Posted by Jill Kerby on October 28 2011 @ 09:00
WILL EVENTS OVERTAKE THE TECHNOCRATS IN 2012?
Phew! Thank goodness 2011 is over.
It was surely one of the toughest years financially since the bad old recession days of the 1980s and has taken its toll on incomes and personal wealth, especially the paper wealth so many of us believed we had tied up in our homes and pensions, and in our confidence in the future.
The austerity measures imposed by our new pay masters in Europe and at the Washington-based International Monetary Fund have been difficult to adjust to, with estimates of the monthly loss of spending power being put as high as €1,200 since 2008 when the economy first collapsed. This coming year, it has been estimated that the new taxes (like Vat, excise, carbon and property), higher costs (for example, health insurance, public transport) and cutbacks in social welfare payments will reduce average family monthly incomes by a further €60-€100.
Will we look back on 2011 as the last year when the Irish people – were, for the most part, able to stoically suck up the austerity (compared to the frequent, public, noisy demonstrations and protests in Greece, Italy and Spain) or will we see these past 12 months as a turning point? Will next year’s austerity measures be angrily resisted as the cost of living rises and public services fall, along with employment numbers, house prices and wages?
Much will probably depend on whether or not the Croke Park Agreement survives or not. As the only heavily unionised group of workers left in the country, the cutting back of civil and public sector workers’ pay and pensions - if it happens (the CPA is not due to expire until 2014) - will undoubtedly rally the union bosses to organise widespread labour stoppages and strikes. Such action will no doubt attract support from anti-government protestors, such as community groups whose budgets have been cut, third level students, groups opposing the introduction of the property tax, the political parties defending social welfare entitlements who also favour of the introduction of wealth taxes. 2012 could be a volatile year indeed.
Immigration is the great pressure valve that has also helped the government push through the EU/IMF dictat for higher taxes and lower spending here: without it 75,000 young people would not only be adding to the still growing social welfare bill of over €21 billion, but joining the burgeoning protest groups.
Their access to jobs in other countries is unlikely to end in 2012, though as the world economy slows, there may be fewer opportunities for them to leave Ireland in the future. The greatest irony of our situation in 2011 is that many high tech companies had to offer jobs to emigrants, as home-born skilled workers decided to take their chances in finding similar jobs with better long term earning prospects in countries where taxes are not rocketing and the standard of living is not falling.
For most of us, 2011 was the year in which we self-imposed levels of austerity that economists say fits the classic ‘paradox of thrift’ – where consumer demand falls, weakening the economy further, even as people accumulate more savings because they are worried that they won’t have enough savings to meet their future needs.
The average savings rate here is now at approximately 12% of disposable income, one of the highest rates in the western world, though obviously not spread evenly amongst the population. (The largest group of savers are middle and older people.)
Instead of more discretionary spending, there has been less as we cut back on holidays, entertainment, club memberships, second car ownership and even, unfortunately, charitable giving.
The majority of the ordinary people of Ireland did a prodigious job of reducing their personal debts and borrowings and adjusted their budgets to ensure that food is on the table, that the rent/mortgage is paid (even at adjusted rates), that there is heat and light in their homes, petrol in the car or money for bus fares for the children. High unemployment and the growing cost of healthcare and health insurance in 2011 however, meant that another c70,000 people are expected to have dropped their private cover this year – 70,000 more people who will be dependent on the private health service in 2012.
However, 2011 was also the year that the volume of savings held in financial institutions dropped dramatically to c€86 billion (from over €100 billion two years earlier) as many more savers drew down money to meet their day to day costs, to shift into other assets that they regard as safer than paper and ink euro, or moved out of the country altogether to avoid what they believe could be the end of the use of the euro here.
This fear only grew as the year progressed and the wider troika of technocrats, central bankers and politicians continue failed to agree credible policies to save the euro – and pay off the trillions in sovereign debt.
So will 2012 be the ‘make or break’ year for Ireland and the eurozone? Let’s hope so.
What everyone seems to want is certainty and clarity, no matter how difficult the repercussions. As events overtake the inept, 2012 may be a very good and Happy New Year indeed.