Rejection would jeopardise stability and employment
Those against ratifying this treaty should explain how day-to-day State expenditure will be funded from 2013, writes JOHN O'HAGAN
IT MIGHT be worthwhile considering the fiscal treaty using an analogy, which while limited, is instructive.
In many respects the functioning of an economy is similar to that of a football game. A successful football contest requires, for example, agreed rules of engagement (legislation), fair enforcement of those rules (judiciary and police), a stadium and proper physical access and safety (infrastructure).
If Irish players want only to play football in Ireland then the rules and regulations can be decided on exclusively by Irish decision-makers. However, once we want to take part in international football contests then we must abide by rules set by the appropriate international bodies.
Thus, for example, Ireland could not argue that, should we qualify for the next soccer World Cup, we should be allowed a one-goal advantage in every match because living on a wind-swept island with a temperate climate we would not be used to the heat of Brazil. Such a request would be seen as ludicrous. But not so far removed from reality as one might think: after all, remember the request for a 33rd team (Ireland as it so happens) in the last World Cup.
In order for the “game” of a unified European market to operate there must also be common rules of engagement, which we must observe if we want to take part. Yet we already hear arguments in relation to this game that the rules should be modified to suit Ireland or that Brussels “should buy our vote” if it wants us to agree to these rules.
A currency union is a highly advanced form of the “game” of economic integration. That this currency union needs some form of credible fiscal compact is not seriously in dispute. The reason is that a major spillover can arise from a sustained imbalance between tax revenue and expenditure in one country on the financial stability of other member states. Thus they are designed not just to protect other countries from contagion effects from Ireland but, equally importantly, to protect Ireland from such effects acting in reverse.
A good example at a local level of a similar reciprocal negative spillover is that resulting from someone smoking. A ban on smoking exists not just to stop you causing damage to others, but also to protect you from such damage being imposed by others.
Clearly, once you enter an international “game”, like football or a currency union, you lose some self-government: it is not possible to have unfettered self-government and participate internationally. Hence, no person or political unit has total self-government unless they want no interaction whatsoever with the outside world.
If Ireland had no economic interaction with the outside world we would soon revert to the subsistence living standards that applied in the Middle Ages. We must trade and invest to sustain and increase employment and living standards. The alternative is that you opt out of the international game governed by rules agreed by democratically elected governments, or play in a game the rules of which are determined wholly by faceless international financial markets.
We should ponder the fact that the five big continental EU member states (France, Germany, Italy, Poland and Spain) account for some 300 million people and, combined, would constitute the second largest market in the world. Why should they be held back if they want to forge ahead collectively on further integration? What is democratic and/or fair about the wishes of a country representing just 1 per cent of the EU population potentially blocking the wishes of parliaments of the other 26 member states?
At least this time we cannot stop the “train leaving the station”, provided 12 of the 17 euro states ratify the treaty. This is a variant of the “variable geometry” approach to integration, already in existence with Schengen and the euro and likely to develop apace.
Meanwhile, let those who oppose ratifying the treaty consider the following:
* Expert economic and legal opinion indicates that the treaty involves minimal extra fiscal rules over and above those enshrined in existing and pending legislation. The objective, as noted above, is to protect all, including Ireland, from potentially deleterious effects of financial contagion from another member state. There might have been better rules, but that issue is water under the bridge;
* Given this, why risk the inevitable loss of influence that will result from not deciding to sign up to the necessary rules of the game?
* And much more serious, why risk in any way whatsoever the calamitous consequences of not being able to fund day-to-day State expenditure from 2013? The need for fiscal balance will be required whether or not we ratify the treaty. You cannot continue for years to consume/spend more than you earn and expect to be able to borrow to do so, especially where the “insurance” of euro zone support no longer applies;
* Should we not be able to access the markets it could mean that Ireland would have to default and leave the euro. Why in any way risk this? Those who oppose ratification should be honest with the electorate on this count. The most likely scenario would be a return to monetary union with Britain, with Ireland, as before, having no say whatsoever in relation to British monetary policy and subject more than ever to the vagaries of anonymous financial markets.
Those who oppose ratification are endangering the participation of Ireland at the heart of Europe and therefore, as the vast majority of our democratically elected politicians rightly point out, seriously jeopardising the stability and hence employment prospects of a whole nation.
John O’Hagan is professor of economics in Trinity College Dublin