Whatever voters decide on the stability treaty, the figures don’t add up, the words won’t last long and it won’t help the eurozone crisis, writes Peter Geoghegan
Few people have had such a major impact on recent Irish political life – and yet remain so unknown, inside and outside the country – as Richard Crotty. In 1987, Crotty, an economist and historian, took the Irish state to court, arguing that the Irish parliament’s proposed ratification of the then-upcoming Single European act would represent a change to the constitution. Then, as now, any alteration to the constitution requires a referendum.
The Irish Supreme Court sided with Crotty. It was a landmark judgement that has had repercussions for the last twenty-five years. Whenever there is a major amendment to an EU treaty, the Irish Republic is obliged to put it to a referendum.
While the Single European Act and the Treaties of Maastricht and Amsterdam were passed with ever reducing majorities, more recently Crotty’s interjection has caused serious problems for Dublin’s panjandrums. The Nice Treaty required two referendums, as, more famously, did the Lisbon Treaty, which was rejected by more than 53 per cent of the electorate in June 2008, before being accepted by 67 per cent after a fractious re-run less than eighteen months later. Ireland goes to the polls to vote on another EU treaty, tomorrow. This time it’s the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union that is before the Irish electorate. Better known as the stability treaty or the fiscal compact, the treaty, which was agreed by leaders of 25 of the 27 EU member states in January (Britain and the Czech Republic refused to sign), is seen by many as a German-led attempt to enforce ever stricter monetary policy across the increasingly crisis hit eurozone.
A central tenet of the treaty is that government budgets must be balanced or in surplus. Annual structural deficit must not exceed 0.5 per cent of Gross Domestic Product: the European Court would fine a country up to 0.1 per cent of GDP if this condition was not met within a year of ratification. Government debt is not to exceed 60 per cent of GDP. Any state whose debt is in excess of this figure must reduce it by an average rate of one-twentieth per year.
The problem for Irish voters – and for politicians supporting a ‘Yes’ vote in tomorrow’s vote – is twofold. On the one hand, the economic rationale behind the fiscal compact just doesn’t stack up; on the other, many believe that the treaty itself will be renegotiated before it is ever put into place.
As it’s currently constituted, the treaty will do little to alleviate the crisis in eurozone countries, particularly those on the periphery. The reason is straightforward: Europe’s economic travails are founded primarily on private, not public, debt, and the tightening of government budget will only serve to exacerbate the problem.
As Irish economist David McWilliams writing in the Financial Times noted, both Ireland and Spain had lower public debt ratios than Germany when the crisis hit in 2008 – the problem is that household debts had soared during the boom. Since Ireland joined the euro a little over a decade ago, levels household debts more than doubled.
The response to the crisis – massive austerity – has practically killed the patient. Irish government spending has been cut for each of the last four years and yet the structural deficit continues to rise. According to statistics compiled by the Irish government in 2011, it was expected to fall to 111 per cent of GDP by 2015. In 2012, this figure was revised upwards to 117.4 per cent and will rise further under the terms of the compact.
“Imposing more austerity now will be as useful as putting an anorexic on a diet and expecting her to become voluptuous,” writes McWilliams.
In Ireland, the fiscal compact would require a further retrenchment of already threadbare, and extensively privatised, social services. Meanwhile, emigration and unemployment continue to rise. Unemployment in Ireland has trebled in the last four years, with more than 14 per cent of the population out of work. A deeply worrying 29 per cent of 18 to 25-year-olds are not in education and are without work.
The Yes camp, led by the Fine Gael-Labour coalition, in power since last year, and supported by the ousted architects of the crisis, Fianna Fail, have urged voters to back the treaty to protect Ireland’s putative recovery. Speaking in a televised national address on Sunday, Taoiseach Enda Kenny said that the pact “will create stability in the eurozone”.
“This is essential for growth and job creation. A strong ‘yes’ vote will create the certainty and stability that our country needs to continue on the road to economic recovery,” he continued. Opponents of the treaty, led primarily by Sinn Fein and the United Left Alliance, argue that a Yes vote would result in billions of euro of cuts and further job losses.
Regardless of how Ireland votes tomorrow, the treaty itself may be radically altered before it is ever implemented. Most significantly, France’s new Socialist president Francois Hollande made a commitment to renegotiate the compact top priority in his successful election campaign.
Irish politicians have been at pains to reassure the electorate that the fiscal treaty will not be changed. However, their ability to keep such promises is doubtful, however.
Monsieur Hollande has demonstrated a willingness to confront Angela Merkel’s economic orthodoxy, calling for a new plan to stimulate growth and the introduction of eurobonds to address the worsening sovereign debt crisis. The French leader could yet force through changes in the terms of the compact, too. In Ireland, the tenor of the “yes” message has gradually shifted over the course of the campaign. Last month, finance minister Michael Noonan said Ireland would not need a second EU/IMF bailout.
Now Kenny is warning that only a vote for the treaty will guarantee Irish access to bailout funds, via the European Stability Mechanism (ESM), implicitly undermining the argument that the treaty will deliver growth. Prospects of a “yes” have been damaged by a serious of high-profile gaffes.
Two weeks ago, while addressing the Bloomberg Ireland Economic Summit in Dublin, Noonan dismissed concerns about Greek contagion affecting Ireland, saying: “If you go into the shops here, apart from feta cheese, how many Greek items do you put in your basket?” Later in the week, Fine Gael minister for enterprise, Richard Bruton, said during a debate on the treaty on Irish radio, that the referendum would be rerun in the event of a “No” vote.
Nevertheless, opinion polls suggest that the government will win the day: a Red C poll in last weekend’s Sunday Business Post put the ‘yes’ vote at 49 per cent, compared to 35 per cent against the treaty, with 16 per cent still undecided. But with tensions growing between France and Germany and a Greek election due to take place on 17 June, regardless of the result, Ireland’s referendum is unlikely to assuage the turmoil in the eurozone.