Of Morality & Corruption Ireland & Israel Another PD Budget! Brendan Clifford Philip O'Connor Labour Comment page 16 page 23 back page IRISH POLITICAL REVIEW January 2011 Vol.26, No.1 ISSN 0790-7672 and Northern Star incorporating Workers' Weekly Vol.25 No.1 ISSN 954-5891 Economic Mindgames Irish Budget 2011 To Default or Not to Default? that is the question facing the Irish democracy at present. In normal circumstances this would be Should Ireland become the first Euro-zone country to renege on its debts? The bank debt considered an awful budget. But the cir- in question has largely been incurred by private institutions of the capitalist system, cumstances are not normal. Our current which. made plenty money for themselves when times were good—which adds a budget deficit has ballooned to 11.6% of piquancy to the choice ahead. GDP (Gross Domestic Product) excluding As Irish Congress of Trade Unions General Secretary David Begg has pointed out, the bank debt (over 30% when the once-off Banks have been reckless. The net foreign debt of the Irish banking sector was 10% of bank recapitalisation is taken into account). Gross Domestic Product in 2003. By 2008 it had risen to 60%. And he adds: "They lied Our State debt to GDP is set to increase to about their exposure" (Irish Times, 13.12.10). just over 100% in the coming years. A few When the world financial crisis sapped investor confidence, and cut off the supply of years ago our State debt was one of the funds to banks across the world, the Irish banks threatened to become insolvent as private lowest, but now it is one of the highest, institutions. If market forces had been left to themselves, the banks would have gone although still behind Greece, Italy and under. Ireland would have lost its banking system and thus a major element of its Belgium. sovereignty. The problems were created in the private sector, but the society as a whole While our debt to GDP ratio is far less would have suffered if a remedy had not been found. than was the case in the 1980s the inter- Brian Lenihan was right to step in and offer a guarantee to all creditors, a guarantee national environment was more benign that was partially renewed in November. That guarantee bought relative security for a then. Also, the State debt was not accom- couple of years. In a volatile situation, as exists in the financial world today, there are panied by large private debt and in the no lasting solutions—even for big and powerful economies, as Barack Obama has found 1980s inflation mitigated the burden of out. A small, open economy like the Irish can only survive by dealing creatively with the debt. crisis of the moment. Finance Minister Lenihan has shown considerable talent in doing Therefore the 2011 budget required a this. step-change rather than an incremental change in order to bring the finances back While the Bank Guarantee worked for a while, as the world crisis continued to cause in order. It has been described as the most instability, international investors lost confidence in the collateral that the Irish banks severe budget ever. Certainly, if severity were offering for their loans. That is to say, the banks were not able to go on borrowing is measured in terms of prior year, the funds. Again Ireland was threatened with the loss of its banking system. And again the budget was savage. But are prior year Government acted with flair, to establish the National Assets Management Agency, to comparisons valid? Up to a point they are. continued on page 2 continued on page 7 easy thing to establish—the easiest thing the 1990s. How did this happen? Were Democracy in the world. If that is so, how could it the Russian people deprived of the vote? The political system that is called have been that Democracy hardly hardly Did they not elect Putin to be President, democracy is less than a century old, but existed at all until 1918, and that despite and then elect Medvedev to replace him? the official view of states that have it is all the propaganda of the League of Nations Is it that the mass of the people are too that states that do not have it should be and the United Nations it is still not the incompetent or stupid to sustain democracy destroyed. That is the meaning of the actual political system of most states? —which is the rule of the people? It is awarding of the Nobel Prize to a prisoner Evil dictators prevent it, we are told. But hard to see what else could be meant when in China, and the threats made by the elections have been held in most states, it is said that the elected Government of European Union against countries that did and if democracy is simple, how could it Russia is a dictatorship. not attend the Prize ceremony. be that people who wanted to be evil Russia was a democracy during the The word "democracy" is used as a dictators have been so successful. Yeltsin era. Yeltsin ruled by Presidential demagogic slogan, with the implication We are now told that Russia is a dictator- decree and sent his tanks to shell the that a functional democratic State is an ship, after having been a democracy during Parliament. But Russia under Yeltsin was continued on page 10 are transparent, if misguided, the same C O N T E N T S can not be said for those who advocate Page such a move, while continuing to espouse Economic Mindgames. Editorial 1 the capitalist/globalist system. Irish Budget 2011. John Martin 1 Democracy. Editorial 1 Sovereign debt is public debt, money Individualisation Of Tax. Report of David Quinn remarks 3 borrowed by the State for investment and It's Inter-Governmental, Stupid. Jack Lane 6 sometimes to make up shortfalls in tax The Northern Ireland Water Crisis. Conor Lynch 9 revenues. But it is hard to see how Ireland Shorts from the Long Fellow (David McWilliams; Sinn Fein & The Guarantee; could have done otherwise than equate Joe Higgins On The Banks; Guardian On Iceland; IT On Iceland; Ryan Line) 12 Bank Debt with Sovereign debt. In any RTÉ Attitudes. Letters Exchange, Desmond Fennell & Cathal Goan 13 case, it is utopian to believe that investor No Sign Of Global Warming This Year. Dr. Alan Rogers (Report) 14 confidence in Sovereign Debt would have Richard Holbrooke. Wilson John Haire (Poem) 14 been unaffected by a Default on bank Es Ahora. Julianne Herlihy (Bernie Madoff; Ireland & Wealth; debt. If the banks had been allowed to Political Corruption; Writers & Prizes 15 smash up, not only would Ireland have Of Morality & Corruption. Brendan Clifford 16 been without a banking system of its own, Jack Jones Vindicated. Manus O'Riordan (Part 5) 18 it would also have found it far more The Greaves Journal. Anthony Coughlan 21 expensive to borrow Sovereign Debt. Harris—as he was. Eoghan Harris article from 1965 (translated from What are the implications of not having Irish by Oscar Gregan) 22 a Banking system? It means that Ireland Ireland And Israel From De Valera To Lemass. Philip O'Connor becomes dependent on foreign banks to (Part 2 of De Valera On Zionism & Palestine) 23 look after its financial affairs. These Naval Warfare. Pat Walsh (Part 6) 27 banks would have headquarters in the Index, 2010. 28 City of London, New York etc. They A Labour Policy. Report 29 certainly would not conduct their opera- It Matters Not If Adams Was A Member Of The IRA. Donal Kennedy tions for the benefit of their Irish customers (Report) 29 or to build up the Irish economy. In the Does It Stack Up? Michael Stack (Governance; Abortion And Adoption) 30 days when Irish financial affairs were managed from London, Irish savings were channelled to the City of London and built Labour Comment, edited by Pat Maloney: up the British economy. A pre-condition Another PD Budget for Irish prosperity was the move by (back page) Charles Haughey to put an end to this state of affairs. take the largest loans from the banks. As ranging powers, such as downsizing the There is a further consideration. An has been explained in this magazine, it is two largest banks, and imposing large Irish Bank Default, quite apart from not just non-performing loans that have losses on subordinated (as opposed to damaging Ireland, would have serious been stripped from the banks. The senior) Bondholders. Immediately the effects right across the European Union. collateral offered by the borrowers has Irish Times criticised him for not taking been taken too, and also loans to the same such steps a couple of years ago, instead The implications of allowing the Irish borrower that are not in trouble. The of offering the Bank Guarantee. This kind Banks to go under would be far-reaching. whole thing has been very complicated, as of mechanistic thinking is widespread A default would bring about a domino customers may have had loans from amongst those who have no understanding effect which would spread right across various banks in Ireland and elsewhere. of how government works. The fact is Europe. A decision to walk away from the In effect, where a customer has been unable that, at any given point, the situation must indebtness problem would not just be felt to maintain scheduled payments in respect be handled according to the circumstances in Ireland alone. The exposure of European of one large loan, the whole of his portfolio of the time.