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The Vampire Treaty and the Irish Referendum
by Andy Storey
9 March 2012

The Irish referendum on the new fiscal treaty is not about Ireland’s membership in the eurozone. Rather, it is a vote for or against permanent austerity in Ireland.

After the release of the new Fiscal Treaty, Angela Merkel said “The debt brakes will be binding forever. Never will you be able to change them through a parliamentary majority”. She has elsewhere spoken of the new fiscal rules as having “eternal validity”. This language calls to mind the creation of a vampire, which is an apt metaphor because the Treaty is a would-be immortal creature that aims to suck the lifeblood out of European societies in perpetuity.

Article 3(1) of the Treaty – which says that the ‘structural deficit’ has to be cut to 0.5% of GDP in every country – exemplifies this striving for immortality in its reference to “provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes”. The wording here, as we know courtesy of the German government, was deliberately designed to try and avoid a referendum in Ireland. But that attempt has failed and the people will get their chance to have their say.

They will do so because the Irish constitution is very clear that no organ of the state (including the Oireachtas/parliament) can circumscribe or restrict the powers conferred upon it by the Constitution. As Trinity College Professor of Law Gerry Whyte has argued: “Legislative provisions do not have a ‘permanent character’ inasmuch as it is always open to the Oireachtas to amend legislation and, in my opinion, it is not constitutionally open to the Oireachtas to put any Act beyond amendment”, as the Treaty’s fiscal rules seek to do.

There is an irony here. When Ireland ratified the Maastricht Treaty it introduced a provision that treaties of the European Union could constrain national economic policy, but this provision could not be invoked to legitimise the Fiscal Treaty because it is not a treaty of the EU – it has been agreed to by the governments of only 25 of the 27 member states (with Britain and the Czech republic standing outside it). David Cameron’s grandstanding defence of the City of London financial sector has ended up serving the cause of democracy in Ireland.

The ‘yes’ side will fight this referendum campaign by scaremongering. Already the Minister for Finance has claimed this will be a referendum on Irish membership of the Eurozone. This of course is a lie. What is not a lie is that adoption of the Treaty would deepen and lengthen austerity. Consider the current situation where Ireland is trying to reduce its budget deficit to 3% of GDP by 2015 (itself an arbitrary target). Now, as economist Tom McDonnell has pointed out, an optimistic forecast is that the ‘structural deficit’ (a concept that is notoriously difficult to measure) might be 3.7% of GDP in 2015 – that then has to be cut back to 0.5%. This is like hillwalking – a long, arduous trek to what we think is the summit only reveals another, even higher peak to be scaled. In 2015, we would face into having to cut another 3.2% of GDP out of an already shrunken economy.

Some on the ‘yes’ side may say that this is indeed unfortunate but that there is no alternative because if we do not sign the Treaty then we will not be eligible for emergency assistance from the European Stability Mechanism (ESM) should we need a second so-called ‘bail out’. And that is indeed true – that particular gun is being held to our heads and has even prompted some commentators who are highly critical of the Treaty to urge a ‘yes’ vote. The ‘no’ side has to honestly address this issue, which can best be done by showing how and why we will not need ESM financing. Increased progressive taxation is one obvious answer. Another is to suspend repayments of the debts arising from two now defunct financial institutions – Anglo Irish Bank and Irish Nationwide Building Society – whose private creditors have been guaranteed and bailed out by the Irish state. On 31st March the Irish government proposes to make a payment instalment of €3.1 billion on this debt, and to continue to make such payments until 2031. The total bill when borrowing charges are factored in may amount to €85 billion. Suspending the payment of this illegitimate debt and entering into negotiations to write it down, as a new campaign group in Ireland is calling for, would not only free up resources in its own right, it would greatly boost Ireland’s creditworthiness and render access (or the lack of it) to the ESM wholly moot.

So the campaign is about dropping both the Treaty and odious debt. And that is a good thing because it makes it a campaign for economic justice, broadly defined. It is also of course a campaign for democracy. And it is one we have to win – let us drive a stake through the heart of this vampire.

Andy Storey is a lecturer in political economy at the University College Dublin.

Source : Transnational Institute

Andy Storey