Why I am voting Yes to this Stability Treaty

An underwhelming response to the Euro Crisis but I’m voting YES

 

Treaty on stability, coordination and governance in the economic and monetary union.

For any referendum, it is reasonable to read the text to inform any decision. I read the text. It is 10 pages.

I will summarise what I consider the salient points.

There is a three page introduction.

Intentions – 1. Promote conditions for stronger economic growth

2. safeguard the stability of the €

3. Avoid government debt by special vehicles to hide the real figures

4. To incorporate this treaty in EU Treaties

5. Budget surveillance by Commission during drafting of national budgets

6. Commission to monitor structural changes to close excessive deficits

7. Country specific medium term objectives and timetables of convergence on treaty requirements.

8. Balanced Budget Rule to be law of each participating state – preferable constitutional

9. Court of Justice to impose fine on those who fail to comply.

10. Member states may be compelled to get debt/GDP ratio <3%

11. Reduce government debt over 60% debt/GDP by 5% per annum

12. There is no change to the current Irish bailout rules.

13. Take “necessary actions and measures” to insure good functioning of Euro area ( does not state Eurobonds, or financial transfers  but may be implicit here)

14. Two Euro summits per year

15. Access to new European Stability Mechanism conditional on passing this treaty.

Treaty Itself

Fiscal Compact to coordinate economic policies to achieve sustainable growth, employment and social cohesion.

Article 3:General government budget is to be balanced or in surplus.  Lower limit structural deficit of 0.5% of GDP. The Time frame for convergence is to be negotiated with each country. If dent/GDP ratio is below 60% – deficit can be increased to 1.0% If the deficit is greater a correction mechanism is automatically triggered. The deviation must be corrected over a period of time. “The mechanism shall fully respect the prerogatives of national parliaments”.

There is a comment on defining the structural balance and exceptional circumstances.

Article 4. Reduce debt/GDP ratio by 5% per year down to 60%

Article 5. The EU Commission monitors the figures.

Article 6. Submit national budget for inspection by Commission.

Article 7 allows a qualified majority of Eurozone members to overrule the Commission when a country is in breach of the deficit criterion.

Article 8. Court of Justice is the arbiter or disputes between the countries and the Commission. The max penalty may be 0.1% of the country’s GDP.

Article 9. Enhanves convergence and competitiveness ( Where does that leave Corporation Tax in Ireland?)

Article 12. President of the Euro summit will be appointed at the same time as the European Council elects its President.

Article 12.2. Twice yearly Eurosummits

12.5. The President of the Euro Summit will present a report to the European Parliament.

Article 14. 1st January 2012 is D-Day for commencement once there are 12 countries involved.

Article 16 – 5 year target to incorporate this into the legal framework of the European Union.

Comments on this text.

There is an unemployment crisis in Europe. The “Deutchmark” is greatly undervalued as the Euro so Germany has a huge competitive advantage. A new DM would likely trade at > $2 which would strange German industry. So Germany has a vested interest in the preservation of the Euro even at considerable cost. This is an existential crisis of the Euro.

Unemployment figures indicate that some of the PIIGS should probably have to leave the Euro. It is in Irish interest to stay inside for the moment.

Unemployment

Country Total% Youth%
Ireland 14.4 29.4
UK 8.0 21.1
Germany 5.9 8.6
France 9.3 22.1
Italy 8.4 29.1
Spain 21.6 46.4
Greece 17.7 44.4
Portugal 12.7 30.1
USA 8.9 17.3
Canada 7.5 14.2
Norway 3.2 8.7
Russia 7.5 17.2
Brazil 6.0 14.5
South Africa 24.7 49.8
Australia 5.1 11.3

 

 

These figures confirm the crisis of employment in Europe. This fiscal compact treaty is inadequate to address this. It will NOT lead to greater economic growth except in Germany.

The Irish interest is to pass this treaty because there is a huge problem facing us in 2014. We will need the ESM at that point. Where is the debt write-off, where are the Eurobonds.

Either we have these or the Euro will be a footnote in history of failed currency unions.

I am voting YES

I expect either a real effort to address structural debt write-offs or an orderly reconfiguration of the Euro. These are inevitable.

We will have to address these issues again in the constitution in the future. This Treaty does not preclude Ireland from arranging a write-off of some debt. It is staging post.