Default on the debt – part 3

How would a policy of default be implemented?  There might appear to be two ways for this to be achieved.  The left could demand it as part of a manifesto to win a majority in the Dail whereupon this majority would implement the policy.  This is however neither immediately realistic, practical nor will the Irish State allow workers to use the machinery of the State to challenge the capitalist system, which is what a left default would represent.

The second is that we think pressure can be put on the existing State to repudiate at least part of the debt and lessen the demands for austerity.  The Irish State already wishes to get concessions from the EU and ECB but on a very limited scale and with all the strength of a beggar asking for change.  However no amount of pressure will get the Irish State to break with the EU, IMF or the US.  If any significant concessions are ever offered it will only be in response to either recognition that the interests of European capitalism as a whole, or the Euro project, is threatened (which is why we now have the latest deal)or if a socialist movement threatens to do more than repudiate the debt. We are nowhere near the latter situation and it is not the current perspective of the left, which is the subject of these posts.

From a Marxist perspective repudiation should not be sought in order that the existing capitalist economy should grow, although that is a better capitalist alternative for workers than the existing policy – if it could work.  It should be part of a strategy of assisting the creation of a working class alternative that will ultimately overthrow this economic system and the state that defends it.  We should not seek salvation from a Keynesian alternative that seeks to grow the capitalist economy because Keynesianism seeks only to postpone austerity and to effect wage reductions through inflation.

The role and place of the demand for repudiation must therefore be dependent on the stage of development of the creation of this workers alternative.  We are neither at a point where the majority of the population actively seeks repudiation of the debt or even believes it a necessity and nor are we at a stage where a large movement is building up support for such a demand.  Most importantly we are not at the point where the working class in in a position to reject the necessary laws of capitalism and present itself to society with a new alternative.  By alternative I mean not absence of debt through repudiation but an alternative to the capitalist system, of which debt is a symptom.  And by ‘present itself’ I mean not promises that things will be better under socialism, but be in a position to show actual examples of workers power in the economy and society. The demand to repudiate the debt is therefore currently limited to an educational role, a propaganda role.

This does not mean that it is unimportant. The argument on debt is important in supporting opposition to austerity, which is the only way at present that workers can actually counter the effects of the debt and in effect seek their own means of repudiating it.  It plays a role in persuading workers that ending austerity is not only desirable but possible.  The wider and deeper the opposition to austerity the more convincing this argument will have to be.  The wider and more successful opposition becomes the more other elements of the programme become important, but we will take these up one by one as we proceed.

In relation to debt repudiation socialists are regularly challenged on the effects their proposals would have on the workings of the capitalist economy.  It has already been claimed that repudiation of the debt would lead to a flight of capital and virtual collapse of the banking and credit system and that, absent outside help from those just told to take their losses, it would lead to severe economic dislocation.  The crisis would intensify across Europe and beyond and lengthen and deepen the recession.  The reputation of the Irish State as a haven for multinational business and as a site for financial speculation would be in tatters.  The loss of capitalist confidence on its own would increase unemployment.  This of course does not affect in the least the purpose of our demand for debt repudiation, which is to win workers away from acceptance of payment for the crisis and for the debts of the State.  As we have seen above, we do not actually currently control any mechanism to repudiate the debt.

Nevertheless the arguments against repudiation of the debt and the effects such repudiation would cause are not false, they are not a lie, or a simple blackmail because in large measure they are true.  Repudiation of debt by a Russian or Argentinian government determined to get back into the markets by assaulting working class living standards do not provide the model for a working class default beyond countering arguments that it is in itself simply impossible.  While for socialists they do not outweigh the necessity to persuade workers to take no responsibility for the crisis they do expose the need not just for a socialist opposition but for a socialist alternative.

For Marxists, as we have said, the achievement of socialism is based not on sound and logical argument but on necessity.  If the socialist alternative is not practical then it will not succeed and will certainly not win the working class to take it up as its own programme.  This is the underlying reason we pointed to for the defeat in the referendum – that we are as yet far from having a real alternative – practical ,immediate, in place right now, contesting for hegemony because it is widely if not yet universally recognised as a real, potential, living alternative.

Sine this alternative is the working class taking ownership and control of the economy, the state and society as a whole we have to answer a very simple question today, right now: is the working class poised to take ownership and control of the economy to counter the sabotage of the capitalist class as we repudiate the debts to its big cousins in the European Banks?

That is the working class as it presently exists in reality; not an idealised one that resides in books or in abstract slogans, but the working people in your street, your neighbourhood and your workplace?  Have they been readying themselves to take over the running of the economy and the state; have they already taken over, or are in control of some workplaces?  Are they perfecting their organisation?  Have they been debating the necessity to do so, the requirements of doing so, the burning necessity to do so – to carry out a veritable revolution?  If not then we currently have no answer, or no practical answer, to the capitalist charge that what we propose, if implemented right now, would simply cause chaos.

That we, the working class, are not yet ready to take over society is obvious because we can see this every day if we live within working class communities and work alongside other workers.

A fatal answer to this current weakness is to seek salvation through a non-working class solution which at first glance might look more ‘practical’ or ‘realistic’: calling on the State to do what can only be done by workers.  Calling for nationalisation when what we stand for is ownership and control by the workers, not the capitalist state.

Instead of such ‘short cuts’ to a different destination Marxists recognise that we need to put forward a comprehensive programme that addresses the needs and interests of the working class and that repudiation of the debt, which is not even a specifically socialist measure, is only one element of this.  It is necessary to place any specific demand within an overall programme that represents a real alternative.  This does not mean that we need always to proclaim a veritable shopping list of demands or that specific and often very limited struggles and demands are not where we really are at.  It is to understand and be able to explain how any particular struggle fits within a global alternative.  As we have said, this alternative must assume a living corporeal reality to count as a real alternative and not simply a logically coherent programme.  The beginning of a living alternative based on a coherent programme is defending the working class by supporting its resistance to austerity and renouncing its responsibility for the causes of the austerity.  Only on such resistance can an alternative be built.

In addressing the austerity inflicted to pay off the State’s debt the left has recognised the necessity for a wider alternative by calling for the continuing budget deficit to be made whole by progressive taxation of the rich.  In our next post we will look at this part of the left alternative.

One more issue merits being addressed in the context of the Marxist approach to the state’s debt.  This is the call for an audit of the debt.  The burden of the bank debt was placed on the workers’ shoulders in order to pay bondholders, but who are or were these bondholders?  Who got paid in full or is awaiting payment that is a hedge fund used by the fabulously wealthy who bought the bonds at a huge discount or who already had insurance for default?  Who is the recipient of this huge transfer of wealth from working people? This is an elementary demand and is not an alternative to repudiation.

For example, what if we found that it was a workers pension fund that held the debt?  Then we could say to them – let’s talk about what effect it would have on your pensions of us not paying this debt.  What arrangements could we come to which would recognise the legitimate claims of both sides?  What if this pension fund was privately managed and subject to the normal charges by its managers which excluded the control of its members or even knowledge of what mangers were doing? Then we might say – ok, we recognise that we should not deprive you of your pensions but we have no obligation to fund the huge charges that allow the financial services industry to pay its managers and bosses salaries and bonuses that are counted in the millions.  We will take ownership of our debt if you, the workers of this pension fund, take ownership of this fund and do not use it to speculate against the living standards of other workers.

Such a debt audit is thus not a call for justification of the debt but becomes a call to action – a workers’ enquiry to determine its ownership and its beneficiaries now and in the past.  A call to action to repudiate what is not legitimate in our eyes and accept what we believe is legitimate by demanding the actions that make it so.

The argument will come back that this debt is subject to rules of confidentiality that are imposed by market exchanges in foreign countries.  Ok then, the debt we still owe should not be paid until we know who we are paying, that it is the appropriate amount and does not involve an unfair redistribution of wealth from workers to international spivs.  If the bondholders have already been repaid we still want to know who walked off with our money since we are still paying for it and we weren’t asked for permission in the first place.

The demand for an audit is a demand for the books to be opened on international finance and is the first step to taking it over.  The very first step in this would be bank workers doing a ‘Wikileaks’ and releasing all the emails and documents relating to the debt guarantee and repayment.  What an education that would be, especially the howls of condemnation from the powers that be – despite this being our money that is being paid over, our banks that we are supposed to own and our Government and State which are supposed to be defending our interests.

The demand for an audit is entirely legitimate; it is the first step to control and to demonstrating the legitimacy of repudiation.

Default on the debt – part 2

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

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.