An Honourable Tradition of which Ireland can be Proud

Yet more opprobrium is heaped on Enda Kenny as a result of his recent statement to Bloomberg TV. And to some extent it is justified for the man often seems to be telling foreigners things that are out of kilter with what, at least until recently, he has been telling his fellow Irish men and women. But in that he is little different from any other politician and if there is one thing that Irish politicians excel at it is the art of political double speak.

But, as usual, a great deal of the criticism aimed at the Taoseach is concerned with the declared intention to pay off our debts in full. Many Irish people see the debts in question as somehow not their responsibility but instead that of faceless investors who bought bonds in failed banks. It seems to me, in my contrarian way, that in order to investigate the veracity of such a notion it is necessary to examine two straight forward questions: what happened to the money and who are the bond holders?

The €300 grand that you paid for a house that is now worth €120 grand was paid to a developer. Whilst it may be true that the developer buried some of that money in a tax haven along with all the other amounts he received from other buyers, most of it will have been paid to the employees and sub-contractors he engaged to build the house. Some will have gone to the original owner of the land on which your house and all the others are built. Some may have gone to a sales agent although many developers handled their own sales.

The point is that all of these people - with one relatively minor exception which I will come to - spent that money in Ireland and paid the taxes that enabled the government of the day to increase the wages of public sector workers and the social welfare benefits paid to claimants. In short, all that money drove the economy throughout those heady tiger years. It is still visible in all those new houses and apartments, all the luxury cars that were purchased in those years and all the gadgets in the houses. As I pointed out back in November, a lot of this ended up in countries like China - who invested it in Africa. As an aside, this latter fact should make one or two Irishmen - I'm thinking of Messrs Geldof and Bono - happy.

The developers, the sub-contractors and the businesses that boomed from all the money that well paid people in all sectors of the economy had to spend, then went to the banks and said, in effect, "look, my business is booming. Lend me the money to expand and I can do even better." It looked like what, in the vernacular is known as a "no brainer". But when everybody has the house of his and her dreams, what is the point of building more?

That is where it all came to grief. Nobody wanted to buy the third or fourth phase of the development. Marks and Spencer and Debenhams had all the retail space they could handle. Materials were bought, tradesmen paid but no-one wanted to buy. So the money suddenly stopped circulating around the system. People were laid off. Instead of paying taxes they were drawing benefits. Businesses started to go bust. With few house sales there were no development levies or stamp duty to support local and national government which ended up paying out far more than it was receiving.

The exception I mentioned earlier? A significant proportion of the incomes paid to foreign nationals working in Ireland was sent home to support family back in Eastern Europe or Africa. (More delight for the ageing rockers!)

Now consider the bond holders that so many people are eager to see "burned". The conventional view is of a Champaign and caviar scoffing bunch of spivs laughing at the gullible Irish. That is certainly a part of the reality and I am as angry as anyone at the inflated salaries and bonuses these people receive. But they are only the middle men and women in a complex web of transactions. Somewhere, way down the ladder, and forgotten equally by the spivs and by those who would seemingly see them starve, are people who placed their life savings in pension funds and trust funds at a time when government bonds were regarded as the safest places to invest. Returns might not be as good as those obtainable from stocks and shares but the risks were far less. Governments don't go bust. Governments honour their debts.

In the face of so much that has been turned on its head by this current crisis, Mr Kenny and Ireland are to be congratulated, not reviled, for holding fast to this honourable tradition.

Kenny is Right: The Irish Were Greedy

Taoiseach Enda Kenny has raised the ire of his fellow citizens by suggesting that their greed was at the root of the Irish economic collapse. How true is that?

About six months after I arrived in Portlaoise there was a release of apartments in a luxury block under construction next to the O'Moore Park GAA ground. People queued overnight to buy and they were all sold within the first hour. Some signed up and paid deposits for two or more units. Their motivation had nothing to do with a desire for a home. They believed that they would make a killing either from the rent they hoped to receive from future tenants or by selling on at a profit.

That is one example among many that illustrate the veracity of Enda Kenny's words yesterday when he said that the country had gone mad during the property boom, driven by greed. In Portlaoise not only were there more houses and apartments being built than there were ever likely to be buyers or tenants for. In addition several retail complexes were under construction or planned. Even then there were many empty units in the town centre and in each of the recently completed shopping centres. Some of these have now been occupied, but elsewhere businesses have closed leaving even more vacant premises.

This was the story right across Ireland. In our five years living here my wife and I have taken several short breaks in various parts of the country and in every town and village we've stayed or passed through there are newly built estates. At the height of the boom homes were being completed at a rate of 90,000 a year; enough to replace the whole of the previously existing housing stock within a decade. Anybody who had the temerity to suggest, as some did, that this rate of construction could not be sustained was condemned for talking down the economy.

Atmosphere of Affluence

The government was enabled to keep the level of general taxation down in part because of the revenue generated through stamp duty, a transaction tax imposed on every purchase. Social welfare payments and public sector incomes soared. But it is also unfair to read into Mr Kenny's words the suggestion that individual citizens were the only group on whom he was placing blame. I have indicated elsewhere my view that one of the underlying causes of the atmosphere that prevailed during those years of madness was the amount of money pouring into Ireland from tax payers in the wealthier nations of the EU.

In that atmosphere with new infrastructure under construction across the nation, brash new shopping centres and estates of homes described by their developers as "luxury" or "executive" even when all too often they were anything but, it was inevitable that people would forget the old adage "never a borrower or a lender be". It was easy to forget the reason why the system of hire purchase that enabled my generation to furnish our homes on so called "easy payments" was described by our parents as "the never-never".

As affluence increased steadily through the second half of the twentieth century and at an increasing pace in the first few years of the twenty first it was easy to ignore such seemingly old fashioned notions. It was all too easy to believe that, whilst it might be difficult to pay the mortgage today, tomorrow's salary increase would make it easier in the future. The more luxurious our neighbour's home and contents the more luxury we wanted for ourselves. That is the nature of greed. It feeds on itself, creating a sense of false security in its victims. Like a drug, it creates a craving that can never be satisfied. And, like a drug, when it is denied it leaves its victim with unbearable withdrawal symptoms.

As I indicated in that earlier post it is unreasonable to blame foreign tax-payers for wanting their governments to seek recompense. I can quite understand why Mr Kenny is both eager to demonstrate Ireland's willingness to repay her debts by paying off the most recent instalment to bond holders and to try to explain to the leaders of those wealthier nations how his country incurred such incomprehensible levels of debt in the first place.

Sweet and Sour Memories

Sugar beet and debt forgiveness may seem strange bedfellows but for me they show how history echoes down the decades

For most of the 1980s I was politically active in the UK: County Councillor, District Councillor, general election agent. And I was a regular attendee at party conferences, the party in question being the British Liberal Party and, later the Liberal Democrats. On one occasion – I think it would have been 1986 – I had the opportunity to make a speech at a Liberal Party conference. The issue being debated concerned the effect of EU subsidies to sugar beet production on the price of sugar on world markets. Many developing nations relied on sugar cane production in order to survive and the dumping of surplus European production on the world market was harmful to them.

My home constituency at the time contained a sugar mill and sugar beet was an important crop for many local farmers. I argued in my short speech that Europe should follow the Brazilian example and turn surplus sugar into fuel. I also argued, in the same speech, for the forgiveness of third world debt. This was long before such luminaries as Blair and Bono began putting forward the same argument. The gist of what I said to that conference was that these countries had been persuaded to borrow in order to invest in producing commodities that were now incapable of yielding the promised incomes. Meanwhile populations were starving whilst their governments paid out more in interest to first world banks than they received in aid from first world governments.

Fast forward ten years and I was participating in a major construction project at a steel works in Scunthorpe. My daily journey to and from work took me past the sugar factory which had shortly before been converted to produce ethanol fuel. Sugar beet continued to be an important agricultural product throughout Lincolnshire and East Yorkshire.

Another ten years passed and I retired and moved to the Irish Midlands. One of the things I was soon to discover was that many people were still angry about the closure of a sugar factory in Carlow and the demise of sugar beet production in Ireland. I was especially surprised about this given the country's commitment to reducing its carbon footprint and the presence of Green Party representatives in government.

Five years later still I am passing great mounds of sugar beet as a cycle around the countryside on the Laois/Kildare border. In the Irish papers I read of meetings to discuss the re-establishment of sugar production here in Ireland. Meanwhile it is the nations of Europe that are unable to meet the interest payments on their debts and whilst the people clamour for those debts to be forgiven the governments impose austerity measures in order to keep the banks on-side. Plus ca change!

Footnote: the efforts to kick start the industry in Ireland may have nothing to do with the mounds of beets I am seeing as plans are still only at the formative stage. I guess what I am seeing is a crop that will be used as a supplement to winter feed for animals which is a shame when it could be put to use reducing Ireland’s reliance on imports for sugar and fuel.

Anyone wanting more information should check out these links:

http://www.independent.ie/farming/crops/athy-meeting-for-beet-ireland-2941079.html

http://justbeetit.net/2011/05/08/update-on-sugar-beet-ireland/

Stop Blaming the Germans

Some people have started saying the Germans want to take over Europe. But since they are the principle source of our largesse, they have a right to tell us how it’s spent.

Recently I have heard people knocking Germany for her insistence that nations receiving bail-outs from the European Union adopt prudent economic policies. “They failed in two world wars; now they are trying a different way of taking us over” is the gist of what some are saying on both sides of the Irish Sea.

It seems to me that this betrays a complete lack of understanding of recent history. Those nations that now have to make difficult and unpopular decisions are the same nations that for the last couple of decades have been milking the EU for all it was worth. When I first arrived in Ireland towards the end of 2006 I encountered a forest of signs pointing out that this sewerage scheme or that motorway or the other new railway rolling stock was financed “with assistance from the European Regional Development Fund” or some other EU scheme.

When I did some work on a voluntary basis for a local development agency many of the projects the agency facilitated were part funded under one or more European “Directives” aimed at increasing social inclusion and helping reduce the disparity between the relative wealth of the more successful members of the European community of nations.

The CAP Boosts Farmers’ Incomes

As I cycle around the Irish countryside I marvel at the huge number of abandoned houses and cottages each with one or more smart modern houses built alongside and evidence of the success of the Common Agricultural Policy in boosting the incomes of farmers.

With each of theses examples I am struck by the fact that all of this European money comes from the taxes that French, British and German citizens contribute to the EU budget. Believe it or not I do not resent, in principle, any of it. I support the general idea that wealth should be redistributed from rich to poor both on a personal basis and between nations. But what I certainly do find disturbing is the extent to which the corruption in Irish politics ensured that much of this money ended up in places and pockets that did not deserve to receive it.

Parish Pump Politics Ruined Ireland

It was not just that developers were enabled to pocket vast sums of public money. The tradition in Ireland of “Parish Pump Politics” ensured that developments happened in places where local representatives could point to them as achievements that would not have taken place without their intervention rather than in the most appropriate and cost effective situation.

Whilst the banks were busy lending vast multiples of the money deposited in their vaults on the assumption that this gravy train would go on for ever, politicians were busy lining the pockets of their constituents, including public servants and the recipients of social welfare, on the basis of an identical assumption. Now, having received billions of Euros in grants and loans those banks and politicians are looking for yet more loans to keep things ticking over. Is it really too much for the lenders to ask that they dictate how those loans are distributed?

The True Meaning of Austerity

Do the people who protest about “austerity measures” being introduced by the governments of Europe really know the meaning of the word “austerity”?

Governments around Europe are responding to the economic crisis of 2009 to 2012 by introducing so called austerity measures. I believe that neither the governments nor the people who are protesting so loudly really understand the meaning of the expression.

I am of a generation that grew up during World War 2 and the decade that followed. People like me remember a time when working for 48 hours a week was the minimum, not the maximum ordained by statute; when most workers had only two weeks annual leave and that often unpaid. When 95% of young people left school at fifteen or earlier and not only worked 48 hours but, if they sought advancement, went to night school two or three evenings a week.

This was a time when very few homes were centrally heated and none had adequate insulation; you woke up on a winter morning to scrape ice from the inside of your bedroom window. The majority of families did not have access to a motor car so had to rely on public transport. Most did not have a land-line telephone; mobiles were the stuff of science fiction.

Bathing Once a Week

Only a lucky few had one of the new fangled television sets in their home; those sets broadcast a single channel of programming for four hours or less each evening. The images were in barely discernable black and white. Many homes still did not have access to mains electricity, water or sewage disposal. Baths were taken once a week and often the whole family shared the bath water.

Homelessness really did mean that whole families had lost their homes, destroyed by bombs or shells. Their only recourse was to share with relatives in over-crowded houses or apartments or, as many did in the years immediately after the war, establish squats in abandoned military buildings.

Food was still rationed well into the 1950s and the fruit and vegetables on display in greengrocers’ shops were only those available in season. You only had salad in summer and it consisted of lettuce, cucumber and tomatoes. In Britain olive oil was sold in tiny bottles in chemist’s shops, used for medicinal purposes only.

Restaurant Menus Restricted

People dined out in restaurants only on special occasions and the menus in such establishments were extremely limited thanks in part to the rationing already referred to and the non-availability of unseasonal produce. At home only the wealthy could afford to drink wine and eat steak. Most ordinary folk were happy to take whatever cheap cuts of meat and offal they could obtain.

I have pointed out in a previous blog that much of the affluence enjoyed in Europe in recent years was obtained on the backs of abject poverty in the developing world. Now the tables are turning, countries in what used to be called “the third world” are achieving new levels of affluence themselves. We have nothing to offer them and must fall back on our own resources. That need not mean a return to post war austerity but it does mean that in the future we will have to meet the real cost of everything we consume.

Crisis in Europe? You Ain’t Seen Nothin’ Yet!

The balance of the world’s economy has tilted on its axis and Europe faces decades of comparative hardship.

There is an irony in at least one aspect of the European economic crisis. It is that, having used cheap labour from East Asia to produce a plethora of goods throughout the boom years of the latter part of the twentieth and early years of the twenty first centuries, governments are now going cap in hand to the Chinese and asking for our money back.

In order to understand how this situation has arisen we need to first understand two things that some people seem to have lost sight of. The first is the inherent nature of money and the second is the history of trade and development.

Money has no intrinsic worth. Its value lies in the fact that it can be exchanged for goods and services. Supposing someone is mad enough to pay me to write an article, I use that money to by food and clothing, to heat my house, run my car and so on. The people from whom I purchase those things then use the same money to obtain the goods and services they need. International trade is no different. A country, let’s call it Ireland, buys raw materials, goods and services that it is unable or unwilling to produce for itself. In return the supplying country buys goods and services from Ireland.

Natural Resources Plundered

At least since the industrial revolution the countries of northern Europe have plundered the natural resources of the countries in Africa and Asia that it colonised, using those resources to produce goods which they traded amongst themselves. Until the middle of the twentieth century the indigenous peoples of these non-European countries were poorly rewarded for the effort they expended in reclaiming those resources. More recently control of these resources was ceded to the indigenous people whose leaders behaved every bit as despicably as had the colonists towards their fellow citizens; often more so.

Meanwhile the nations of northern Europe had discovered two things: they could use the same cheap labour to do the manufacturing and they could pay for it with a fabulous form of alchemy they called “financial services” which basically amounted to printing money. The result is that all of us here in northern Europe have unimaginable numbers of gadgets and appliances, all with the built-in obsolescence we designed into them, whilst the nations of East Asia, especially China, have lots of paper money. In the traditions of trade as described above it might be expected that the Chinese would use that money to buy goods and services from us Europeans. The problem is that we have very little that the Chinese need. So, instead of being able to sell things to them we face the ignominy of holding out a begging bowl asking for our money back.

Commodity Prices Rising

What are the Chinese doing with that money? Using it to further exploit the same natural resources that we originally laid claim to and, in the process, pushing up the price of those commodities in international markets thereby making things even tougher for us.

In short, the economic balance of the world has tilted on its axis. We in Europe are no longer in control. China and the countries of the Pacific Rim are. If I am right we have to get used to the fact that in future we must either pay more for, or find ways of doing without, those resources that are not available here in Europe. That, in turn, means that the “austerity measures” now being introduced by governments across Europe and resisted by ordinary people are but a cool breeze in comparison with the icy blast of reality that is yet to come.