Despite Yes Vote, Fiscal Treaty Outcome Still Uncertain

The people of Ireland have spoken. But what exactly have they said? The vote to accept the Stability, Coordination and Governance in the Economic and Monetary Union – or, more snappily, the fiscal treaty – was certainly decisive: around three in every five ballots cast were in favour of the treaty. There were no great regional differences in the ‘yes’ vote across the country. Turnout was low, but not drastically so.

Yet, despite all this, it difficult to say what the implications of the yes vote will be, both for Ireland and for the rest of Europe. As the results rolled in on Friday lunch team, a sanguine Eamon Gilmore told RTE News at One that the referendum result will provide a platform for Ireland to get back to the magical ‘g’ word, growth.

The Tanaiste, sadly, gave no indication of how accepting a treaty designed to enforce ever-tighter fiscal strictures across a Eurozone in the midst of a deflationary cycle would bolster the Irish economy. Indeed on its own terms the treaty is more likely to cost Irish jobs than provide the scaffolding for employment growth.

The treaty, ostensibly designed to alleviate the Eurozone crisis, commits member state governments to maintain budgets that are either balanced or in surplus. Under the terms of the treaty, annual structural deficit that exceeds 0.5 per cent of Gross Domestic Product will run the risk of a fine from the European Court. Meanwhile, 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.

On BBC Newsnight last week, Paul Krugman gave a succinct, acerbic analysis of the folly of cutting public spending (the main motor of growth in a contracting economy) during a time of depression. ‘Austerity in these conditions doesn’t even work in fiscal terms, because it shrinks the economy now and also shrinks the economy in future,’ the Nobel Prize winning economist said, before going on to compare the behaviour of UK and European governments to the medieval practice of bloodletting the ill.

The latest Euro treaty does little to address arguably Ireland’s greatest problem: the tsunami of household debt contained within the country’s failed banking sector. Writing in the Financial Times recently, Irish economist David McWilliams noted that both Ireland and Spain had lower public debt ratios than Germany when the crisis hit in 2008 – the problem is that private debt had soared during the boom. Since Ireland joined the euro a little over a decade ago, levels of household debts more than doubled.

If treaty is, in Eamon Gilmore’s words, to ‘stimulate the economy and create jobs’, it will only do so to the extent that it helps to create greater cohesion within the Eurozone and, ultimately, a change in German policies.

The fiscal compact makes no provision for much needed initiatives to ease the burden on indebted states and individuals, such as the issuing of Eurobonds, the adoption of an expansionary monetary policy or European-wide backing for the banking sector. Some, or all, of these measures will need to be enacted if the Eurozone to return to something akin to economic health.

In the end, Ireland’s comfortable yes vote was motivated as much by fear and uncertainty as any belief in the intrinsic wisdom of the treaty itself. A bad-tempered campaign, marked on both sides by accusation and counter-accusation did little to assuage an electorate that has every right to be worried, having witnessed a cataclysmic boom and bust, a protracted EU/IMF bailout and, now, a flatling economy.

A closer look at Thursday’s vote also reveals a growing rift in Irish society, between those at the razor’s edge of austerity policies and those relatively more cushioned. Solidly working class constituencies, such as Dublin North-West, voted No in far greater numbers than middle class or rural areas. This should be a huge worry for Eamon Gilmore and his Labour party, whose support has halved to just 10 per cent since last year’s general election.

Ireland’s yes to the fiscal treaty is unlikely to change the course of the crisis in the Eurozone, but the referendum could mark a turning point in Irish politics. Sinn Fein, the driving force behind the well organised No campaign, seems to have established itself as the anti-austerity party. Opinion polls put support for the republicans at 24 per cent, behind only Fine Gael. If Ireland’s economic outlook does not improve in the coming year, the next election could really change the country’s political map.

This article originally appeared in the Irish Post.

Growing divide in an austerity-stricken Ireland

ALMOST as soon as first ballot boxes were opened yesterday morning, it was clear the fiscal treaty referendum was not going to go the way of the rerun Nice and Lisbon votes. Just a handful of constituencies voted No, even then by small margins in most cases.

Overall around three in every five ballots cast were in favour of the treaty. Turnout was low, but not spectacularly so.

But while government politicians, and their temporary allies in the opposition Fianna Fail, can be forgiven for congratulating themselves, it remains unclear how, or even if, the new treaty will aid Ireland, or the ailing eurozone.

Labour leader and deputy prime minister Eamon Gilmore told national broadcaster RTE yesterday that the treaty would provide stability, allowing the coalition to “proceed with its plan to stimulate the economy and create jobs”. Quite how a treaty that will enshrine tight fiscal strictures in the midst of a deflationary cycle will bolster the economy remains unclear.

Ireland, and Europe, remains mired in economic quicksand. Unbridled austerity and a weak currency union has created a perfect storm that EU policy makers seem unable, or unwilling, to think their way out of. The fiscal treaty makes no provision for much needed initiatives to ease the burden on indebted states and individuals, such as the issuing of Eurobonds, the adoption of an expansionary monetary policy or European-wide backing for the banking sector. Some, or all, of these measures will need to be enacted if the eurozone is to return to health.

Ireland’s Yes vote was comfortable but Irish voters are anything but contented. Many were motivated as much by fear as any belief in the sagacity of the treaty.

Thursday’s referendum also revealed a growing rift in society, with affluent areas voting Yes and turning out in bigger numbers than in poorer areas. This should be a huge worry for Mr Gilmore and his Labour Party, whose support has halved to just 10 per cent since last year’s general election.

Sinn Fein, the force behind the No campaign, could emerge as the big winners. Polls put support for the republicans at 24 per cent, behind only Fine Gael. If the outlook for Ireland does not improve, the political map could be redrawn yet again.

This article originally appeared in the Scotsman, June 2.

Uncertainty prevails as Irish vote on fiscal treaty for eurozone

Ireland went to the polls yesterday in the only referendum being held on the new fiscal treaty in the European Union, which it hopes will alleviate the ongoing eurozone crisis.

The fiscal treaty, agreed by leaders of 25 of the 27 European Union member states in January, introduces tough fiscal rules across the union.

Under the terms of the treaty, budgets must be balanced or in surplus. Annual structural deficit must not exceed 0.5 per cent of gross domestic product. Government debt cannot exceed 60 per cent of GDP.

Opinion polls suggest that the “yes” vote will win when results are announced this afternoon. Turnout is expected to be low, reflecting in part uncertainty and fear among the Irish electorate about what the treaty, or rejection of it, will mean. The Irish economy is still struggling in the wake of the 2008 crash and the subsequent €85 billion (£68bn) International Monetary Fund/European Union bailout for its ailing banks.

Unemployment stands at around 15 per cent, with thousands emigrating every month. Forecasts for growth have been revised downwards, according to official government statistics.

On the streets yesterday, views were split about how important Europe will be in aiding recovery.

“I voted ‘yes’ because Europe are kind of the boss, and we need to stick with them. I don’t see any benefits of saying no,” said Claudia Sculley, 23, in Dublin.

For others, after four years of successive austerity budgets, the appetite for further cutbacks is fast diminishing.

“Austerity means just more cuts to people, that’s not going to work,” said Dan Dowling, 30, speaking outside a polling station in Tralee, County Kerry, where he voted “no”.

Ireland has rejected two European treaties in the recent past. The Nice treaty required two referendums, as did the Lisbon treaty, which was rejected in June 2008, before being accepted 18 months later.

Even if the treaty is passed, Sinn Fein looks set to be the big winner from the referendum. An Ipsos poll earlier this week put the republican party’s support at 24 per cent, making it easily the second most popular party in the state, behind the ruling Fine Gael.

Meanwhile, Labour, the junior party in Ireland’s coalition government, has seen its support halve to 10 per cent since last year’s election.

Few believe that ratifying the fiscal treaty will solve Ireland’s economic and, increasingly, social woes.

The government campaign raised the spectre that a “no” vote would see the country locked out of a new €700bn bailout fund – the European Stability Mechanism – for indebted eurozone countries.

Berni Ni Maolfhachtna, who voted “yes” in Tipperary yesterday, fears that rejection would leave Ireland effectively bankrupt if the country is unable to return to the international bond markets when it exits its existing bailout strategy at the end of 2013.

“I think ordinary folk in Ireland are just concerned that voting ‘no’ will mean a lack of available funding if we happen to need it in future, and that is not a reality anyone wants to face,” she said.

This article originally appeared in the Scotsman, June 1, 2012.

Irish set to lose either way

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.

This piece originally appeared in the Scotsman, May 30.