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Writedown debt to rebuild the economy

A debt jubilee is needed to ensure a just recovery, writes Conor McCabe.

Debt is a creature of accountancy and the law. It has no physical presence but has a coercive power due to state enforcement of its mechanisms. Rent, for its part, is essentially parasitic.

In times of crisis it is folly for the state to privilege such profit over the survival of the real economy.

We have been here before. We cannot do the same again.

We need to introduce a debt, rent, and utility bill moratorium and subsequent write-down for the coronavirus months, coordinated by government and the state, and tied into the liquidity response that the European Central Bank (ECB) has already undertaken.

These measures are needed to ensure that people get through this crisis somewhat in one piece, and that the State has the resources going forward to tackle the housing and health issues that dominated the recent election, as well as to ensure we can implement a green new deal that is vital to our future.

The signs so far, however, are not good. 

The government has put in place a moratorium on evictions – the absolute bare minimum needed in a pandemic – but has refused to deal with the payment itself outside of a ban on rent increases. 

This is in spite of the fact that unaffordable rent is a key issue that dominated the recent election. Since then, hundreds of thousands of people have lost their jobs, and tens of thousands of businesses have shut down. It is unlikely that all will be able to open up once the current restrictions are lifted.

Despite headline initiatives such as a Covid-19 payment of €350 per week and the (temporary) public administration of the entire health service, the Government’s response is actually not that different from that of the previous recession – protect banks and landlords over the real economy.

We cannot afford to make the same mistake this time. To make an analogy, significant sections of the economy have been put into a state-induced coma so that our medical services can fight this infection. Countries across the EU, including our own, are purposely shutting down economic activity in order to save lives.

In Ireland it means that there are hundreds of thousands of people who have a reduced income, but under current arrangements they are being treated for the purposes of rent, debt and utilities as if nothing has happened. 

At the end of all of this we need a debt jubilee – a writedown of loan and rent payments that were due during the coronavirus months.

The message from government is clear: protect people in the short-term but make no structural changes.

The Government response so far, however, has been to ask banks to defer loan repayments, not to get rid of them. Similarly, it has asked landlords to show some ‘understanding’ with regard to rent payments.

It has not, however, given itself legal powers to enforce these requests. This merely straddles people with debt for the months during which they were told to stay at home and not do anything.

It has increased welfare payments, but done nothing – absolutely nothing – to tackle high rents and low supply. 

The collapse in Airbnb rentals should have been used by the state to introduce a long-term solution to the housing crisis. Instead, it has taken out short-term leases at full rent with corporate landlords to house homeless families until such time as hotels open back up again. 

The message from government is clear: protect people in the short-term but make no structural changes.

The question, then, is what should be done and how to achieve it.

At a minimum, the following is needed:

– Full moratorium on domestic rents and mortgage repayments for people affected

– Full moratorium on commercial rents and loan repayments for businesses affected

– Full moratorium on utility bills for businesses affected

– Legislation to ensure that claims for rent, mortgage, and loan repayments, as well as utility bills missed during the crisis, are not legally enforceable

– Legislation to ensure credit history is not affected by missed payments during the crisis

– Interest-free loans and overdraft facilities for businesses to pay suppliers and contractors

 – Negative interest-rate loans for non-commercial and arts bodies/collectives/ venues/facilities.

The suspension of rent, mortgage, and debt repayments would take a significant burden off people’s shoulders, and enable affected households to get through this crisis on the announced payment of €350 per week.

We need to push the debt of the coronavirus breakout into the world of finance, which is where the significant and almost unlimited support measures announced by the ECB will come into play.

It is the role of the ECB — not renters — to ensure that otherwise healthy banks and utility companies remain solvent. The ECB, for its part, has made it clear it is willing to honour its responsibilities.

At that stage it is then possible to look at either write-downs or the quarantining of coronavirus debt by placing as much of it onto the balance sheet of the ECB or through a bad bank fully funded by the ECB. There it can be parked for decades while we go about restructuring our society on environmentally and socially sustainable lines. 

None of what has been proposed here is outside the realm of possibility. It can be done. The mechanisms are there. It is all about whether the political will is there. 

That is a question for our progressive parties to answer. At this time of political flux, it remains to be seen whether they are willing or able to step up to the plate.


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The Author

Conor McCabe

Conor McCabe

Dr Conor McCabe is author of Sins of the Father: Tracing the Decisions that Shaped the Irish Economy, and a research fellow at the UCD School of Social Justice.