Friday, 1 October 2010

Budget cut blues

If you look around, something appears to be happening. The financial crisis caused by the banks has been rumbling on for what seems like forever now. The media has almost exhausted itself with tales of horror and financial Armageddon, like a manic disaster fetishist finally wheezing back to sanity after he has came all over your broken spirit. They may however, have shot their load a little early, for the real story of this financial mess may be just about to unfold.

The news yesterday that the Irish government has had to extend its bailout to the major Irish banks marks the start of a new phase in this saga. The country's largest bank, Anglo Irish, apparently needs an extra €7bn of taxpayer money to secure its bad debts and stay solvent. The second largest bank in Ireland, Allied Irish, has now also had to be nationalised. The total amount of money that Ireland has injected into its banking system is now €45bn, and may possibly rise to €50bn. The government says that it has now drawn a line in the sand, and all the bank's debts are now exposed so the country can move forward with plans to pay off its debt over the next ten years. This sounds very neat and tidy, but conveniently ignores the massive social repercussions of this latest cash injection. This bank rescue has increased the Irish budget deficit to 32% of national income. Ireland had already implemented some of the most stringent austerity measures of any European government over the last two years, cutting salaries in the public sector by 10% or more, and some analysts had said this was partly to blame for the country slipping back into recession in the last quarter.

The cuts to public spending will now have to be increased even further, and tax rises are also likely to cover the fact that the budget deficit has more than doubled on the back of the latest bank bailout. Anger in Ireland is running very high; after the bailout announcement was made a man drove a cement mixer plastered with slogans about Anglo Irish Bank into the gates of the Irish Parliament. Elsewhere in Europe too, massive budget cuts to cover the costs of the banking crisis are arousing anger among the population. A protest involving citizens from 12 European countries was made against government austerity measures yesterday. Trade Unions estimate 100,000 people turned up for a sit-down protest in Brussels, although predictably the police have estimated the figure to be almost half that number. Unions also estimated that 70,000 protestors marched in various cities across Portugal.

As budget cuts and unemployment start to bite across Europe, people are becoming angrier and more confused about why they should be the ones picking up the tab for the mistakes of a few very rich individuals at the top of the banking industry. It is not hard to see the situation escalating either. Right now, Europe feels like a tinderbox waiting for someone to strike a match of civil unrest. To calm the situation, governments will have to offer more than hand-wringing platitudes about 'feeling voters’ pain' and 'all being in this together'. They need to explain why the banks are 'too big to fail', and take real action against the men responsible for creating this crisis in the first place. The UK government's bank levy of £4bn is exactly the kind of disingenuous measure that will be swept away by the tide of public anger when the full program of budget cuts is unveiled later this year.

If politicians continue to underestimate the strength of public feeling that austerity measures and bank bailouts are creating, it will not be long before we face the very real possibility of a European government collapsing.

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