by Marc Morgan
On May 31st Ireland grounded further its position as the poster child of the EU. In a referendum on whether to ratify the Union’s ‘Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union’, otherwise known as the Fiscal Treaty, the Irish people voted 60% in favour of the new European provisions thereby becoming the first country to ratify them. However, the ‘Irish people’ might well be an overstatement since only half of the electorate went out to vote in the referendum .
In relation to the ratification of this European treaty Ireland was in a unique position, as it is with all European Union treaties, given constitutional requirements for the country to hold a national referendum whenever a new treaty, or amendments to an existing treaty, is proposed by the Union. The other 24 signatories of the fiscal treaty (all EU members except Britain and the Czech Republic) signed it without putting it to a national vote.
The fact that the treaty proposes “permanent” provisions of tight fiscal rules which will affect the national citizens of all signatory countries is, however, a strong reason for electorate participation. What will electorates have left to vote for in national elections if each political party that enters into office is required, by law, to enact measures that honour the fiscal conditions of the Treaty? What notion of democracy are we left with when, after a general election and a change of government, national citizens are confronted with the same policy as that enacted by outgoing government, often more severe? The answer is a very limited view of democracy. This might be taken for granted, given what has been observed in the aftermath of the dozen or so national elections in Europe over the past four years.
The Treaty’s general requirement “to maintain sound and sustainable public finances” is nothing new to what the European Stability and Growth Pact had sought after its adoption in 1997. The major difference is what is understood by “sound and sustainable public finances”. Since the Pact, Eurozone governments were permitted to run budget deficits of up to 3% of GDP. The new Fiscal Treaty (under Article 3.1) obliges states to be in a budgetary position that is in balance or in surplus, while maintaining the benchmark for government debt-to-GDP at the 60% level of the Stability and Growth Pact. Each country ratifying the Treaty is assigned a “country-specific medium term objective” to which each must converge under a time-frame “proposed by the European Commission” and under the structural deficit rule – the deficit that exists when an economy is operating at full capacity – of 0.5% of GDP, where public debt is greater than 60% of GDP, and 1% otherwise. Furthermore the Fiscal Treaty requires that states implement the budgetary rules into national legal systems “through binding, permanent and preferably constitutional provisions”. In so doing the latest treaty is, fiscally, a more severe and legally binding treaty than any of its predecessors.
Politically, the Treaty is not far from promoting authoritarian technocracy. In Article 3.1 it states how any deviation from the medium term objective of individual countries, or adjustment path towards it will result in an immediate “corrective mechanism” which is “triggered automatically”. Article 3.2 requires “the nature, size and time-frame” of this corrective action as well as “the role and independence” of national institutions to be set out by the (unelected) European Commission. Equally striking is the condition outlined in Article 7, which commits all states that ratify the Treaty to fully support “the proposals and recommendations made by the European Commission” for states that breach its country specific deficit-cutting plan. The Commission has, essentially, set itself up as judge and jury in the case. For all other 24 EU states intending on following Ireland in ratifying the Treaty there are serious democratic issues at stake, even more so given the lack of a referendum clause in all of the remaining countries. The large democratic deficit tied to the Treaty’s ratification was itself one valid reason for the Irish to vote ‘No’.
Economically, the new budgetary targets, and medium term objectives in realising those targets, will mean a continued scaling back of government expenditures and possibly an increase in taxation. That malignant word ‘austerity’ certainly looks to be a fixed item on the agenda. The Irish department of finance, in its Economic and Fiscal Outlook for the country (Table 14), is planning to make savings of around €3.2 billion this year, with most of the savings coming in the form of expenditure cuts, which means targeting public services, education, healthcare and social security, thus the most vulnerable in society. The structural deficit is estimated to be 8% by the end of this year. It will fall to 3.7% in 2015 due to expected GDP growth, assuming the current policies lead to that, which is a very big assumption. However, 3.7% is still well above the target of 0.5% that the Treaty specifies. The difference between the two equates to an amount of over €5bn in expenditure cuts and tax increases for the Irish economy. The difference between 8% and 0.5% is obviously much more.
In this deficit-cutting environment it seems highly improbable that the Irish government can commit to its ‘plans’ of investment and growth that it had spoken about for some time, especially after the results of the French Presidential election. The commitment to the Treaty will clearly mean further investment curtailment, as one Irish economist has highlighted. Since the French election results, there has been increasing talks of a growth stimulus ‘add-on’ to the Treaty, talks which are still on-going and increasingly popular. Therefore an Irish vote, prior to any conclusive negotiations about fiscal stimuli added on to a Treaty which implies the opposite, was premature. It is common sense that one does not sign a legally binding contract without fully knowing all the terms and conditions.
But many proponents of the Treaty claimed that ‘austerity’ would have been required whatever the outcome of the referendum, the Irish government having agreed upon the “Six-Pack” provisions on fiscal governance last year. However comparing the “Six-Pack” measures with the Fiscal Treaty conditions, it is clear that there is a considerable difference in magnitude between the two. The former is just a legally binding version of the Stability and Growth Pact which states that government deficits must not exceed 3% of GDP, while the new treaty forbids governments from running deficits at all. For Ireland, the difference between the two deficit conditions is around the €5bn mark, which year on year would be significant. And we know too well what section of society this would impact most. Therefore ‘austerity’ does not equally come both ways. Moreover the choice of these budgetary rules is an arbitrary one. Little debate has been had throughout Europe about what the figures should be. Why not define the deficit limit at 5% of GDP or 6%; levels which could sustain the necessary public investment to get the economy moving again. Just 1% of GDP for a country like Spain is over €10.5bn. This amount can go a long way. Under the present economic climate, the balanced budget and the structural deficit rule are simply too severe. And it can be seen. From Spain to Greece and even Germany, the European people are voting on their feet.
While these fiscal laws may lead to the destruction of the welfare state in Europe, a different supranational state is emerging, one which will only distance policy away from the welfare of ordinary national citizens. In an ECB meeting in Barcelona in May, President Mario Draghi suggested that a fiscal union could be created within 10 years, a proposal equally voiced by German Chancellor Angela Merkel of late. Such a move would evidently mean political and economic centralization. Draghi himself spells it out.
How do we see ourselves in 10 years from now? What has to be in place in 10 years? We want a fiscal union. We have to accept the delegation of fiscal sovereignty from national governments to some form of central [authority].
The greater the area of control, the diminished influence the individual vote has in effecting policy. The Irish electorate may well have voted away the power of their very vote.