Austerity versus Stability Treaty: A volatile mix of politics and economics?

These days, the Republic seems to have more Referenda than Northern Ireland used to have fresh elections to new Parliaments/Assemblies/Conventions. For country in which policy plays so minor a role in public elections, this is generally where the established parties struggle to explain their own foreign policy decisions to a sceptical public…

For now, according to the Irish Times poll the Aye’s have it, if you discount the highest number in the count (i.e. Don’t Knows) by 58 per cent to 42 per cent (not far off January’s Red C’s 60-40 finding, but with a major rise in don’t knows) but, as Stephen Collins also notes, “the outcome hinges on the attitude of the currently undecided voters.”

If alarm bells are not ringing at ten decibels at the Yes Campaign Headquarters right now, then they surely should be. If tempted to take comfort from the fact that Don’t Know numbers have apparently been swelled by defectors from the No camp, the lesson of past referenda is that it tends to be easier to default to No when push finally comes to shove.

And with such a fat sliver of doubt to be squeezed out of the known unknowns and the unknown unknowns, a Yes lead of 58 to 42 is very flippable indeed for the Noes.

So what’s it all about? If we are to pay heed to the various campaigns, it’s the austerity versus the stability pact poll. But in absence of any leadership from the centre of the Eurozone it could very well mean both. Ireland’s base political problem here is that it has no guaranteed agency (beyond vestigial ‘soft power’ tactics) over the kinds of decisions that would see itself begin to struggle free from the current crisis; whichever way it votes.

It’s interesting to note that in front of the Oireachtas Committee on European Affairs, the Economists were generally against the terms of the Treaty, and even those who were for thought it was at best a half baked measure. For instance:

Megan Greene, senior economist at economic research company Roubini Global Economics, said the treaty was Germany insisting all other countries look more like Germany. “It is completely misguided, but I still think Ireland should support it.”

She said rejecting the treaty would put important relationships with EU countries in jeopardy. Ireland would “absolutely need a second bailout” and she did not believe that if Ireland rejected the treaty the IMF would “break ranks” with the troika and provide funding.

As noted the other day, there are some nasty constitutional locks in other more influential players that are acting as a brake on any comfortable ride out of this Euro crisis for any of the peripheral countries. Chris Caldwell again:

In the early days of the Greek crisis certain measures were passed by regulatory authority. But the court ruled last autumn that only the federal parliament, the Bundestag, has the constitutional authority to send Germany’s money to Greece, not the chancellor or her ministers, or any hand-picked Bundestag “special committee” either. The court wanted to ensure that the economic benefits of the euro, such as they were, cannot be turned into costs for its democracy.

Merkel’s German Foreign (and foreign fiscal) policy is, if anything, even more constitutionally hamstrung than Ireland’s. As Sean O’Riain points out, the Fiscal Compact sells fiscal rectitude (which Germany itself pragmatically departed from for the political purpose of re-uniting itself), without the social investment model to back it up:

Her speeches echo in arguments that the treaty will be a “gateway”, a platform from which policymakers can undertake future efforts to rebuild the European economy. She calls, therefore, for a second kind of Yes vote – a vote for the treaty as the foundation stone for rebuilding Europe.

Indeed, Merkel can make a strong case that fiscal discipline has been a central plank of the European model in the past. However, in these continental and Nordic economies, fiscal discipline was only one part of a broader social and economic compact. A crucial element in the success of those economies was high rates of investment in technology, research and other productive assets.

This was combined with workplaces that emphasised worker participation, ingenuity and empowerment. Together these are the fundamentals of German exporting success.

Furthermore, all this was held together by the best systems of social protection in Europe. In the European model at its most successful, fiscal discipline was part of a mutually reinforcing package of measures that locked together fiscal, economic and social compacts.

Greece may fall out of the Euro because of the sheer impossible weight of the demands being pressed upon them right now. Whilst it is true that Ireland cannot be kicked out of the Eurozone, the decision to cut slack (or not) for any individual country will remain essentially a political one.

Despite Minister Noonan’s professed confidence that 20 page document will be enough to swing the day, it may the political case (or lack of it) that will either win or lose the argument on the day.