You would be wrong if you thought that Ireland’s banking and budget crisis that has all but overwhelmed the country’s government, couldn’t repeat itself in Britain. In fact, the two countries’ fates are inextricably linked.
Ireland’s banks are essentially insolvent. They don’t have the money to cover the write-offs of loans to property developers that have gone sour. And the Irish government doesn’t have the money to bail them out. That’s why Dublin has had to bite the bullet and go cap in hand to the European Central Bank (ECB) and the International Monetary Fund (IMF).
The price to be exacted for a bail-out is destined to fall on the backs of Ireland’s workers. Public sector workers have already had their wages reduced by 15%. Further cuts are planned, along with tax rises and a reduction in the minimum wage, plunging the economy into even deeper crisis.
British banks have a massive exposure to debt-ridden Ireland. According to the latest figures, their total lending to Irish households and companies totals a mammoth £140 billion. The Royal Bank of Scotland, which is largely owned by the British taxpayer, is the most exposed at £54.4 billion, a third of which is residential mortgages.
Clearly, British banks are going to have go whistle for most of these loans, which explains why coalition chancellor George Osborne is so keen to lend Ireland billions (which would have to be borrowed as the British exchequer’s coffers are largely empty too).
It gets worse.
British banks, like their Irish counterparts, are also insolvent, despite commitments from the state amounting to £1.2 trillion following the global financial meltdown of 2008. A recent report by the New Economics Foundation, Where did our money go? warns:
“Based on Bank of England data, banks now appear to face a funding cliff. In order to maintain existing levels of activity they currently have to borrow £12 billion a month; the projections we reproduce in this report indicate that in 2011 they will have to borrow £25 billion a month. We believe the public sector is likely, once again, to be asked to bail out the banks for the emerging funding gap.”
Other analysts suggest that British banks will require another £1 trillion in 2011 as existing loans mature and need refinancing. There is no way that the Lib-Con coalition can stump up this kind of money, despite the savage cuts in public expenditure planned for the next four years. The banking system all but failed in 2008 – it may well do this time around.
Those who still insist that the crisis is largely “ideological” had better wise up. There is an objective, evolving global crisis of the capitalist economic and financial system. It is having a direct impact on governments, tearing them apart as in Ireland or rendering them helpless and ineffective as in Washington.
The bail-outs of 2008 only postponed matters. Mountainous debts and valueless securitised assets dominate the balance sheets of the banks. As the IMF-ECB team will insist in Ireland, those who work, add value and are the source of profits will be told they have to sacrifice their living standards and futures so the bankers can survive for another day.
Quite simply, it’s a price not worth paying. A revolutionary reorganisation of society on both sides of the Irish Sea, restarting the financial system on a new, co-operative basis, is rapidly becoming the only practical alternative