Mary Lou McDonald (Dublin Central, Sinn Fein)

There was a time when the term "eurosclerosis" was in vogue, but it seems to have gone out of fashion recently. The pace with which European institutions have responded to the crisis, not just in this State, but across the Union, has been sclerotic. Having been slow to react, the nature of the reaction is not only questionable, but destructive.

I will focus most of my remarks on the pact for the euro that will be presented at the Council meeting. The objectives set out for the pact are to foster competitiveness and employment, to contribute further to the sustainability of public finances and to reinforce financial stability. The great difficulty with the pact is that it runs headlong into its own contradictions. To achieve any of its objectives, we need investment for faster growth, an equal path towards effective competitive rebalancing, urgent measures to get countries in deficit out of the straitjackets in which they find themselves and measures to clean up the banks. As it stands, the pact is a million miles away from any such plan. It fails to set out any kind of roadmap to achieve its stated goals.

Concurrent with the pact, the European Central Bank, ECB, has stepped forward to announce it will raise interest rates. This runs precisely counter to each of the pact's stated aims. Fiscal consolidation will be made more difficult because of higher interest rates and slower nominal GDP growth. The appreciation of the euro will harm external competitiveness. The impact on deficit countries will be more severe than it will be on countries in surplus, such as Germany, thereby worsening the current imbalance. Growth and employment will be lower than would otherwise be the case.

This is no great surprise, given the fundamental flaw at the heart of the EU's austerity strategy. The more countries reduce wages, the greater their inherited debt loads become. As debt burdens become heavier, public spending must be cut further and taxes increased to service governments' debts and the debts of their wards, such as the banks. In turn, this creates a need for additional internal devaluations, further heightening the debt burden and so on. It will be a vicious spiral downwards into economic depression.

The two main policy planks of the pact for the euro, namely, rapid and permanent fiscal consolidation and further wage cuts, can only lead us to conclude that it is not so much a pact for the euro as it is a pact for austerity. This does not bode well for the future of the European economy. The proposed pact aims to enshrine the austerity remedies supposedly prescribed by the financial markets. While fiscal discipline and fiscal balance are positive and desirable in the medium and long term, it is an offence against democracy to elevate them to pre-eminent points of principle. With worry I heard the Taoiseach assert he would give the principle the strongest legal underpinning. Did he mean a constitutional underpinning? Perhaps he will clarify.

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