Paschal Mooney (Fianna Fail)

I am grateful for a working paper provided by Peadar Ó Broin for the Institute of International and European Affairs for much of my contribution because, to a layman, he encapsulates a great deal of the compact's complexities and breaks it down into highly manageable language. Interestingly, he begins by stating, "It is essentially a political vehicle designed to satisfy German politicians who are becoming increasingly unsettled with the burden Germany is carrying in terms of providing liquidity to euro area states that have required emergency funding." However, the good news is that the fiscal compact only creates one extra obligation whereby states will be required in ratifying its provisions to create national debt brakes. Mr. O Broin observes that the fact that such brakes can be suspended during periods of economic calamity means that immediate implementation of debt reduction rules under the fiscal treaty can be waived "for the foreseeable future". As Ireland is a programme country, it would not come under these resolutions once the referendum was passed.

Mr. O Broin also states another important aspect of this matter is that if all euro area states sign up to the treaty, there may be room for core states - Germany, France, Finland and the Netherlands - to consider implementing ad hoc agreements that might include the European Central Bank stepping up its purchases of sovereign debt, the part-mutualisation of sovereign debt in the euro area and an increase in the effective lending capacity of the EFSF and the ESM. He notes that "Whether this proves to be the case depends on ratification of the fiscal treaty, due to take place in 2012."

Another interesting aspect of this complex matter is, as Mr. O Broin states:

Despite running to roughly ten pages of text [Senator Trevor Ó Clochartaigh quoted liberally from it], the vast majority of the content of the fiscal treaty reproduces provisions that already exist in either the EU Treaties or secondary legislation. In fact, if condensed, the treaty's 'innovations' [such as they are] could probably fit onto two pages.

Those on the "No" side have been making a big deal of the fact that we are going to suffer a further erosion of our sovereignty and enter a period of semi-permanent austerity. Mr. O Broin makes the point:

The treaty is also notable for its promotion of [what is called] the open method of coordination ... The open method of coordination ensures that Member States remain fully sovereign over their own budgetary processes, but are obliged under the fiscal treaty to share information and, if necessary, accept proposed alterations to national debt reduction plans from other Member States or the Commission.

This is the position in which Ireland, as a programme country, occupies. Mr. O Broin continues:

There are essentially four key elements of note in the fiscal treaty: the establishment of a 'Golden Rule' to ensure budgetary discipline; the policing of the Golden Rule at national level through so-called 'debt brakes'; the policing of national budgetary control at supranational level through a stricter excessive deficit procedure, including legal penalties and control by the European Court of Justice; and new institutional architecture for euro area governance.

He also states, "The debt brake is the only real innovation in the fiscal treaty." We voted for something similar in this country.

Senator Trevor Ó Clochartaigh referred to the defaults by several states which happened as a result of the Maastricht treaty, under which what was to be a 3% deficit was instituted. Ireland was one of the few countries which adhered to the rules with regard to its deficit. During the period when Germany and France were not adhering to the budget disciplines required, Ireland was running a surplus. In 2006 the then Minister for Finance, Brian Cowen, had a surplus of over €3 billion, some €2 billion of which he used to reduce the national debt. He invested the other €1 billion in the capital programme. It is interesting that in April 2007 the International Monetary Fund observed that the risks to the global economy were "extremely low".

The other aspect of the treaty is that, ostensibly, it represents a strategy on the part of the core member states - those which are providing the money - to ensure the loans made to countries on the periphery. In practice, this means that Greece, Ireland and Portugal and probably Cyprus, Italy and Spain will be required to ratify the treaty if they wish to continue receiving emergency loan disbursements from the euro area's monetary fund. Mr. O Broin states Britain's open opposition to the proposal contained in the treaty perhaps stemmed from the referendum lock contained in the European Union Act 2011 which requires the British Government to hold a referendum on any change to the EU treaties' transfer powers from member states to European institutions. He then observes that the Prime Minister, Mr. David Cameron, would not have relished holding such a referendum.

On a number of previous occasions I have referred to a particular book, This Time is Different, the title of which refers to the recurring belief we are now too smart to have crises. The book traces the various financial crises since the 12th century and its authors show that serial default on external debt has been the norm throughout the world since the birth of capitalism. However, they also indicate that after crises of this nature, house prices fall by an average of 35% for approximately six years, unemployment rises by approximately 7% for five years and GDP falls by 9% for two years. They further show that it takes four and a half years for output to reach pre-crisis levels and that average government debt rises by 86% after three years. The last of their observations to which I will refer is the fact that the biggest driver of increases in debt is the inevitable collapse of tax revenues which governments suffer in the wake of deep and prolonged output contractions. This is exactly what happened to Ireland. Voting for the treaty will, at least, ensure we will have some hope of freeing ourselves from the clutches of austerity rather than, as has been suggested by those on the "No" side, falling into a state of semi-permanent austerity.