Michael Burke: One of the problems for those arguing for an investment-led response to the crisis is that €17.5bn of this economy's current assets are to be used to bail out Europe's banks, along with €67.5bn in new debts. These assets from the NPRF and central bank do not exhaust their current net funds, which at the latest count stood at a combined €44bn. But they are the most liquid component, and handing them over in this way meets both the predatory instincts of the international creditors represented by the EU and IMF, as well as the machinations of domestic politicians who have long espoused the Thatcherites' mantra that There Is No Alternative, and others who are happy to parrot it.
But, as Naomi Klein is fond of saying, there are hundreds of alternatives. The plundering of the NPRF and central bank assets in this way underlines the value of 'sovereign wealth funds' (SWF). The IMF argues that the existence of SWFs was decisive in ending the turmoil of the Great Recession, as they were instrumental both in stabilising financial markets as well as in significantly increasing State-led investment. Once again, the State demonstrated its innate superiority to the private sector in leading the whole of society out of a crisis created by the latter (naturally that is my judgement - not the IMF's).
Many oil producers have built up very substantial SWFs, and the Gulf States and Norway will soon be joined by Nigeria. But the biggest concentration of SWFs is to be found in the high-savings, high-investment economies of Asia. Of these, China has a number of SWFs which together make it the largest holder of such funds in the world.
Most domestic and international bodies have argued that any recovery in this economy is likely be export-led. We have insisted that there will be no meaningful recovery without a revival of investment - which can only begin with the public sector. These two views are not mutually exclusive. But if Irish growth is to be linked to the fastest-growing countries, or those with the greatest disposable assets, then it might be useful to ask: what areas might attract foreign investment?
Well, with very sizeable, untapped energy resources which languish underinvested in private hands, a key priority would be the re-nationalisation of those Irish resources so that they could be properly exploited. There are many joint venture possibilities for extraction - and most especially refinement - with a number of SWF partners, where the real value lies. This would need to be combined with deepwater infrastructure and port development, where this economy is already a significant laggard. This port and infrastructure development would also be of interest to Asian exporters looking for an outlet to Western European markets. Greece has signed deals with Abu Dhabi and Qatar in this way and is in talks with Chinese shipping giant COSCO to build a vast new container hub for Eastern Europe and the Baltic. None of these represents the loss of existing assets at fire-sale prices which is characteristic of the EU/IMF impositions, which is what is also planned here. Instead, it involves the creation of new assets for mutual benefit, along with jobs, investment and taxes. In addition, Ireland is responsible for 13% of the EU's high-tech exports, which are of great value to economies looking to add hi-tech inputs to their own production.
SWFs are also interested in financial assets and, because their revenues are overwhelmingly generated in US Dollars, they tend to be increasingly directed towards the Euro which is the only serious alternative to the US Dollar as a reserve currency. In this regard, the Chinese authorities have been most explicit, offering financial assistiance to all the stricken countries of the Euro Area, the latest being Spain. Late last year, the Portuguese Finance Minister came away from Beijing with promises of further support, including increased purchases of Portuguese government debt, as well as infrastructure investment, and has once more offered to buy Greek bonds when the state returns to international markets.
The current government cannot last long in the Dail. In any event, it has set its face against an investment-led approach to economic recovery and is the champion of deflation and lower growth, incomes and services. It seems that some of the opposition now accept accept this defeatist policy, their previous support for investment programmes lasting no longer than Xmas decorations. Yet there are alternatives, where both domestic resources and foreign partners can be marshalled in support of an investment-led route out of the crisis.
9 comments:
...the predatory instincts of the international creditors represented by the EU and IMF
I'm glad to see that left-progressives in this country are finally waking up to the true quasi-colonial nature of the EU, after years spent parroting the "we're so proud to be good Europeans, not horrid old euro-sceptics!" line espoused by people like Brigid Laffan with their almost child-like belief in the inherent goodness and benevolence of the EU.
Hello! There is no Santa Claus! And the EU will shylock us back to the stone-age without a second thought if it suits their purposes. Which for the moment, it does.
China to the rescue again. And look at the new friends we'd gain as well - Afghanistan, Algeria, Argentina, Cuba, Egypt, Iran, Iraq, Kazakhstan, Morocco, Nepal, Pakistan, Russia, Saudi Arabia, Sri Lanka, Sudan, Tunisia, Venezuela and Vietnam. (These happen to be the countries that boycotted the Nobel Peace Prize ceremony either at China's behest or because they have repressive regimes - or both.) You want predators? These governments develop their skills on their own people.
And it's a shame the way the EU is turning into a two-way street for Ireland as it is for most members - having been mainly a one-way street (net receipt of funds) for so long. And isn't it terrible that these EU banks and pension funds who lent money to Irish banks that successive governments declared were subject to world-class supervision and regulation want their money back.
Don't mind China, the sovereign bond market is the only institution that will bring the EU to heel.
And isn't it terrible that these EU banks and pension funds who lent money to Irish banks ... want their money back.
Well yes it is terrible if they're using the EU to browbeat the Irish people into penury in order to make whole their bad investments.
Capitalism 101 ... you inform yourself of the risks, never believe the BS spouted by vested interests, and if you make a dud investment then you take the hit.
@Anon,
Love your Capitalism 101; we need more of that here. The EU political elite know that their voters will have to take a hit on taxes to shore up their dodgy banks or in their pension/savings pots if they recognise losses on what turned out to be dud bank investments in the peripherals. So it's expedient to hose the peripherals. But the sovereign bond market doesn't like to be exposed to the risk that sovereign debt service will be impaired by shoring up thse dodgy German, French, Belgian, UK, etc., banks from public funds - and it doesn't like the peripherals' sovereign debt service ability being crushed.
They will force the pace and are our real partners now.
Paul,
I can understand why escaping the clutches of the EU and IMF might cause some consternation, as then wholesale privatisation might not then be implemented.
As for Liu Xiaobo, his advocacy of 300 years of colonialism for China is the political consummation of that privatisation policy.
http://en.wikipedia.org/wiki/Liu_Xiaobo
Subservience is a role people can become accustomed to, even hanker after. But it is not edifyng.
You really do try to use some of the oldest tricks in the book. Criticising the incarceration of a person on the basis of what s/he writes or says (unless the intention is to incite violence against others) does not imply agreement with what has been written or said.
Attempting to conflate privatisation with colonialism is almost surreal - but probably makes sense to you.
What the EU and the IMF are attempting to do is to reshackle the beast that is financial capitalism. It is unfortunate, but understandable, that the EU is less than tender of the interests of the peripherals who foolishly put themselves in the line of fire, while it struggles to revise its institutions and mechanisms to do so.
But what you seem to be suggesting - and which is really alarming - is that Ireland no longer shares, nor should it share, the values and principles that underpin and guide the EU.
Irish people have been subservient for decades - to the Church, to self-appointed elites and, more recently, to governments exercising extreme executive dominance and in hock to vested interests. Gradually the older bonds have been broken. It is now time for the people to elect public representatives who will hold government to account in their interests and angage effectively with our EU partners.
... engage effectively with our EU partners
And I, for one, welcome our new German overlords!
@ Paul Hunt
Some readers might feel that, in a discussion of Ireland's need to change its international economic relationships, dragging in the status or views of a jailed Chinese oppositionist is somewhat tangential.
But since he was introduced here by you, I'll leave others to decide who's guilty of using 'some of the oldest tricks in the book'.
I think, though, we agree that values and principles are important in international relationships. It is you are proposing that Ireland should escape from the 'clutches of the IM and the EU'. I'm simply pointing out that alternative associations might not be as much in ireland's interests as you seem to think.
I just find it a bit rich, now that Ireland has gotten itself into a serious mess, blaming the EU for not having the mechanisms in place to solve the problem. I accept that the EU, its institutions and many European banks are not innocent in the matter. The EMU was established with inadequate institutions and mechanisms. The naive assumption was that members would be well-governed and there was insufficient central control to enforce good governance.
But efforts are being made to solve the problems - thought not perhaps as quickly as the badly-governed peripherals would like. However, in my view it would be the height of folly to cease engaging in this process and to look for salvation elsewhere.
Our future is in Europe and it is only as part of the EU that we may engage effectively with the major emerging economies. Solo engagement with regimes that are repressive, autocratic, do not enforce the rule of law and have little respect for human rights is risky and would distance us from those whose principles and values we share.
In any event, China is quite happily buying into the Troika deal for Ireland; it likes the high guaranteed rates of return.
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