There is not a single benefit to be gained from No vote
OPINION:IRISH BUSINESS can generate the growth and create the jobs this country so desperately needs, but first we need stability. In recent years we have made significant progress. It has been a difficult and painful journey, but it is starting to pay off.
Last year the economy grew for the first time in four years. The exporting sector has been performing strongly and for the first time since 2007 more jobs are being created than are being lost.
Of course there are risks on the horizon, not least the increased uncertainty in Greece and Spain, but this only reinforces the need to do everything we can to keep the fragile recovery on track.
That is why the Irish business community sees a Yes vote on May 31st as vital, and a key part of the wider Driving Ireland’s Recovery strategy that Ibec recently launched.
A Yes vote will provide clarity about the economic course we are on and certainty about the future funding of the State. In contrast, a No vote would be a very dangerous step into the unknown.
The treaty enshrines sensible rules, the majority of which are already in place, to ensure that euro zone countries keep their debts under control and balance their budgets.
Of course we also need growth, and business has been to the fore in calling for targeted investment and stimulus measures to support job creation and domestic recovery. But we don’t have a choice of growth or austerity, despite the simplistic claims of some on the No side. We need to do both: fix the public finances and grow the economy.
At the heart of the proposition put forward by many opponents of the treaty are two deeply misleading claims: Firstly, that the treaty will lead to massive additional austerity above and beyond that which the State is already committed to and, secondly, that excluding ourselves from access to the European Stability Mechanism (ESM) will have no impact on the ease and cost at which Ireland will have to borrow money in the future.
Treaty opponents continue to argue that meeting the 0.5 per cent structural deficit target requires an additional €6 billion in cuts and tax hikes. They are wrong. Either they do not understand the underlying economics of the treaty or they are deliberately misleading the public.
Ireland does not have to meet the structural deficit target in 2015. An adjustment period will be negotiated and will be tailored to individual country circumstances. Also, because we will have several years to meet the target, even under conservative assumptions, economic growth will bridge the gap and no additional austerity will be required.
Assuming more realistic estimates, such as those of the IMF, Government will actually be able to increase expenditure in areas such as health and education while, at the same time, closing the structural deficit gap.
The No campaign also entirely ignores the fact that Ireland is required to meet the 0.5 per cent target regardless of whether we pass the treaty. Under the “six pack” agreement, which we signed up to last year, we are already required to meet a so-called medium-term budgetary objective of a 0.5 per cent structural deficit. The fiscal rules in the treaty are not new and we cannot avoid them by voting No in the referendum.
The persistent and reckless assertion that Ireland need not worry about the future funding of the State, should we exclude ourselves from the ESM, is another deeply misleading claim.
Over the coming years Ireland will need to borrow billions to keep the country running. This money will be spent on health, education and welfare supports. But financial markets will not lend to us if there is any doubt about our ability to repay our debts.
As Europe’s lender of last resort, the ESM provides Ireland with a valuable insurance policy. Without ESM access no one can say for certain how much extra we might have to pay for loans, or if they will be available at all.
In the three years after the current deal with the troika expires, Ireland will need to borrow €50 billion to bridge the gap between revenue and expenditure, and also to roll over existing debt commitments. A conservative estimate is that loans sourced outside the ESM, if they were made available, would cost at least an additional 2 per cent. This would equate to over €600 in additional austerity for every household, every year from 2016. The necessary tax increases and expenditure cuts involved would send another economic shock through the economy, undermine economic activity and undo much of the hard work already done.
If Ireland was unable to source funds outside the ESM, we would be forced to close the budget deficit overnight, and the austerity and economic pain required would be far worse again.
The truth of the matter is that, whether we vote Yes or No, Ireland cannot avoid tackling the deficit. To restore economic sovereignty and get back into the markets at a reasonable cost, Ireland will have to repair its public finance position. But we have the choice of doing this in a managed way, as part of a wider European effort to restore order and confidence to the euro zone, or going it alone.
Behind the empty rhetoric and false assurances of treaty opponents is a fundamental inability to realistically set out how a No vote can practically help this country get back on its feet. Yes, we all want action on bank debt and a renewed focus on growth, but voting No is more likely to have a detrimental effect on moving these issues forward.
There is not a single benefit to be gained from a No vote. Rejection would create dangerous economic instability and uncertainty, and would undermine the very significant efforts the whole country has made in recent years to revive our economic fortunes. The sovereign rating of the country would be damaged and this would have a direct impact on the credit rating of Irish corporates, such as the key utilities. This higher cost of debt would then be passed on to consumers in the form of higher prices.
A Yes vote will help us take back control of our economic future; give businesses the confidence to invest, grow and create jobs; and ensure that we have absolute certainty about the future funding of the State.
Danny McCoy is director general of Ibec, the employers’ body