Ireland Calling by John Spain
Ireland's Fiscal Treaty: No is tempting, but we’ll vote yes
Posted on Wednesday, May 30, 2012 at 09:47 AM
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|Sinn Fein leader Gerry Adams speaks at a media event on Tuesday to urge a no vote.|
It's tempting, very tempting. A big fat no vote in Ireland would feel so good.
We could watch the shock waves spreading across Europe. It would be so satisfying to get our own back on the European Central Bank and the political elite in the EU who forced us into the rotten bailout that is now robbing us blind, month after month, year after year.
With nothing to look forward to in the coming years except more cutbacks and higher taxes, a huge drain on our economy which will be used by the state every year to repay billions of our bailout debt, the temptation to vote no in the EU Fiscal Treaty referendum here this Thursday will be very strong.
It would be the wrong decision, however, because we still need the backing of Europe despite the way we have been treated.
But the temptation to vote no will be over-powering for a lot of people. No one likes being made a patsy.
As a country, we don't like being taken for a nation of fools.
So a lot of people in this referendum are going to vote no to make that point, and damn the consequences. They will do so even though this referendum has nothing to do with our bailout.
The referendum is on the fiscal treaty between 25 of the 27 EU states (Britain and the Czechs stayed out), all of whom were able to ratify it by a vote in their parliaments -- all except Ireland where our Constitution requires us to have a national vote.
The treaty is an agreement on fiscal rules to prevent EU countries from over-borrowing in the future, avoiding a repeat of the current debt crisis across Europe that now threatens to collapse the euro.
Under this new treaty, EU states will have to keep their budget deficits below 3% of gross domestic product (GDP) in the future. This annual deficit target implies a “structural deficit” which will not exceed 0.5% of GDP annually (the “structural deficit” excludes the effects of cyclical or unusual ups and downs in the economy). The states also have agreed that in future they will not let their total state debt exceed 60% of GDP.
All of which adds up to pretty tight fiscal discipline, which if it had been followed over the past decade might have prevented the current debt crisis in a number of EU countries, including Greece, Spain and Ireland.
So there are strong reasons for us to vote yes, because the treaty will mean that future Irish governments will be unable to spend recklessly and drown us in debt the way our recent Fianna Fail led governments did. That is one good reason for voting yes.
Another is our continued need for funds in the next few years as we battle to get our state spending and revenue back into some kind of balance again. Together, they explain why the polls are predicting a substantial yes victory here on Thursday.
Fear is a factor as well which will drive up the yes vote. The introduction to the new treaty explicitly states that countries which do not sign up will not have access to the European Stability Mechanism (ESM), the new trillion euro EU fund which will be used in the future to help EU countries in trouble. Because we are still a few years away from balancing our finances here, it is vital for us to be able to access this cheap money.
Without it, we could face Greek levels of cutbacks and chaos over the next few years. State services like schools and hospitals would be badly hit, and pensions and welfare payments would be slashed.
Like it or not, we need to vote yes to be certain of EU funding in the next few years. The hard fact is that no one else will lend to us now, and we will need to borrow a lot more to keep going after our present bailout money runs out.
On top of that, a no vote would send out all the wrong signals to international investors here because it would indicate that we were cutting ourselves loose from Europe and might even have to leave the euro.
The no campaigners in this referendum -- Sinn Fein and a few loony independents -- have tried to bluff their way through this reality. They've suggested we can get more money from the IMF or other sources.
But we can't borrow from the markets, and the IMF is very unlikely to help us further. The impatient comments about Greece made last week by IMF head Christine Lagarde (they should pay their taxes ... I'd rather give the money to Africa) may be followed by something similar on Ireland if we get out of line by voting no.
Yet in spite of all this, people here are so disenchanted with the EU that a no majority is still possible, if unlikely.
The known unknown is the number of people who are so angry and so disillusioned that they won't vote at all. They are likely to be people who usually are EU yes voters, and if there are enough of them it could swing it.
The temptation to kick back or not to bother voting at all is huge. And that is understandable.
Even sensible, reasonable people I know are saying they just cannot bring themselves to vote yes because of what Ireland is being put through.
We all know the last Irish government was grossly irresponsible. But the boom was only possible here because the European Central Bank kept interest rates at very low levels because that suited Germany.
German and French banks loaned billions to the Irish banks to fuel the boom in Ireland because they wanted a share of the action. When the property bubble burst here and our banks were collapsing, our government stepped in at the end of 2008 with a state guarantee for all bank debt.
Although we did not realize the scale of it at the time, the effect of this was to transfer €70 billion in private debt from the Irish banks to the Irish taxpayer. This means that the German and French banks are being paid back in full, even though property prices here have collapsed.
The present Fianna Fail leader Micheal Martin (who was a member of the government that took the disastrous decision to give the state guarantee) recently admitted that it was as much about saving the euro as saving the Irish economy.
The European Central Bank (ECB) and the EU put serious pressure on Ireland to stop senior bondholders being burned. We were told that burning bondholders, writing down debt or letting banks fail would send a shockwave across Europe that would have derailed banks in other weak countries.
So we saved the bankrupt Irish banks by taking out their bad property loans and recapitalizing them, thereby enabling them to pay off all senior bondholders and German and French banks in full. We borrowed billions to do it, and the unfortunate Irish taxpayer is left to carry the enormous cost.
Paying the cost is now bleeding the country dry, and it's going to continue for years.
It's true that the biggest part of our problem here was the collapse of our tax revenue. Unwilling to cut state spending to match falling revenue, we ran huge budget deficits and built up huge state debt in a few years.
But that could have been tackled by determined budget cutting. We might just have survived without a bailout.
What really sank us was the extra 40% of our debt mountain which is directly attributable to saving our banks, the €70 billion in bank debt we were forced to take on.
That pushed us under, and the markets decided that we were in too deep to ever pay it all back and stopped lending to us. Which left us going with the begging bowl to the ECB and the IMF and taking the bailout, a condition of which was that there would be no burning of senior bondholders.
Of course we now know that the unfair solution that was imposed on us did not stop the crisis emerging in Europe. Making the Irish taxpayer carry the can for all our bank debts turned out to be futile.
Europe has been in crisis almost non-stop since 2008 when we gave the state guarantee to our banks.
Greece is a disaster, Spain had a property boom and bust just like ours and its banks are now teetering on the brink.
Portugal is almost as a bad as Spain. Italy is not much better. It's all a gigantic mess.
Because of the scale of it, different solutions are now being put forward. It seems that it's now okay for some countries to write down debt or let some banks go bust or burn senior bondholders (even Denmark did it recently).
It's also clear that the ECB is now accepting that it failed to police banks in the EU and is partly culpable for the mess. It recently made a trillion euro available at very low rates to banks in Europe to prop them up.
But all of this has come too late for Ireland. We are still nailed to the cross by the high interest bailout deal we accepted.
That is why, even though this referendum has nothing to do with the bailout, so many people here will want to vote no this Thursday. Even those who vote yes will be doing so with a heavy heart and a bitter taste in the mouth.