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Markets bleeding Ireland dry

“International investors”, better known as the hedge funds and other financiers who gamble and speculate with other people’s money, are queuing up to turn the screws hard on the beleaguered Irish government.

Deep in slump, Ireland is obliged to borrow more money to service the additional loans it incurred in its €33 billion bank bailout. Like many countries, the crash and ensuing recession has substantially reduced its tax income. So Ireland is forced to sell more and more government securities, known as bonds, on the money markets.

But it’s the markets that determine the “yield” – the interest rates that the government will have to pay. And because Ireland is currently rated the sixth-riskiest national borrower in the world, just ahead of Portugal and Iraq, they are insisting on increasingly punitive borrowing rates that the Irish people will be made to pay for in one way or another.

Yesterday, Ireland sold €1bn of securities due for redemption in 2018 at a yield of 6.023 per cent, up from 5.088 per cent in June, the National Treasury Management Agency in Dublin said. It also sold €500m of 2014 debt at an average yield of 4.767 per cent, compared with 3.627 per cent at an auction in August. The cost of 10 year debt fell slightly but remains close to 4 per cent higher than that paid for German bonds – regarded as the safest in the eurozone.

Meanwhile, across the Irish Channel, the amount of new public sector borrowing in Britain, hit £15.9bn for August, a record for that month, as the Coalition government ratcheted up its warnings of the severity of the cuts to be announced in October. The UK overtook Japan to become the world’s most indebted country in 2007. Its interest payments were £3.8bn in August – almost three times the £1.3bn it paid last year.

There can be no doubt that the market traders have more than an eye on the prospects for the mythical global recovery, since it is that, as well as governments’ determination to implement brutal cuts, that will determine their ability to service the mounting debt.

So the latest statistics from the Organisation for Economic Co-operation and Development (OECD), the club of 33 rich, developed countries will have set the red lights flashing on traders’ screens around the world. According to the OECD’s composite leading indicators, measures designed to indicate a turning point in a country’s economy, the effect of the massive panic interventions to reverse the effect of the global financial meltdown of 2007-8 peaked earlier this year. “The pace of economic expansion is waning”, as they put it. The “recovery”, such as it was, appears to be over.

The news will have delivered a sharp shock to the ConDem government which based its June Budget on the IMF’s return to growth prediction of 2.7% for 2010 and 2011. They’ll be busy re-aiming their cuts towards the worst case 40% aired during the spending review.

These are the objective forces at work in the global economy. The autumn hurricane of capitalist debt is certain to overwhelm the puny campaigns of resistance being talked up by trade union leaders. Effective opposition has to set its sights on replacing the capitalist system of finance and production before a second stage of the meltdown plunges the world into outright Depression.

By creating a network of People’s Assemblies, we could initiate a programme of closure of the speculative financial markets, repudiation of unrepayable debt, and replacing banks with not-for-profit, socially-owned co-operative banks, credit unions and building societies. That would open the prospects of socialising the assets of the manufacturing corporations and the creation of an alternative, sustainable economic system.

Gerry Gold
Economics editor
22 September 2010

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