The Paradox of Vulnerability by John Campbell John Hall

Author:John Campbell, John Hall [John Campbell, John Hall]
Language: eng
Format: epub
Tags: Social Science, Sociology, General, Political Science, World, Business & Economics, Money & Monetary Policy, Economics, Government & Business, Political Economy, History & Theory, International, Public Policy, Economic Policy
ISBN: 9780691163253
Google: PmuYDwAAQBAJ
Publisher: Princeton University Press
Published: 2017-08-29T04:35:32+00:00

THE TROIKA BAILOUT

As the state gave more and more money to the banks things only got worse; the banks’ solvency crisis morphed into a fiscal crisis of the state. In late 2009 the unions offered to negotiate a new social partnership deal to save money by having public-sector employees take unpaid holidays. Fianna Fáil refused, seeking instead to cope by means of two emergency budgets. The government also asked the unions to accept a pension levy—that is, additional contributions from current employees to the pension fund. The unions refused, and so the government moved unilaterally to do it anyway. Cooperation and consensus-making had broken down; this was the end of the social partnership model.183 It was also indicative of growing distrust in how the government was handling things—a legitimacy deficit in the making over and above long-standing general concerns about patronage and clientelism. Moreover, it had become increasingly difficult for the government to borrow money. The yield on Ireland’s ten-year government bond skyrocketed toward 9 percent by November 2010.184

As the severity of the crisis grew, the political parties inched modestly toward cooperation. The former Fine Gael Prime Minister Garret Fitzgerald warned that it was “a critical moment” for Ireland, meaning that it was time for the political class to put country before political party.185 In October 2010 the incumbent government, knowing that it would lose the next election, assumed a worse-case scenario for the economy and decided to pursue a very conservative budget strategy, including reducing the budget deficit to 3 percent by 2012. In effect this was a gift to the incoming government because the pain of austerity would have been inflicted before they took office so that its predecessor would be blamed. A participant at the meeting where this was decided explained that “there was de facto collaboration across the political system to find a solution” to the fiscal crisis.186 Perceptions of extreme vulnerability had finally sparked political cooperation in the national interest. The paradox of vulnerability had begun to appear again. Unfortunately, it was too little too late.

The government was forced to ask the Troika for a bailout. According to letters between ECB president Trichet and Finance Minister Lenihan, Trichet threatened to cut off further ECB funding for Irish banks unless Lenihan requested the bailout and agreed to the Troika’s terms—above all else the imposition of a severe austerity package.187 By accepting the deal the Irish government lost to the Troika whatever room for maneuver it had left for managing its fiscal situation. Ireland’s exposure and vulnerability to international forces was suddenly thrown into sharp relief as it had little choice but to do what the Troika demanded if it were to get help.188 In that sense Ireland was weak and vulnerable. It was weak thanks to its limited state capacities for managing the crisis itself; and it was vulnerable to the Troika thanks to its membership in the Eurozone. When all was said and done, the pain was inflicted on property developers, those who lost shares

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