EU compact will be 'extremely painful' if implemented

Thu, Apr 19, 2012, 01:00

COMMITTEE ON EUROPEAN AFFAIRS:THE FISCAL compact is a “dangerous experiment” that will be “extremely painful” if implemented, an Oireachtas committee was told yesterday.

Prof Terrence McDonough of the school of business and economics at NUI Galway told the Committee on European Affairs the compact was “completely without historical precedent”.

Forcing a country at the bottom of a depression to run budget cuts and tax increases year after year, and forcing the same policy on its neighbours, was not “the safe option”.

“If the Irish people are against permanent austerity they should reject this treaty.”

The fiscal compact, on which Ireland will vote in May, aims to place financial limits on how much countries can borrow in proportion to their revenue.

Megan Greene, senior economist at economic research company Roubini Global Economics, said the treaty was Germany insisting all other countries look more like Germany. “It is completely misguided, but I still think Ireland should support it.”

She said rejecting the treaty would put important relationships with EU countries in jeopardy. Ireland would “absolutely need a second bailout” and she did not believe that if Ireland rejected the treaty the IMF would “break ranks” with the troika and provide funding.

Michael Taft of the union Unite said while the treaty may not mean “permanent austerity” it would feel like that for a generation.

Prof Brian Lucey of Trinity College Dublin said we need to “think long and hard” about the implication of the treaty for the bond markets. A large stock and flow of relatively low-risk assets, like government bonds, were required to support pension and investment funds. A shrunken market, which would be created if countries complied with the fiscal treaty deficit restrictions, would be “less able to fulfil that role”.

Prof Gerry Whyte from the school of law at Trinity College Dublin said if it was intended to introduce a rule into the Constitution on limiting the budgetary deficit, the current amendment would not be “fit for purpose”. However, it would give protection to legislation subsequently introduced to provide for the rule.

Asked by Paschal Donohoe TD (FG) if future governments could then change or abolish that legislation, Prof Whyte said there was no explicit provision in the treaty which allowed for states to withdraw from it. Once passed, breaching it would have legal consequences at international level.

Dr Andrew Storey from University College Dublin highlighted the European Trade Union Confederation’s opposition to the compact, the first time it has opposed a European treaty. It was “particularly pertinent for Labour Party deputies and Senators”.

Ian Talbot, chief executive of Chambers Ireland, said his organisation would be “vigorously” supporting a Yes vote. It was more likely to deliver enhanced confidence in Ireland, which would lead to increased spending.