The true roots of the Irish crisis are global and systemic in nature. If we want to avert another IMF-inspired disaster, we will have to stop blaming the Irish and take global capitalism to task for its inherent flaws and volatility.
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It seems to be fashionable these days to put the blame for financial crisis squarely on the shoulders of its victims. The past week has seen a proliferation of references to Irish corruption, cronyism and incompetence. In a particularly disdaining piece, Stephanie Flanders, the BBC’s Economics Editor, writes that “ultimately, the responsibility for this crisis lies with the Irish themselves.”
Yet this narrative of blame risks making two crucial mistakes. First, it obscures the more systemic causes of the crisis, providing the justification for a distorted policy response. Second, as a result of this, it shifts the burden of adjustment onto those who had nothing to do with the financial folly in the first place, unnecessarily bringing untold suffering onto an already battered population.
Surely the Irish government has made many mistakes, the most fateful of which was the decision in 2008 to issue a sovereign guarantee for the country’s heavily indebted banks. However, these mistakes are merely the proximate causes of the crisis. The ultimate causes are more complex and have to do with the inherent instability of global capitalism.
Ireland is by no means the first country to be thrown into the limelight of a riches-to-rags drama. Thailand — once considered one of the four Asian Tigers and referred to by the IMF as the ‘Asian economic miracle’ as late as 1996 — suddenly found itself in dire straits in 1997. The rapid inflow of ‘hot money’ that had followed the country’s aggressive capital account liberalization suddenly dried up in the face of a bursting real estate bubble. The Thai baht collapsed as investors pulled out, and the East-Asian crisis ensued.
Similarly, throughout the 1990s, Argentina was considered an IMF poster child as it opened itself up to foreign investment and deregulated its financial sector. When the resultant expansion of foreign credit availability suddenly ground to a halt in the wake of the East-Asian crisis, Argentina found itself facing an insurmountable pile of debt. The country defaulted and the IMF was called in; a depression ensued and over half the population was thrown into poverty. Recovery did not start until President Néstor Kirchner defied the IMF and renegotiated the country’s debts.
In the wake of both crises, pundits abruptly reversed their narratives of praise. Suddenly, the IMF discovered widespread corruption and replaced the hype of the Asian miracle with accusations of ‘crony capitalism’. Likewise, following Argentina’s unforeseen collapse, the so-called ‘experts’ suddenly spoke of bad governance, tax evasion and demagoguery as the hallmarks of Latin American capitalism. The dangers of integrating deregulated emerging economies into highly volatile global capital markets were largely ignored — and they remain so today.
The inevitable result has been the typical IMF cure to financial crisis: brutal austerity measures coupled with wage reduction, tax increases and structural reform of the welfare state — precisely the opposite of what Kirchner and other successful leaders did to steer their countries out of recession; and precisely the type of approach that will make the lower and middle classes pay for the extravagance of the upper class bankers and speculators.
The reality remains that the past three decades have been unprecedented in terms of both the frequency and severity of financial crises. The Irish crisis is just another reminder of the inherent volatility of global capitalism. After all, we should not forget that it was the large international banks that made the Irish property boom possible in the first place, greedily buying up Irish bonds and bank debt to the tune of $884 billion, or five times the country’s GDP.
In this context, blaming the Irish people for the debt deluge triggered by German, French, British and American banks seems not only distasteful, but also profoundly misguided. If we truly want to avert another IMF-inspired disaster, we will have to take global capitalism to task for its inherent flaws and volatility. Let’s start putting the blame where it is due.