Will a Yes bring compact under Irish Constitutional law (whatever becomes of the Treaty)?

And so the EU slips back into recession… And Spain owns up it has been economical with the truth

In Ireland (you know, the bit to the south and west of the island), the opposition is adopting the view that all Ireland has to do is play hardball by not signing what’s increasing being branded as the austerity pact…

Well, as Michael Taft demonstrates, you can measure that austerity if you accept the structural deficits estimates are reliable.

Adds This from Martin Wolf today:

Consider the structural fiscal positions for 2007, the last largely pre-crisis year, estimated by the International Monetary Fund in October 2007 – in “real time”, as it were. This was a year when the indicator needed to scream “crisis”. Yet it showed Spain with a large structural surplus and Ireland in structural balance (see chart). Both were even in better shape than Germany. Greece did have a sizeable structural deficit.

But the French deficit was worse than that of Portugal. The rule would not have discriminated between vulnerable countries and immune ones because it ignores asset bubbles and financial manias.

The IMF then had second thoughts. By October 2011, it had concluded that Greece’s structural fiscal deficit in 2007 had been 10.4 per cent of GDP, not 4 per cent, and Ireland’s 8.4 per cent, not 0.1 per cent. This is not a criticism of the IMF. It merely shows that the concept the eurozone wishes to embed in a new treaty will fail when accuracy is most needed. The true structural deficit is unknowable.

What is less predictable is the cost of refusal.

Martin Feldstein points out that the general assumption that this mechanism will work he way it’s intended is already being challenging by the sheer scale of of the problems facing Spain:

The most likely form of the fiscal compact now seems to be a mild agreement requiring each country to “balance its budgets over the business cycle”. Failure to comply would in principle lead to automatic financial penalties, but it is difficult to imagine how such failure could be determined in a country such as Spain. At what future point would Spain, with a persistent unemployment rate of more than 15 per cent, be required to raise taxes and cut social transfers? Ordering Spain to do so might rest with the European Commission, making it a political decision, rather than the “automatic” technical requirement that its proponents promise.

If this is the essence of the fiscal compact that is eventually agreed on, it will have no predictable effect on euro-zone countries’ behaviour. Its only effect will be to allow the euro-zone’s political leaders to claim that they have created a fiscal union and moved Europe closer to the political union that is their ultimate goal.

This ably demonstrates one of the abiding problems of letting the Crotty judgement dictate important foreign policy decisions. And it may explain why the cabinet is toying with two different time scales for the referendum.

There is a distinct possibility that if Ireland puts the measure into its constitution by referendum and the compact collapses, it will have passed a judicially enforceable fiscal brake even if that wider treaty collapses or becomes unenforceable.

The problem is that in such dynamic circumstances, the precise consequences (ie costs) of voting No are a great deal less easy to quantify… Welcome to the Casino…

Thanks Raymond…

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  • Alias

    Hardly, since they can make it as conditional as the 19th Amendment, e.g. “If such a declaration is not made within twelve months of this section being added to this Constitution or such longer period as may be provided for by law, this section shall cease to have effect and shall be omitted from every official text of this Constitution published thereafter.”

  • Mick Fealty

    Thanks…

  • Modicum

    Alias is correct that the Republic could use a clever drafting mechanism, as was done with the changes to Articles 2 and 3 under the Belfast Agreement, so that the constitutional mechanism isn’t triggered until the new treaty is ratified by everyone else. But I don’t think that will be necessary.

    As I understand it the original proposal was that the new “debt brake” would be added to the national constitution of every member state, but now they are giving participants the option of just enshrining it in ordinary law. The relevant provision of the treaty seems to be this one:

    “The rules… shall take effect in the national law of the Contracting Parties at the latest one year after the entry into force of this Treaty through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.”

    This comes as a relief if you believe that a constitutional debt brake is a terrible idea. I think the experience in the American states (which, strangely, has been totally ignored so far in this debate) shows that the straightjacked of a “balanced budget amendment” is bad policy.

    One model the Republic could follow would be something like the British legislation on climate change and child poverty, which sets out political targets and aspirations but is basically unenforceable against future parliaments. If they wanted something a bit stronger they could follow the model of the British and Irish human rights acts, perhaps empowering the Supeme Court to make a non-binding declaration if the government breaks the budgetary rules.

    I think all that the actual constitutional amendment will need to say is: “The State may ratify the Fiscal Stability Treaty”.

    That is the formula that has been used for some previous EU treaties, and the advantage of this wording is it doesn’t actually oblige the government to do anything. Even if the referendum passes they could later change their mind and not ratify the treaty at all.

  • Modicum

    (Why hasn’t my comment been published?)