit as debt on the State’s balance sheet.

Some of the cost is still in the process of being foisted on the working class taxpayer, such as the €31 billion of promissory notes to ‘save’ a dead bank, Anglo-Irish, now renamed the Irish Bank Resolution Corporation.  In reality the only people saved have been its bondholders.  We now have to pay the money back through tax increases and expenditure cuts which will generate the money to fund payment of the promissory notes to the local branch of the European Central Bank, the Central Bank of Ireland (CBI).  The CBI lent the money to the State to save these bondholders in the first place and will, when it is paid back to them, ‘retire’ the money, or burn it (figuratively speaking).  So much for the rationality of capitalism.

So when socialists say repudiate the debt of the bankers this neither includes all the debt nor all the cost of the bailout.  When it is demanded that the bondholders be ‘burned’ the boat has really been missed on this one.  The bondholders have been saved and the working class of Ireland has had its pension savings robbed and been saddled with enormous debt.