Thursday, 24 May 2012

NERI Information note on the Fiscal Compact

Tom Healy: The note presents some important facts and insights - not all of which have got an airing in the public debate to date. The document may be downloaded here.


Paul Hunt said...

This effort, though of some use, is, I'm afraid, totally disingenuous. Any veneer of 'independence' of the assessment advanced is totally undermined by the nature of the funding of this institute. And this seeps through the underlying cracks, backs the trades union movement is divided and compromised.

A more forthright, if misguided and deluded, case is advanced here:

The reality, which so many refuse to confront, is that, for most of Official ireland and for most of trades union movement the remaining bubble era gains could be put at serious risk of being wiped out in the event of a popular rejection of the fiscal compact. The majority view (and this goes for the Labour Party as well) is "Every particle in our beings demands that we should vote 'no', but we're afraid, very afraid, of the implications of a 'no' majority".

So a lot of dancing on the head of pin needs to be performed.

There are numerous examples of these fancy dance moves (John Travolta eat your heart out), but a couple are particularly egregious.

"While ‘fiscal indiscipline’ was a problem and source of instability in some European countries (of which Ireland was not one)..."

This line is frequently trotted out, that Ireland was probably the most compliant of all with the old Stability & Growth Pact (unlike Germany and France). But is is nonsense. The composition of public spending and taxation is as important as their levels. Indiscipline is a mild word to describe Ireland's fiscal governance during the bubble era. The Fiscal Compact focuses on stockes and flows, but national governments will retain total discretion on the composition.

Another example is the noise made about the inter-governmental nature of this treaty, but a key question that is never asked is why have 24 other member-states (8 of them not in the Euro) - all well aware of the flaws in the design of the Euro project - signed up for this are taking steps to ratify it. Are they all mad? I don't think so. But what I am reasonably confident about is that they are all resolved to take this first step on a long, slow process to repair and reform the institutions and procedures of the EU and the Euro project. Many might prefer to start with a different step; many want to see this effort advanced and supplemented with counter-acting, growth enhancing measures. But they are all resolved to move forward.

The simple choice facing the irish people is do they or do they not want to join in this long drawn-out and difficult process.

Seamus Coffey said...

This is a good summary. I would take issue with two points.

1. The structural deficit version of the balanced-budget rule is not new. It was introduced in June 2005. See Council Regulation 1055/2005.

2. The ECJ is granted no authority to judge on performance relative to the balanced-budget or debt brake rule. All the ECJ can adjudicate on, whether the matter if brought by the Commission or another Country, is whether a Country has adequately provided for the two rules in national law. That is the only authority the ECJ has.

I would also doubt the neutrality of this statement on page 11 (emphasis mine:

"Article 16 states that the content of the austerity treaty will be incorporated into EU treaty law within five years of coming into force."

And this isn't actually what article 16 says. The Contracting Parties have the "aim" of getting the TSCG incorporated into the EU Treaties but that is not guaranteed to happen.

Paul Hunt said...

@Seamus Coffey,

Well spotted - and there's more where that came from, but it would take more than 4096 characters to do it justice. It doesn't take much for the mask to slip. The amount of teeth-grinding involved in writing this allegedly 'neutral' assessment must have been wondrous to behold - when every fibre in the beings of the writers was shouting 'no'.

It is a measure of the extent o which the so-called 'progressive-left' is conflicted and compromised. Those in secure, pensionable public sector or semi-state jobs (or, in extremis, with voluntary redundancy and corrsponding pension arrangements) feel compelled to vote yes because they fear a no vote could lead to the axe falling on them. (There are, of course, a number of renegades among them who also fear a no vote, but are prepared to advocate a no vote, safe in the knowledge that the yes side will prevail - and they'll be able to flaunt their ideological purity.)

The unemployed and all those receiving social welfare benefits should also fear a no vote, but many are justifiably angry and SF and the 'hard left' are mercilessly exploiting their discontent.

It would be far better to admit this conflict, but that seems impossible. And Official Ireland is being equally if not more disingenuous.

It is 40 years ago this month since Ireland voted 5 to 1 to join the then 'common market'. Since then it's been almost totally one-way traffic with the net benefits flowing to Ireland. It is indeed sad and unfortunate that the EU did not have institutions and procedures to deal with the outome of the greed and stupidity that created the fiscal, banking and property debacle, but such arrangements would require the agreement of all members and a significant reduction in national sovereignty. Would the hubristic Celtic Tiger have agreed to that? Not a chance.

I'll probably wait in vain to hear somebody in this campaign 'speak for Europe'.

Tom Healy said...

ECJ issue
Thank you for taking the time to both read this and comment. What the Information Note says about the ECJ is: 'In the future, governments in Europe will be compelled to implement tighter fiscal adjustment. It is possible that this could entail even larger negative fiscal retrenchment than is now the case depending on what estimates of the structural deficit are agreed or imposed and depending on whether or not member states exercise their right to take other member states to the European Court of Justice.' Article 8(1) of the draft Treaty states: 'Where a Contracting Party considers, independently of the Commission's report, that another Contracting Party has failed to comply with Article 3(2), it may also bring the matter to the Court of Justice.' The key issue here is compliance wiht Article 3(2). I will quote the latter in full: 'The rules set out in paragraph 1 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. The Contracting Parties shall put in place at national level the correction mechanism referred to in paragraph 1(e) on the basis of common principles to be proposed by the European Commission, concerning in particular the nature, size and time-frame of the corrective action to be undertaken, also in the case of exceptional circumstances, and the role and independence of the institutions responsible at national level for monitoring compliance with the rules set out in paragraph 1. Such correction mechanism shall fully respect the prerogatives of national Parliaments.' Paragraph 1(e) reads:
'(e) in the event of significant observed deviations from the medium-term objective or the adjustment path towards it, a correction mechanism shall be triggered automatically. The mechanism shall include the obligation of the Contracting Party concerned to implement measures to correct the deviations over a defined period of time. '
I have noted different interpretations of how far these provisions can go. At the very least countries can be sanctioned for non-implementation of the fiscal rules in national law. The Referendum Commission, here, has stated that: 'If a country which has ratified this Treaty fails to put the structural deficit rules fully into national law, the issue may be referred to the Court of Justice of the EU. If a country fails to abide by the Court’s binding ruling, the Court may then impose fines of up to 0.1% of the country’s GDP.' Depending on how the above provisions are interpreted it may go further than this. Time will tell.

Tom Healy said...

@Séamus The structural deficit rule is tightended (from 1.0 to 0.5% target) and it is proposed to have the force of national primary law. The legal stakes and moral suasion factor are higher than hitherto.
Regarding reference to 'austerity treaty' - in theory it is possible show that a counter-cyclical approach is not incompatible with a compliance outcome (in terms of debt brake and structural deficit). in the real world this is doubtful and the IMf projections to 2017 allow for some growth and limited reduction in the structural deficit estimate (still over 2% by 2017).

Paul Hunt said...

@Seamus Coffey,

Congratulations. You are obviously a 'person of standing' (using the David Begg definition) - and therefore worthy of receiving a response. But one can only be incredulous at the conclusion to the first comment responding to your observations:
"Depending on how the above provisions are interpreted it may go further than this. Time will tell."

It is amazing, in what is considered to be a representative democracy, that ordinary citizens have to form a view on how these provisions might be interpreted in the future. They have elected reasonably well-paid, full-time representatives to do this job (mong many others) - and crucially have the ability to vote them out of they don't like the job they are doing. So far as can be observed, the vast majority of those elected just over a year ago are advocating popular ratification of this fiscal compact.

Obviously that doesn't make it right - or the right thing to do, but that's how a representative democracy is supposed to operate. Voters elect their representatives and delegate their ultimate authority to them for a period of time. If they are satisfied with the job they've done, they re-elect them. If not, they vote them out and elect others more to their liking.

This fiscal compact is being subjected to economic scrutiny that it neither deserves nor can bear - and disingenuously so by NERI and others of its ilk. This is a political and democratic commitment to agree to behave within the Euro project - something that should have been enforced from the beginning.

One effect, which is rarely noted, is that it would make it extremely unlikely that sovereigns would ever again be forced to absorb bank losses. An EU-wide bank resolution procedure is a logical follow-on from this - and would be difficult to contemplate in the absence of something like this fiscal compact.