Time for Ireland to play hardball in Europe - Ireland's referendum on the European Fiscal Stability Treaty


United Left Alliance party members called on the Irish public to vote 'No'

The big news here last week was that we are to have a referendum on the European Fiscal Stability Treaty. Which will be about as exciting as watching paint dry. I bet you're really looking forward to the debate, just like me.

Will the Irish people vote yes? Will they vote no? Will it make any difference?

We'll be torturing ourselves with this stuff for the next couple of months. So before it gets too impenetrable and soporific, here's your easy-to-follow guide to what it's all about.

Why does Europe need a new fiscal treaty anyway? Mainly it's to reassure the Germans that the money they are pouring into bailing out bankrupt Eurozone countries like Greece, Ireland, Italy, Portugal and Spain won't vanish down the plughole with nothing to show for it.  It's all about saving the Eurozone and the euro as a currency.

What does the treaty do?  It ties the states in the Eurozone to financial rectitude in the future. Gone will be the days when politicians held on to power by promising voters all kinds of goodies and then borrowing huge amounts to pay for them. Irish politicians wrote the book on this -- they've been at it for years.  Which is why we now have a massive welfare state here that we can't afford and a resulting massive budget deficit that has to be bridged by an EU-IMF bailout because no one else will lend to us.

In future, Eurozone states will have to stick to a structural deficit of 0.5% of GDP -- the structural bit means that the calculation allows for the ups and downs of economic cycles.

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Or to put it simply, Eurozone states will effectively have to run balanced budgets.   If states can't raise the taxes, they don't spend the money.  Which will be a major shock for Irish politicians.

What about overall debt? The treaty will mean that states will have to get their national debt down to the already agreed level of 60% of GDP.  Before Ireland is out of this crisis we'll be around twice that level, so it will be years before we get there.

But we have to commit to working towards the target.  Mind you, unless we want to see vast amounts of our revenue being spent on interest for decades to come, this is what we need to do anyway.
So if the treaty makes sense, why is it so controversial?  That's because it's going to mean severe austerity here while we get our financial house in order.

But aren't we already suffering severe austerity?  You're right there.  It's cutbacks everywhere here at the moment, and that's going to continue for at least another three or four years.
So this treaty won't actually make much difference to us?  Right again.

The EU-IMF bailout program we are in commits us to getting our budget down to 3% by 2015.  Our budget deficit will be close to zero about five or six years from now.   It's the only way we're going to be able to get back into the financial markets so we can borrow for genuinely productive investment instead of day-to-day spending.

In the meantime we are going to have to cut state spending with a series of austerity budgets the like of which have never been experienced here before.

Is there anyway to avoid this?  Sorry, not a chance.  We're caught.

We have to stick with the program to get the bailout money for the next few years until we can balance our budget. Otherwise it would be financial cold turkey instantly, which could cause a total breakdown of society here.

So since we have to go through austerity anyway, should we all vote yes in the referendum?
Well, it's not as simple as that.  There are arguments in both directions.

For a start, there's the possibility (however remote) that the EU/IMF would turn off the bailout tap.  A bigger problem is that only states that sign up to the treaty will have access to the new European Stability Mechanism (the ESM), a massive permanent bailout fund set up to help Eurozone states in trouble; if we need a second bailout (and the ratings agency Moody's on Monday predicted that we will) then not having access to the ESM would be a disaster. All of which points to a yes vote.