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  • irishtimes.com - Posted: May 29, 2012 @ 12:36 pm

    Fiscal Exhaustion

    Harry McGee

    The texts of European treaties will never make it onto the bestseller shelves at airport bookshops. The prose can be horribly dense and inaccessible –under such a torrent of tortuous sentences even the most impermeable EU anoraks can feel the soul-destroying dampness seep through.

    At the same time, some could almost have qualified as works of fiction, given that so many extraneous issues have been dragged into previous referendum campaign. As the author and former government adviser John Downing puts it in the latest Irish Times political video: “The threat of old in EU referendums usually involved: say ‘yes’ and your child will be marched to war; say ‘no’ and you will die of famine.”

    The referendum on the fiscal treaty has been markedly different in both respects. While hardly a page-turner, it is shorter and more accessible than recent treaties, particularly Lisbon. The debate has also been more sharply defined. Issues such as water charges and household taxes have played minor roles (to the surprise of some commentators).

    Indeed, in recent weeks the focus has narrowed almost to a single question: how will Ireland fund itself in the event of a No vote? Over the past seven days in particular, the debate has been dominated by the row over whether or not access to the European Stability Mechanism will be available if the treaty is rejected by the electorate. Or to use the parlance of the respective camps; it is the insurance policy versus the blackmail clause.

    In one sense, it is unsurprising, as long as a Greek-style foundering remains a clear and present danger. And as a consequence of this, some of the other more technical elements of the treaty – the debt brake, the one-twentieth rule, the six pack; the role of the European Court of Justice; difficulties with defining structural debt – have not had the traction that some had expected earlier in the campaign.

    Evidence given by 61 witnesses to the Oireachtas Committee on EU Affairs exhausted every possible argument and counter-argument. All of the contributions were excellently summarised in a report that is worth reading. I’ve included the link at the bottom of the blog. But, here also for what is worth, is a selection of quotable quotes from those who gave evidence:

    Michael Link, Minister at the Foreign Office, Germany: Germany is not seeking austerity for its own sake, and it is not in Germany’s interest to “kill the rest of the EU”. Development in Germany requires other countries to develop also.

    Dr Eckhard Lübkemeier, German ambassador: It is an essential quid-pro-quo for the ESM because investors must have assurance that their borrowers will be able to repay.

    Emmanuelle d’Achon: Ambassador of France: The Fiscal Compact is not an austerity treaty but a commitment to fiscal responsibility that complements the ESM. It is a necessary counterpart of solidarity… Growth and job creation are also required but they must be based on budgetary stability.

    Paul Murphy, MEP: Article 3 is the most crucial provision. It limits structural deficits to a maximum, for Ireland and other countries, of 0.5 per cent. If we do not meet that target… that means a debt brake takes effect, imposing austerity, causing misery for ordinary people and worsening the economy.

    William Cash, MP, European Scrutiny Committee, House of Commons: The involvement of institutions such as the European Commission and the European Court of Justice under the the fiscal compact was of doubtful legality. The new arrangements are questionable and possible illegal under EU law…

    Jonas Sjostedt, MP Swedish Left Party: If the Treaty goes through, it will have three main consequences: It will deepen the recession and increase debt-to-GDP ratios; it will prevent states from taking country-specific measures; it will transfer massive powers to the EU Commission and the ECJ. This has implications for democracy.

    John Bryan, IFA: The CAP is vital for Irish farmers… for that reason Ireland needs a central place in Europe. Withdrawal from that dental place will have negative consequences in the short term and possibly lead to long term isolation.

    Brendan Butler, IBEC: The fiscal compact will not itself create jobs: it is concerned with stability, certainty and responsibility. However, those factors are essential if jobs are to be created.

    Brid O’Brien, Irish National Organisation of the Unemployed: It is important to note that austerity has never solved a crisis on the scale of Ireland’s. Sluggish growth in Europe is inhibiting recovery in the US economy. This will further challenger Ireland’s open, export-led, economy.

    Declan Ganley, Libertas: The solution that is required is to purge the bank insolvency that is undermining Europe. I would vote Yes if we were to get a deal on the bank debt… the compact will not deliver any of those things.

    Joe Higgins TD, Socialist Party: The fiscal comact is dictated by and suited only to financial markets and unelected and unaccountable bankers, who hold a virtual dictatorship over the EU. The establishment parties are ruining this country by following the diktats of the financial markets.

    Dr Alan Ahearne, NUIG: The fiscal compact does not provide the full set of changes needed by the European Monetary Union. It has a narrow focus, dealing with fiscal discipline. Other aspects that must be address must included excessive private debt, current account imbalances, misaligned real exchange rates, competitiveness and weak balance sheet. The fiscal compact will pave the way to more aggressive counter-cyclical policies at the eurozone level, for example, investment in renewable energy funded by a bank tax.

    Tom McDonnell, TASC economist: At best, the fiscal compact is incomplete. At worst it will damage prospects for recovery by reinforcing pro-cyclical fiscal policies. Growth is essential for Ireland to recover… A write-down of debt would go a long way towards restoring debt sustainability… Actions such as leaving the euro would be catastrophic for Ireland. While the fiscal compact cannot be described as a good deal, the circumstances on balance favour ratifying it.

    Prof John McHale, NUIG: While austerity undoubtedly slows the economy and destroys jobs, the trad-off is that imposing it will reduce Ireland’s vulnerability to external shocks, make debt more sustainable and improve our access to funding by improving credibility… It is vital that Irish people understand the consequences of the decision we are about to take, including the importance of access to the ESM. To reject the fiscal compact would be a huge risk.

    Dr Karen Devine, School of Law, DCU: The ESM will create a potential liability on member states for the debts of other member states. Such a liability is specifically ruled out by Article 125 of the Treaty for the Functioning of the EU. These breaches… are undemocratic and contrary to the ideals of democracy and the rule of law.

    Dr Gavin Barrett, School of Law, UCD: The fiscal compact does not outlaw Keynesianims or high spending by governments. It requires only that income matches expenditure over the medium term… A veto would hurt Ireland and fellow member states. It is not certain that an amendment of Article 136 (of the TFEU) will in fact be required for the ESM.

    Michael Taft, UNITE: The treaty will require substantially more austerity in the medium term. Meeting the structural deficit target will require €8bn of taxes or cuts on the top of the currently scheduled ones of between €8bn and €9bn.

    Megan Green, economist at Roubini Global Economics: The present crisis in not a fiscal crisis. It is a balance of payments or growth crisis. This treaty does nothing to address that. It is not a first step towards a fiscal union. Instead, it seeks to impose a German model on all of the other countries in the eurozone and institutionalises an asymmetric relationship. This will only push peripheral countries into a deeper recession…. It is completely misguided but I believe Ireland must support it for two reasons. The first reason is that Ireland will need a second bailout … Secondly the eurozone crisis is back in full force… and we must protect our relationship with EU countries even more.

    Full Oireachtas EU committee report available at:


    See Irish times political coverage on video at: http://www.irishtimes.com/videoplayer

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