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Troika’s approach to bailout morally unethical: SJI

By Sarah Mac Donald - 19 January, 2014

Social Justice IrelandThe austerity approach promoted by the Troika in Ireland and other bailout countries was “morally unethical” because “poor and middle-income people have borne an unfair share of its consequences,” Social Justice Ireland has said.

Dr Seán Healy, Director of SJI, described the strategy adopted as having “an unsound academic basis” and “a failure in practice.”

Speaking to the European Parliament’s Economic and Monetary Committee in Dublin on Friday, Dr Healy said all future Troika Bailout programmes should be bound by the Charter of Fundamental Rights of the European Union and the Treaties.

While taking a draconian approach to public finances, the European Commission has failed to introduce sufficiently rigorous regulation of the financial sector.

“The poorest 10% of the population lost 18.4% of real disposable income compared to an 11.4% loss among the richest 10% since the crash of 2008,” Dr Healy noted.

Social Justice Ireland met the Troika twelve times over the past three years.

They also produced the first ever study of the impact of austerity in the five countries most at risk in the EU (Portugal, Ireland, Greece, Spain and Italy).

A 22-page Briefing prepared by Social Justice Ireland was provided to the Committee members.  

It challenges the analysis on which key Troika decisions were made and provides details on how the Troika’s selective use of data led to inaccurate analysis which, in turn, led to inappropriate policy decisions.

This happened in areas such as poverty, unemployment, replacement ratios and on the distribution of the ‘hits’ imposed in the bailout process.

He cited a January 2012 interview given by the German Chancellor, Angela Merkel.

In it, Mrs Merkel argued that austerity was necessary because of the budgetary negligence of countries over many years, specifically the “extreme debt of certain countries accumulated over may years”.

Dr Healy said this was an example of how selective use of data had led to inaccurate analysis which in turn had led to an inappropriate policy response.

He said an accurate analysis would identify the 2008 crisis as being caused by the financial industry, how it was framed and regulated and how it operated in the real economy.

Such analysis should have led on to the development and implementation of measures at an EU level to regulate financial institutions and to secure good governance in this area.

He said little if anything effective was done in relation to the introduction of a financial transaction tax, the elimination of tax havens, the tackling of financial fraud and tax evasion, and the separation of commercial and investment banking.

Instead, especially from 2010 onwards, there had been “a very strong focus on the false claim that crisis was caused by a catastrophic profligate drift in public finances.”

This had led to the imposition of austerity which had been exposed as having an unsound academic basis  – “profoundly flawed” and unfair in practice.

The full text of the Briefing supplied to the Committee may be accessed here.

The Social Justice Ireland study on disposable income since 2008 may be accessed at :http://socialjustice.ie/content/analysis-shows-poorest-10-took-biggest-hit-crash

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