Lisbon Essay (11): Both long and short term investors require certainty…

Today Senator Paschal Donohue rises to Stephen Kinsella’s challenging essay (LE5) makes a case that actually a Yes or a No does have the capacity to influence Ireland’s economic future. The result either way, he argues, will affect two crucial factors: confidence in those who will be asked to shoulder the country’s substantial and growing debt; and the potential for the country to continue to attract FDI if and when the ‘faucet’ resumes its flow. He argues that a No vote can only increase uncertainty, and add risk (and cost) to the investor’s calculus.

By Senator Paschal Donohue

Everyone in Ireland is an economist. Or so it seems to me. Everyone I meet has a view on our economy, the future of it and what must be done to save it.

The reality of rising unemployment and the prospect of profound changes in government spending and taxation have ignited fierce passion and debate.

It is therefore inevitable that the decision on the Lisbon Treaty be viewed through the prism of its effect on the economy. This is not only inevitable in such time of uncertainty and distress but – despite Stephen Kinsella’s literate assertion to the opposite – it is also correct.

It may be true that a ‘Yes’ or ‘No’ vote has only a marginal effect (See LE5) on jobs and economic growth but in the midst of an economic depression these ‘marginal’ effects make all the difference to the prosperity and security of a small open economy integrated (See LE3) with the world economy.

It is this very integration process which provides a key reason for voting ‘Yes’. When Ireland is integrated into a growing European economy, we do well. Voting ‘Yes’ re-affirms our desire to keep doing this.

We can be sure that a ‘No’ vote will reduce, absolutely and over a period of time, levels of integration with our neighbours. It will plunge political leaders into an eternity of internal negotiation at a time when the only ‘game in town’ should be using European agreements to create next generation jobs.

Two factors will have a decisive effect on our future economic growth. They are confidence and investment.

Firstly, how confident international investors will be in supporting future Irish borrowing. Secondly, the effect on investment in our country by Irish and internationally owned companies.

So how will a Yes or No vote affect either?

Currently, Ireland is looking to borrow at least €150 billion on the international money markets over the next few years. This during a time when nearly every other developed economy will be trying to service very high government deficits of their own. The well will be crowded when we go looking for water.

International investors want to be certain that small economies like ours sustain the support of the community with which they trade; and the EU is, by far, Ireland’s single largest export trading partner.

A ‘Yes’ vote is more rather than less likely to sustain investor confidence.

Why? Well for a start, how can a ‘No’ vote possibly increase this vital confidence? At best, it will stop a forward-moving plan agreed by every European government. At worst, it will cause this plan to unravel.

If this unravelling occurs it is hard to see other European leaders re-affirming their support for our national priorities in the following negotiations. This is a recipe for lower confidence in our country.

A drop in confidence that will cost the tax payer more as we struggle to borrow and are forced to pay higher rates of interest for those borrowings we do manage to secure.

A similar pattern exists regarding investment.

Paul Relis of Microsoft Ireland states “I am convinced we would lose investment to other countries in the European Union if this referendum was to lose”. The Irish born General Manager of Intel, Jim O’Hara, also advocates Lisbon support.

Ireland being at the centre of Europe has helped Irish exports grow from €3.2 billion to €88.6 billion. With a ‘Yes’ vote we retain this position. This can only help. A ‘No’ vote and ‘the centre of Europe’ will shift away from Ireland. This can only hurt.

There are no certainties in this debate, only the evaluation of potential consequences. A ‘Yes’ vote offers certainty on institutions to lead Europe, within which we have a strengthened position. A ‘No’ vote offers uncertainty, as nobody really knows how Europe will respond.

How can this possibly help a country that is, of itself, looking for help?

Tomorrow Conall McDevitt is the first of several essayists to respond Nigel Farage’s call yesterday for Irishmen and women to look to their own national interest and call a halt to the Lisbon experiment…

, , , , ,

  • Itwas SammyMcNally whatdoneit

    “It is therefore inevitable that the decision on the Lisbon Treaty be viewed through the prism of its effect on the economy”

    Quite right. The Plain people of Ireland may have behavedly stupidly in electing the Warriors of Corruption and for believing those trained in the now debunked ‘science’ of Economics when they were told that the price of property only went in one direction. But as they now look at the economic catastrophe unfolding around them any decisions they make will be based purely on the grounds of economic survival – the jibber jabber about constitutional nuances will be put to one side as they tick the box which says Yes correclty belieiving that Ireland must maximise their influence, goodwill, investment and borrowing potential and bargaining position within the EU.

    ps Mick, have you seen Robbo’s cutehoor move in relation to the Police transfer?
    http://news.bbc.co.uk/1/hi/northern_ireland/8257938.stm

  • Mack

    ’twas Sammy –

    I almost wonder if that is official Shinner policy? Their posters went up near me last night. They looked good on politics.ie, but illegible on the lamp posts..

  • Scaramoosh

    Amdist all the talk of Europe; national soverignty; the supremacy of EU law etc, etc; a simple point has been missed.

    Ireland, due to its significant indebtedness has long since bargained away its sovereignty.

    Heavy indebtedness provides significant diplomatic leverage to the donor and accordingly impinges on the exercise of national sovereignty by a nation’s people.

    Joining Europe is no longer about sovereignty; it is about survival.

    Moreover, if the Irish government (as is likely) misprices the debts in Nama, there is a signifciant chance of a revolution – at the very least in political terms, with a swing to the hard left at the next election.

  • Itwas SammyMcNally whatdoneit

    Mack,

    I have told Grizzly often enough that now is not the time to be making enemeies with the continentals so I will be very disappointed if he doesnt toe the line.

  • Dave

    It simply repeats gibberish that Ireland should be “at the heart of Europe” (as if reducing one’s voting rights to 0.8% of the EP by ratifying the treaty is anywhere other than the sub 1% fringe of it) and that a federal state should be created because it is alleged to promote qualitative ‘feelings’ of happiness and ‘all is well with the world’ among a couple of foreign-owned multinationals who are promoting their own interest while bogusly proffering these as some sort of patriotic promotion of the Irish national interest.

    Most of Ireland’s exports are outside of the eurozone, and those that are outside of it have been rendered uncompetitive because of an overpriced currency, leading to Ireland’s exports stagnating after that “integration process” (which this clown thinks is a help rather than a hindrance) and to a point where Ireland’s exports are now less than half the level in real terms than they were before we integrated.

    The rest of the twaddle is such the usual scaremongering about the “consequences” of defying the EU.

    I’d almost be tempted to vote for EU rule just to reduce the say that muppets like this senator have in Irish affairs but the EU – which is responsible for 80% of the laws that govern our state is far worse. The solution is for the people to elect competent politicians to run the state, and not to transfer the remaining functions of the state from one set of muppets to another. At least with this set of muppets, we can hold them accountable at the ballot box whereas we can’t do that with those we do not elect.

  • Itwas SammyMcNally whatdoneit

    Dave,

    a lot of sound stuff there – but only if you were – not starting from here – as the old expression goes.

    Last time out we thought we could afford to choose our friends now we know we cant.

  • Jim McConalogue

    It is claimed by Senator Paschal Donohue, that for short and long term investors, “A ‘Yes’ vote offers certainty on institutions to lead Europe, within which we have a strengthened position”, whereas A ‘No’ vote offers uncertainty, as nobody really knows how Europe will respond.” This is misleading and does not give a clear picture on Lisbon or foreign investment.

    Under Lisbon, the present Article 131 (1) TEC has been amended in order to include foreign direct investment, with Article 206 TFEU referring to the “progressive abolition of restrictions on foreign direct investment.” Presently, foreign direct investment does not directly fall under the EU’s Common Commercial Policy. Ireland and the other Member States have competence over foreign direct investment. Therefore, the EU’s competence over this matter has previously been very limited. Investment agreements with third countries are presently the responsibility of Member States. There is a transfer of competences of foreign direct investment to the EU. The Lisbon treaty brings foreign direct investment directly under the operation of the EU’s Common Commercial Policy. Therefore, it will have serious implications for Ireland’s investment policy instruments. The Lisbon Treaty strengthens the EU’s ability to conclude international investment agreements.

    Yes campaigners have consistently claimed that Ireland will lose inward investment and undermine Ireland’s position in Europe if it rejects Lisbon, but in 2008, the country saw a 14% increase in foreign direct investment (FDI) on the previous year. This is the year it first said No to Lisbon. In July 2009, IDA CEO Barry O’Leary said: “It should be noted that 2008 saw a 14% increase in foreign direct investment (FDI) on the previous year, bringing the total number of FDI investments in 2008 to 130.” It is wrong to suggest that there will be gains in foreign direct investment under Lisbon – especially when the opposite is true.

  • John Ryan

    ‘We must not vote in fear’ says Ganley

    By Declan Ganley

    The funny thing about the re-vote on the Lisbon Treaty is that nobody seems to want to talk about what’s actually in the Treaty we’re being asked to sign – but there is a lot of talk about things that are not in the Treaty at all.
    Every lamppost is littered with the lie that Lisbon will somehow create, or save jobs. It will not. It has nothing to do with jobs, and the only job a “yes” vote will save is Brian Cowen’s.

    There is no article in the Treaty about jobs. In fact, the Wall Street Journal, the bible of corporate America, has said that the Irish would “save civilisation” by voting No.

    Think about that, the next time you hear a politician tell you this is about jobs. Who do American Investors listen to, Dick Roche, or the Wall Street Journal?

    Our politicians want us to believe that Lisbon is connected to the mess they have made of our economy. It suits them. They want to present this debate as a choice between people who are for and against the economy, which is almost funny, given how they have managed it.

    No, the real choice is between fear and hope. We already know that Lisbon will not affect our place in Europe.

    Dick Roche said it himself after the last referendum, but he would rather you forgot that. Charlie McCreevy says so too. So do all our European partners. And we know they are right.

    The only people who have talked about us getting kicked out are our own Government.

    Lisbon is not about being in or out of Europe, and those of our politicians who say otherwise are just hoping that the Irish people have lost the ability to think for themselves.

    No. Lisbon is about the Ireland we want to leave to our children.

    Do we want to look them in the eye and say that we listened to our politicians and handed over 60 areas of sovereignty to Brussels because we were scared by our own Government?

    Do we want to tell them that we voted for a European President to run the whole EU without any idea who it would be or what they would do?

    Do we want to tell them that we told our politicians it was ok to ignore us, berate us, and insult us for making a decision that did not suit them?

    This Treaty has not one single thing that will make life better for you or your family. Not one. It has many things that will make life easier for your politicians.

    It makes it harder for you to influence them. It creates more positions for them to hold in Brussels. It gives them more chances to blame “Europe” every time they do something that is deeply unpopular here at home.

    So before you vote, sit down and think. Whose job does a “yes” vote save? Why do politicians love this Treaty so much?

    Why do they keep saying how much they respect you, but keep asking you to vote twice on everything you say “no” to?

    Why do they talk about what other people say about Lisbon, and never what is actually in Lisbon? What is in Lisbon for you, or your family?

    If you think, I don’t need to answer those questions for you.

    You’ll know already what you should do with your pencil on voting day – say a quiet, but very firm, NO. Because like our parents before us, we aren’t fools.

  • Wilde Rover

    Sammy,

    “the jibber jabber about constitutional nuances will be put to one side as they tick the box which says Yes correclty belieiving that Ireland must maximise their influence, goodwill, investment and borrowing potential and bargaining position within the EU.”

    With respect, the issue here is not why you think NI should remain part of the UK.

    The future of Europe is at stake and the people of the Republic of Ireland are being asked to bear a heavy burden.

    But I suppose, from your unionist perspective, it must all seem just so much “constitutional nuances.”

  • Mick Fealty

    Dave,

    POI:

    Here’s the latest stats on primary trading partners:

    http://www.cso.ie/statistics/botmaintrpartners.htm

    In terms of imports, the UK is still tops. In terms of exports, other areas beat the EU in aggregate, but the EU is the highest single partner by some considerable distance. Oh yes, and try to keep it civil. We’re interested in what you think not what you feel.

    Can I ask people if they are going to cut and paste from other people’s work that they do so to do it selectively in order to make their own relevant point. In this case Mr Ganley will have his own spake in the essay series, but for now can we keep things focused on what Senator Donohue has written?

  • The comment system won’t let me post my reply to Senator Donohoe for word length reasons, so I’ve posted it over at http://www.stephenkinsella.net.

  • Dave

    Mick, you misunderstood the comment:

    “Most of Ireland’s exports are [b]outside of the eurozone[/b], and those that are outside of it have been rendered uncompetitive because of an overpriced currency, leading to Ireland’s exports stagnating after that “integration process” (which this clown thinks is a help rather than a hindrance) and to a point where Ireland’s exports are now less than half the level in real terms than they were before we integrated.”

    I said outside the eurozone, not outside of the EU. Most of Ireland’s external trade is done in a currency that is only of advantage to trade within a zone where a minority of the trade is done. Therefore the majority is placed as severe disadvantage to for the minority.

  • Dave

    Typos: “[i]All[/i] of Ireland’s external trade is done in a currency that is only of advantage to trade within a zone where a minority of the trade is done. Therefore the majority is placed [i]at[/i] severe disadvantage [i]to[/i] the minority.”

  • Dave

    Incidently, here are the CSO statistics to confirm my claim that Ireland’s exports stagnated after we intregrated with the eurozone in 2001 and that they are now half the level in real terms than they were before we intregrated.

    2001 92,689,900
    2002 93,675,200
    2003 82,076,100
    2004 84,409,500
    2005 86,732,300
    2006 86,772,000
    2007 89,226,100
    2008 86,346,100

    In the actual Celtic Tiger perios (1993 to 2001), Ireland exports rose from 25,178,525 in 1993 to 92,689,900 in 2001.

    In regard to the eurozone and the EU: only 16 of the 27 Member States are members of the eurozone, so don’t confuse EU trade with eurozone trade.

  • It is the height of nonsense for Donohoe to link Lisbon to the economy. The only job Lisbon will save is Brian Cowen’s. Since Spain voted yes, unemployment has doubled to 18%. If Lisbon was linked to the recession, then we would expect to see a collapse in industrial output from multinationals and a collapse in exports . That is not what we are seeing. Quite the opposite in fact. Irish exports have risen 5% in the year up to April, compared to a drop of 29% in Germany. In the year up to June, Irish exports also rose 5%. Irish industrial production rose 8.9% in the year to July – rising by a huge 68.3% in the American pharmaceutical sector here. This evidence suggests strongly that the no vote has not impacted negatively on investor sentiment of Ireland. Intel, and Ryanair have their own reasons for supporting Lisbon, relating to Intel’s appeal against the €1.06 billion fine, and Ryanair’s desire to takeover Aer Lingus which the Commission previously blocked. What is dragging the economy down has nothing do with Lisbon, but may partly be laid at the door of the ECB’s monetary policy, which has imposed Franco-German interests on an economy at the perhipery of Europe, which had an overheating economy until 2008. A property-bubble and crash became inevitable as a consequence. If anything, events underline the dangers of too much centralisation of economic sovereignty in supranational institutions, which tend to be dominated by the Big States.

    I resent the uniform refusal of the elites to respect my no vote. Their campaign is completely devoid of references to the text of the Treaty. Their posters lie to the people with references to “Recovery” and “the Economy” being furthered by a yes vote. I have one question: if the EU was the source of the Celtic Tiger, where was it for the first 20 years of EU/EEC membership? I don’t oppose our membership of the EU, but I do resent the way our politicians automatically support EU treaties even when their provisions are against Ireland’s interests. The example that sticks out for me is 2001 where John Bruton, then FG leader and former Taoiseach, called the Nice Treaty “a disaster” and then asked the Irish people to vote for it. There is an unconditionality to the support of the elites for further political integration in Europe that I find unsettling. I also greatly resent the Bush-style “with us or against us” attitude of the elites that implies that support for Europe and support for Lisbon are treated as one and the same. This is an organisation that has not had its accounts signed-off on for 15 years, and yet its defenders insist it has a divine right to our support. I had a row with my father over this treaty last week while on a visit. He was the one who brought up the subject, calling no voters “a disgrace” before proceeding into a rant about how Ireland was in the 1950’s and attributing the eventual prosperity of the Celtic Tiger period entirely to the EU. I countered that this was 20 years after we joined but he was not for turning. We had to agree to disagree. He was already a yes voter from last year. The pro-Lisbon elites justify a second referendum by telling us “the world has changed”. Yes it has. But Lisbon has not. It still contains some of the very same ideology that plunged Ireland and the world into this recession to begin, with. For example, Article 15(1) of the Charter of Fundamental Rights states that ‘everyone has a right to work in a freely chosen occupation’. That will inevitably lead to a challenge in the ECJ to Ireland’s ban on employment for asylum-seekers. The fatcats will no doubt welcome a new source of cheap labour, which is also facilitated by the proposed Article 29.4.7. of the Irish Constitution (Para 7 of the 28th Amendment to the Constitution Bill 2009). Paragraph 7(ii) would allow the Government/Oireachtas to take Ireland into the Schengen Agreement, meaning the abolition of passport checks at immigration in Irish ports/airports. What is especially disturbing about this is that despite the fact we are in a Common Travel Area with the UK, the UK has an optout from the Charter. Consequently, by allowing asylum-seekers to work, we can expect many illegals living in the UK to come to Ireland to compete with the 420,000 Irish unemployed. I blame the politicians and I am not scapegoating the immigrants. But controls of borders goes to the heart of national sovereignty, and the men and women of 1916 would turn in their grave at seeing Ireland reduced to a tiny 0.8% say in our affairs on the Council of Ministers, including in sensitive areas such as Justice and Home Affairs – including policing and immigration policy – as Paragraph 7(iii) of the referendum wording allows the Government to abolish Protocol 21 that gave Ireland an optout from common policies on Justice and Home Affairs. Vote NO.

  • Corporate Sanity

    I’ve had a look at economic forecasts for the E.U. and for Ireland covering the next couple of years done by the The World Bank and the European Commission and while they go into great detail regarding likely variables that might influence their forecasts they never mention the Lisbon Treaty.
    The good news for us I suppose is that the World Bank’s Doing Business Report 2010, published this month, shows Ireland as holding its position at 7th place in the world and 5th place in the OECD in the league table for doing business. The 2008 rejection of Lisbon hasn’t altered our rating at all in the World Bank’s Doing Business indices
    I can’t find a single reference to the Lisbon Treaty at all in any economic forecasts being made for Ireland by any firm of market analysts, investment advisers or risk analysts.