The world is in the grip of a severe economic crisis. What the IMF now refers to as “The Great Lockdown” is leading to a global recession more severe than at any time since The Great Depression. While Ireland has so far avoided the worse of the tragic scenes that the pandemic has wrought upon some, it is clear that the country will not escape the economic fallout.
With businesses shuttering across the country, unemployment reached 16.5% last month as nearly 400,000 people applied for the new Covid-19 unemployment payment. At the same time, government revenues have fallen precipitously. But to prevent unmitigated economic disaster, the state must counteract the fall in economic activity in the private sector by continuing to increase expenditure. The result is a likely “€22 billion hole in the public finances”.
The last time Ireland endured a severe economic crisis, the country faced years of crushing austerity. As the Irish government undertook significant financial efforts to protect the financial sector, the cost was borne by ordinary people as vital public services were slashed and a raft of new taxes were introduced. Might a similar outcome follow from the current crisis? Is Ireland set for a return to austerity?
In many ways things are different this time. For one, this is a very unusual type of economic crisis. The banking crash of 2008 was a case of the financial sector bringing down the real economy. Today, our difficulties originate in the real economy, a result of the lockdowns that have been necessary across the world. In 2008, the real economy was depressed in order to save the financial sector. This time around, it is a depressed real economy that is likely to cause significant difficulties for the financial sector.
As a result, the particular congruence of interests, ideology and power that prevailed following the 2008 crash is not necessarily in existence today. The financial sector may still hold sway over the economic decisions that governments make but it is questionable whether austerity policies would be their preferred response this time around, at least in the medium term. The austerity that the bankers and their allies in institutions such as the ECB and IMF demanded last time around could today prove to be counter-productive to their interests.