Is a Yes vote in #euref absurd?

Taoiseach Enda Kenny has already signed the European fiscal compact treaty along with 24 other European Union leaders at a ceremony in Brussels, although it still has to go to a referendum in the republic (at an as yet unknown date). The text of the treaty is provided here and is relatively short.

A couple of extracts from Article 3 (below) give the real substance of this.


1. The Contracting Parties shall apply the rules set out in this paragraph in addition and without prejudice to their obligations under European Union law

(a) the budgetary position of the general government of a Contracting Party shall be balanced or in surplus;

(b) the rule under point (a) shall be deemed to be respected if the annual structural balance of the general government is at its country-specific medium-term objective, as defined in the revised Stability and Growth Pact, with a lower limit of a structural deficit of 0,5 % of the gross domestic product at market prices. The Contracting Parties shall ensure rapid convergence towards their respective medium-term objective. The time-frame for such convergence will be proposed by the European Commission taking into consideration country-specific sustainability risks. Progress towards, and respect of, the medium-term objective shall be evaluated on the basis of an overall assessment with the structural balance as a reference, including an analysis of expenditure net of discretionary revenue measures, in line with the revised Stability and Growth Pact;

(d) where the ratio of the general government debt to gross domestic product at market prices is significantly below 60 % and where risks in terms of long-term sustainability of public finances are low, the lower limit of the medium-term objective specified under point (b) can reach a structural deficit of at most 1,0 % of the gross domestic product at market prices;

A brief review of the exchequer statements shows that the relative income in 2004 was €37.5bn whilst expenditure was €37.5bn, since then only 2006 ran a surplus (2.3%) whilst other years ran deficits such as 0.5% (2005), 1.6% (2007), 12.7% (2008), 24.6% (2009) , 18.7% (2010), 10% (2011), with a further projected 8.6% deficit for 2012. So much for balanced budget, then (or complying with Article 3a).

As Constantin Gurgdiev has consistently pointed out, the recent history of structural deficits does not suggest a capacity to comply with Article 3b either:

  • Ireland was least insolvent in 1997-200 when the average structural annual deficit was just -0.65% of potential GDP
  • The closest we came to structural balance was in 1997 when structural deficit hit -0.394% and in 2000 when it was at -0.209%
  • Our peaks of insolvency were 1981 (-14.034%) and 2008 (-13.323%)
  • Our worst periods of insolvency were the early 1980s, when 1981-1986 average annual deficit stood at -12.125% and 2007-2010 when structural deficits averaged -10.555% annually (omitting 2007 raises this to -11.266%)
  • In 2011 we are expected to run structural deficit of 6.761% and in 2012-2015 we are expected to run average structural deficits of -3.753%.

What also needs to be factored in here, in terms of the austerity measures required to reach the treaty targets, is that the government must pay out €3.1bn each year until 2023 to cover the Anglo-Irish Bank promissory note. That’s equivalent to around 6% of government revenues, at 2011 levels, or 8% if it managed to fall back to 2004 levels. That’s on top of repaying the loans taken out to cover the deficits currently being run. In these circumstances, there appears to be no real possibility of the state complying with the terms required by the treaty. This makes the promotion of a yes vote seem, well, absurd. What possible reason could there be to promote a treaty which will result in the automatic imposition of penalties on the state?

In the Irish Times, Fintan O’Toole gives one answer, as he delivers a scathing verdict on the ideological underpinning of the treaty:

…the fiscal treaty does not deal in “facts”. It is right-wing opinion given the force of law…

We’re being asked, in other words, to vote for a badly thought-out ideological power grab that seeks to outlaw one side of the argument about fiscal policy. This is as paradoxical as the “war to end wars” – a democratic debate to outlaw democratic debate on one of the defining issues of politics, a vote to limit the meaning of voting.

As ever, read the whole thing!