Ireland: Economic storm clouds gather over new government

Fianna Fail emerged as the biggest party from the general election in southern Ireland and has formed a coalition government with the Greens, the Progressive Democrats (PDs) and some independents.

The new government would be badly mistaken if they think there has been a turn to the right or that there is strong support for their policies. In fact, the opposite will be the case.

Turnout in the general election was up by 5% on 2002. The closeness of the contest between the Fianna Fail/PD and the Fine Gael/Labour blocs helped create significant shifts of opinion in the last days. Some wanted a change given the government’s abject failure to deliver proper public services and infrastructure. However, the outcome of the election was determined by a late move of many people behind Fianna Fail as "the lesser evil". They voted for the incumbents in the vain hope that this was the best way to sustain growth and jobs, now that problems are emerging in the economy.

Greens sell out

The fact that the Green are now in government with Fianna Fail demonstrates that far from being on the left, they are a capitalist party and will put profit before people’s needs. However it is precisely big businesses that are the biggest polluters and contributors to global warming. The contradiction of being an "environmental movement" that supports big business, is likely to result in only minimal measures that will not deal with the real causes of environmental crisis.

The easy seduction of the Greens by the trappings of office demonstrates the hollowness of their politics and craven opportunism. Already on the M3 route through the historically important site at Tara, the campaign by residents against the Shell gas terminal at Rossport, the co-location of hospitals (the siting of private hospitals beside public hospitals) and privatisation of healthcare, they side with big business over the needs of people and the environment. The Greens are happy with co-location of health care and with the neo-liberal Mary Harney, as Minister for Health. This shows how much the Greens can swallow and that this government will be every bit as reactionary and pro business as the last one.

Fianna Fail has benefited from the growth in the economy. It served to take to edge off anger on issues like political corruption. Some people voted for Fianna Fail in this election because they feared a change of government would further weaken the economy and increase unemployment.

The new government will hope that despite hassles on certain issues, their position will be maintained because the economy is strong and will overcome any problems. However it is precisely because the economic fundamentals are weak that this government is likely to be faced with severe difficulties.

The growth of the last five years has been mainly based on credit and domestic spending as opposed to production of goods and trade. Cheap credit created a bubble in the property market. These gave a huge boost to construction employment and consumer spending. In turn government revenues increased. 17% of government income directly comes from the property market. When other property related expenditures are factored in, it is estimated by some that the figure rises to 30%.

Economic downturn

However the property bubble and construction growth are unsustainable under these conditions. Compared to real gains that were achieved in the 1990s, the quality of employment has been declining and exploitation of workers has intensified. Some claimed, until recently, that the economy was growing by over 7%. Yet despite this ’growth’ there are extremely serious crises in health, school places, public services and transport. This demonstrates the extent of the inequality and robbery of resources under modern capitalism.

Currently the property market in the South is not experiencing a soft landing. While the decline in prices is unlikely to go in a straight line, it is most likely to continue as the cost of credit and mortgages increase further and the speculators pull back from the market. After time this can have an impact on consumer confidence and spending.

A survey by Merrion Stockbrokers of construction companies at the end of April, found that three out of four companies expect a decline in 2007. Commercial and infrastructural construction is still growing but that will not compensate for the decline in housing which accounts for two thirds of all the 280,000 employed in the sector. A significant decline in construction and in consumer spending would cause unemployment to rise which itself can further undermine the economy generally.

It looks distinctly possible that the Southern economy is reaching its limits just as the US economy is pointing towards recession. That would have a profound affect on the world economy but particularly on the South. It is not possible to predict exactly what will happen or when but serious economic problems lie ahead. Given that workers already face major attacks on pay and conditions and a massive deficiency of vital public services, living standards will be seriously hit. To maintain competitiveness and profits it is likely that this new government will launch attacks on rights and entitlements the like of which has not been seen in over a generation.

Up to now economic growth has played a role in stemming people’s anger on key issues. When the economy is in decline it will force a transformation of their attitudes. Workers will need fighting trade unions to defend their living standards and the potential to build a new mass party of the working class people will be enormous.

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