Austerity fight threatens Northern Ireland stability

Belfast’s Shankill Road is among the most deprived in the whole of the United Kingdom [Peter Geoghegen/Al Jazeera]

Belfast, Northern Ireland – Political allegiances are hard to miss on the Shankill Road, a short drive from Belfast’s city centre. Red, white, and blue bunting and union flags line the street.

Shoppers pass a peeling mural depicting a pair of men holding rifles. Their blackened, hooded heads are bowed in honour of slain members of the Ulster Volunteer Force, a notorious Protestant armed group.

Northern Ireland’s 30-year-long “Troubles” ended with a peace agreement in 1998, but on the Shankill Road the scars of violence remain. Corrugated iron “peace walls”, up to eight-metres high, separate residents from nearby Catholics. The area is among the most deprived in the whole of the United Kingdom.

Now Shankill Road, and the rest of this country of more than 1.5 million people, is bracing itself for further economic woes amid a deepening impasse over proposed welfare reforms, which some fear could bring down the devolved power-sharing Stormont assembly in Belfast.

Northern Ireland’s rival nationalist and unionist blocs are divided over hundreds of millions of pounds worth of budget cuts, mandated by the UK government in Westminster.

On Tuesday, cross-party talks in Belfast aimed at preventing the collapse of the power-sharing executive failed to resolve a standoff over welfare cuts. Unless a deal is found soon, Northern Ireland faces the prospect of bankruptcy.

“Welfare reform is a huge issue right across Northern Ireland, it cuts across social boundaries,” says Winston Irvine, a community worker on the Shankill Road and a spokesman for the loyalist Progressive Unionist Party (PUP).

“We are talking about a £600 million [$922m] black-hole in the Northern Ireland budget that has huge ramifications for people who are already struggling with huge inequalities,” Irvine says.

“Unemployment here is above average. Educational attainment is obscene in some Protestant working-class communities. We have high rates of suicide.”

Age of austerity

The nationalist SDLP and Sinn Fein, the political voice of the Irish Republican Army during the conflict, oppose spending reductions, which they say would hurt the most vulnerable in society. Both major unionist parties, the Democratic Unionists and the Ulster Unionists, have warned that cuts are inevitable.

“The current crisis has come about solely through the actions of the British government, it could only be resolved by the actions of the British government,” Sinn Fein Deputy First Minister Martin McGuinness said recently.

Democratic Unionist leader and Northern Irish First Minister Peter Robinson has insisted if no deal is struck he will ask the UK secretary of state to repatriate control of welfare policy back to Westminster. Such a move could destabilise the power-sharing government in Belfast.

“The crisis around welfare and the economy has tested even the most stable of states. Here it is tearing us apart,” says Duncan Morrow, professor of politics at the University of Ulster.

Welfare reform is particularly sensitive for Sinn Fein, which is wary of damaging its standing in the Irish republic, where the party is riding high in polls on a platform opposed to spending cuts.

A British soldier foot-patrols Shankill Road, west Belfast, in 2001 [Reuters]

“Sinn Fein want to be the peace party and the anti-austerity party, but those things are moving apart in the north,” says Morrow.

The current crisis is a reflection of the continuing dominance of constitutional politics in Northern Ireland more than a decade-and-a-half on from the end of the Troubles, says John McCallister, an independent unionist member of the Stormont assembly.

“We live in this bubble, a policy-vacuum bubble with no ideas. Our only policy is ‘the Brits ought to send more money’,” says McCallister.

Little to gain

Ahead of the recent UK general election, both Sinn Fein and the Democratic Unionists called for significant increases in government spending in the region.

Northern Ireland’s power-sharing arrangements require both nationalists and unionists hold power in government. With no formal opposition and little threat of losing support to parties on the opposite side of the sectarian divide, politicians often have little to gain by reaching effective compromises on big issues.

“The Northern Ireland government is great at opening things, great at going to New York [on trade visits], but when it comes to governing, making decisions that are tough and unpopular, they haven’t been up to it,” says McCallister. “We haven’t matured into a functioning democracy.”

Certainly traces of the dark days of the Troubles remain. Paramilitary groups are still active in many parts of Northern Ireland. In working-class urban communities so-called “punishment beatings” are all too frequent. Intimidation and forced evictions are common, particularly in loyalist areas of Belfast.

Neil Jarman, Institute for Conflict Research [Peter Geoghegen]

“The question nobody is asking is 20 years after the ceasefires, why are the UVF [Ulster Volunteer Force] and the UDA [Ulster Defence Association] still there? What is their role?” says Neil Jarman, director of the Institute for Conflict Research, in Belfast.

Rather than addressing the presence of former combatants in communities, paramilitaries are increasingly being treated as legitimate, says Jarman. “We talk of them as civil society organisations, rather than uncivil society organisations.”

Wanting to move on

Political life in Northern Ireland remains framed by the Troubles. Almost every senior figure at Stormont was involved in party politics during the conflict. There have been few new faces on government benches, particularly on the nationalist side.

Signs are emerging that the electorate is tiring of this staid status quo. At just 58 percent, turnout in Northern Ireland was the lowest of the four UK nations in last month’s general election.

There were few major surprises, but Sinn Fein did see its vote fall slightly, losing a seat in Fermanagh/South Tyrone. In the republicans’ West Belfast stronghold, a left-wing candidate took almost one-fifth of the vote. Despite losing its sole seat, the avowedly cross-community Alliance Party polled a record high in east Belfast.

Northern Ireland is increasingly Janus-faced. The paramilitary insignia and national flags are unlikely to be taken down on Shankill Road and its republican equivalent across the peace line any time soon. But a kilometre or so away in Belfast city centre, young people mix freely without any talk of religion or politics.

“What gets in the news is the Northern Ireland that is stuck in the past,” says Jarman. “What doesn’t get in the news is the younger generation wanting to move on from it.”

This piece originally appeared on Al Jazeera.

Book review – Austerity: A History of a Dangerous Idea

The discovery of an error in an academic economics paper – even one authored by a pair of Harvard dons – is hardly most people’s idea of a headline grabbing news story. But that’s exactly what happened, in April, when a professor at the University of Michigan and an undergraduate student published data that revealed a serious coding mistake in a spreadsheet in Carmen Reinhart and Kenneth Rogof’s paper 2010, ‘Growth in a Time of Debt’.

Why was this headline news? Because Reinhart and Rogof’s research – which putatively showed that economic growth falls off a cliff once a state’s debt exceeds 90 per cent of Gross Domestic Product – provided the intellectual ballast for the on-going waves of ‘growth friendly fiscal consolidation’. That’s austerity, to you and me.

But, as Mark Blyth shows in this timely, authoritative account of the history of ‘cuts for growth’, the economic rationale for austerity was pretty diaphanous long before Reinhart and Rogof’s Excel boo-boo was unearthed.

austerityFor Blyth austerity (‘voluntary deflation’) is ‘a dangerous idea’ because ‘it doesn’t work in practice, it relies on the poor paying for the mistakes of the rich, and it rests upon the absence of a large fallacy of composition that is all too present in the modern world.’

After World War I, austerity was the policy of choice on both sides of the Atlantic, a process accelerated after the Wall Street Crash of 1929. The result, as any Junior Cert student can tell you, was, eventually, war. (In Germany, the Nazis were the only party opposed to austerity policies being pursued in the interwar years. They pledged to take the country off the gold standard and to actively increase employment. They did this — by building a war economy.)

Why then, 80 years later, when the global financial system went into meltdown, did world leaders turn again to austerity? The answer is that in narrow (but influential) circles, particularly in the US, the core ideas of austerity, inspired by rightwing Austrian economists – a minimal role for the state, cutting government spending, relaxing labour laws – never went out of fashion. And in one European state a version of austerity was being practiced for decades: Germany.

Tracing the lineage of the ‘the German ideology’, in Blyth’s homage to Karl Marx, is one of the book’s most useful contributions. Teutonic ‘Ordoliberalism’ has become the economic dogma of the continent, and particularly in the Eurozone. Which is great, as Blyth notes, ‘so long as you are the late-developing, high savings, high-technology, and export-driven economy in question’. For the peripheral PIGS, it’s awful and, worse, pointless. No matter how much it drives down wages and cuts back government services, Greek exports will never be able to compete with German exports.

Blyth has a terse explanation for the current economic travails: they ‘started with the banks and will end with the banks.’ The crisis unleashed in 2008 had nothing to do with government spending – Ireland’s net debt was 12 per cent GDP in 2007, this year it is expected to top 117 per cent – but arose from negligently over-leveraged banks hitting the wall. The cost of bailing out the banks was a sovereign debt crisis that we are still wading through with little prospect of shore in sight.

Austerity is often presented as TINA: ‘there is no alternative’. Blyth, however, has no truck with the ‘we all partied’ line and the moral puritanism that sees a post-bing purge as necessary purification. Instead he draws on reams of economic history to show that austerity as a road back to growth has seldom, if ever, worked.

He also has a good rummage around in austerity’s ideological baggage, from its roots in the Scottish parsimony of John Locke, David Hume and Adam Smith (the author himself hails from a working class household in Dundee) through to the impassioned anti-statism of Milton Friedman and Friedrich Hayek. Economically austerity is self-defeating, since if we all reduce spending at the same time we all grow poorer. What it has done is consolidate wealth in the hands of the already rich: in the United States, the top seven percent saw their average net worth increase by 28 percent between 2009 and 2011. For the remaining 93 per cent it dropped by 4 per cent.

So if austerity makes most of us poorer and only prolongs recessions, what is the alternative? Blyth is a respected academic economist, as the pages of footnotes attest, and he wisely counsels against pain-free solutions. His proposals – higher taxes and ‘financial repression’, such as capping interest rates on government debt – would not be without their opponents. But, as this timely book shows, austerity isn’t working, and it’s not about to start.

This review originally appeared in the Sunday Business Post

Despite Yes Vote, Fiscal Treaty Outcome Still Uncertain

The people of Ireland have spoken. But what exactly have they said? The vote to accept the Stability, Coordination and Governance in the Economic and Monetary Union – or, more snappily, the fiscal treaty – was certainly decisive: around three in every five ballots cast were in favour of the treaty. There were no great regional differences in the ‘yes’ vote across the country. Turnout was low, but not drastically so.

Yet, despite all this, it difficult to say what the implications of the yes vote will be, both for Ireland and for the rest of Europe. As the results rolled in on Friday lunch team, a sanguine Eamon Gilmore told RTE News at One that the referendum result will provide a platform for Ireland to get back to the magical ‘g’ word, growth.

The Tanaiste, sadly, gave no indication of how accepting a treaty designed to enforce ever-tighter fiscal strictures across a Eurozone in the midst of a deflationary cycle would bolster the Irish economy. Indeed on its own terms the treaty is more likely to cost Irish jobs than provide the scaffolding for employment growth.

The treaty, ostensibly designed to alleviate the Eurozone crisis, commits member state governments to maintain budgets that are either balanced or in surplus. Under the terms of the treaty, annual structural deficit that exceeds 0.5 per cent of Gross Domestic Product will run the risk of a fine from the European Court. Meanwhile, government debt is not to exceed 60 per cent of GDP. Any state whose debt is in excess of this figure must reduce it by an average rate of one-twentieth per year.

On BBC Newsnight last week, Paul Krugman gave a succinct, acerbic analysis of the folly of cutting public spending (the main motor of growth in a contracting economy) during a time of depression. ‘Austerity in these conditions doesn’t even work in fiscal terms, because it shrinks the economy now and also shrinks the economy in future,’ the Nobel Prize winning economist said, before going on to compare the behaviour of UK and European governments to the medieval practice of bloodletting the ill.

The latest Euro treaty does little to address arguably Ireland’s greatest problem: the tsunami of household debt contained within the country’s failed banking sector. Writing in the Financial Times recently, Irish economist David McWilliams noted that both Ireland and Spain had lower public debt ratios than Germany when the crisis hit in 2008 – the problem is that private debt had soared during the boom. Since Ireland joined the euro a little over a decade ago, levels of household debts more than doubled.

If treaty is, in Eamon Gilmore’s words, to ‘stimulate the economy and create jobs’, it will only do so to the extent that it helps to create greater cohesion within the Eurozone and, ultimately, a change in German policies.

The fiscal compact makes no provision for much needed initiatives to ease the burden on indebted states and individuals, such as the issuing of Eurobonds, the adoption of an expansionary monetary policy or European-wide backing for the banking sector. Some, or all, of these measures will need to be enacted if the Eurozone to return to something akin to economic health.

In the end, Ireland’s comfortable yes vote was motivated as much by fear and uncertainty as any belief in the intrinsic wisdom of the treaty itself. A bad-tempered campaign, marked on both sides by accusation and counter-accusation did little to assuage an electorate that has every right to be worried, having witnessed a cataclysmic boom and bust, a protracted EU/IMF bailout and, now, a flatling economy.

A closer look at Thursday’s vote also reveals a growing rift in Irish society, between those at the razor’s edge of austerity policies and those relatively more cushioned. Solidly working class constituencies, such as Dublin North-West, voted No in far greater numbers than middle class or rural areas. This should be a huge worry for Eamon Gilmore and his Labour party, whose support has halved to just 10 per cent since last year’s general election.

Ireland’s yes to the fiscal treaty is unlikely to change the course of the crisis in the Eurozone, but the referendum could mark a turning point in Irish politics. Sinn Fein, the driving force behind the well organised No campaign, seems to have established itself as the anti-austerity party. Opinion polls put support for the republicans at 24 per cent, behind only Fine Gael. If Ireland’s economic outlook does not improve in the coming year, the next election could really change the country’s political map.

This article originally appeared in the Irish Post.