Where would a No vote for the ‘Fiscal Compact’ leave Ireland?

Apparently, according to economist Jim Power in today’s Irish Examiner, in a very odd place indeed:

It is intended that 12 out of the 17 eurozone member states would be sufficient to ratify the treaty. It appears this will be achieved easily enough. Consequently, unlike the case with the Lisbon Treaty, if Ireland were to reject it in a referendum, that would not be sufficient to prevent it from becoming enshrined in EU law. The big question then is where that would leave Ireland?

Presumably we could remain part of the euro area but would not have access to funding mechanisms and the like. Longer term, we couldn’t remain part of the euro if we do not sign up to the rules governing it.

Unlike in previous referenda, the European political system would not lose too much sleep if Ireland were to hold a referendum on this issue and reject it. Ireland would be placed in a type of limbo situation.

Those who are pressing for a referendum, even it is not legally required, should ask themselves what they would do if such a referendum were to be rejected.

It would ultimately place a serious question mark over Ireland’s continued participation in the single currency. If that is the choice of the people, fine, but they should be made aware of the possible consequences.

Quite so. His point is bolstered somewhat by another of today’s op eds, this time in the Irish Times by lawyer Gavin Barrett (of whom more later):

The treaty’s core consists of debt and deficit rules. However, its preamble provides that the treaty is not to be interpreted in any way as altering the economic policy conditions under which financial assistance is granted to a state (like Ireland) in a stabilisation programme.

Thus the treaty’s deficit and debt requirements simply don’t apply here for the duration of the present bailout (or any second one). Moreover the exemption under existing EU law from the application of debt-reduction provisions for three years after any such programme ends will evidently also continue.

Only after this transitional period will the fiscal treaty’s debt-reduction requirements apply: article four requires an annual reduction of one-20th of the excess of national debt-to-GDP ratios exceeding 60 per cent. However, precisely the same obligation already applies under EU “six-pack” regulations – adopted by EU leaders with little protest last November. The treaty’s debt rules thus involve nothing new.

He continues:

We have just seen that after Ireland’s stabilisation programme exit, existing EU “six-pack” debt rules will require an annual reduction of one-20th of the excess in Ireland’s debt-to-GDP ratio. In other words, Ireland will be required to run structural surpluses rather than deficits for many years. The treaty’s ban on structural deficits of over 0.5 per cent will thus involve no extra burden, because under existing law, we will not legally be entitled to run deficits anyway.[Emphasis added]

It’s been taken as read by some parts of the Dublin establishment that there must be a referendum, and that the AG has no choice in the matter. Ireland has never had monetary sovereignty in any real degree. The crunch point is whether this treaty actually interferes with fiscal sovereignty (an important matter for countries much larger than Ireland).

Barrett believes that the nature of the preamble puts an important break on any sanctions that might be applied, is the deal maker on this matter, which he claims:

…provides that the treaty is not to be interpreted in any way as altering the economic policy conditions under which financial assistance is granted to a state (like Ireland) in a stabilisation programme.

So it’s another promise to be good, not an enforceable treaty. Whether or not that applies the necessary oil to get Irish wheels under it, the country, short of seceding from the Euro, is going to be stuck with the conditions it sets and if not willingly opted-in, may, as Power notes, eventually find the heat is too much to bear.

Which I suspect is part of Frau Bundeskanzlerin’s cunning plan to weed out the fit from the unfit and sustain the Euro as a credible currency on the world markets.

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