The EU Permanent Austerity Treaty (Fiscal Compact Treaty & Irish referendum)

The Government seems determined to push ahead in the next few months with the ratification of two important treaties: the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” and the revised “Treaty on the European Stability Mechanism” (ESM).

The two treaties would make member-states of the euro zone into regimes of economic austerity, involving deeper and deeper cuts in public expenditure, increases in indirect taxes, reductions in wages, a sustained liberalisation of markets, and the privatisation of public property.

It would really be more accurate to call the first treaty the EU Permanent Austerity Treaty and the second the Conditional Support Treaty. Whatever they are called, the two treaties represent a seriously dangerous threat, and democrats should be mobilising to resist them.

The cumulative effect of being bound by both treaties would be an obligation to insert a balanced-budget rule

“through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.” 

It would put Irish budgets under permanent and detailed supervision by the euro zone; make the existing subordination of Ireland’s interests to those of the “stability of the euro area as a whole” even more systematic and pronounced; impose conditions of “strict conditionality,” without limit, for ESM “solidarity” financial bail-outs; and require Ireland to contribute some €11 billion to the ESM fund when it is established later this year.

The European Commission and the European Central Bank are obsessed with “economic governance,” which would require smaller eurozone states in particular to make themselves permanently amenable to a regime under which Germany and its allies would regularly and permanently vet members’ fiscal policies and impose punitive fines on those failing to observe deflationary budget rules.

When politicians like Enda Kenny urge us to stomach a particular draconian measure, claiming that it would help us to ultimately “restore economic sovereignty,” they conveniently fail to mention that this is the sort of “economic sovereignty” they have in mind. For them, permanent austerity plus the IMF is “national shame”; permanent austerity minus the IMF is “national recovery.” The latter is what is on offer through the EU Permanent Austerity Treaty and the Conditional Support Treaty.

Of course it is totally irrelevant to this Euro-fanatical mindset that the draconian fiscal measures imposed on Greece have only worsened the problems of that country. Also conveniently ignored in this version is the fact that Ireland in the euro zone had to adopt unsuitably low interest rates in the early 2000s, because this suited Germany at the time. In the immortal words of Bertie Ahern, this made our “Celtic Tiger” boom “boomier.” And of course it inflated the property bubble.

The former Taoiseach John Bruton and others have contended that the failure of the ECB to supervise adequately the credit policy of central banks in relation to the commercial banks in Ireland and various other euro-zone countries was significantly responsible for the emergence of asset bubbles in those countries in the early and middle 2000s, and thereby contributed hugely to the financial crisis they are now in.

And the then head of the European Central Bank, Jean-Claude Trichet, was probably engaging in a variety of “economic governance” when he told Brian Cowen and Brian Lenihan on 29 September 2008, at the time of the criminally irresponsible blanket bank guarantee, that Anglo-Irish Bank must on no account be allowed to go bust and that the foreign creditors and bond-holders must be paid every penny.

When the Irish people ratified the Maastricht Treaty in 1992, setting up economic and monetary union, and when they ratified the Lisbon Treaty, establishing the European Union on a new constitutional basis, in 2009, they approved membership of an economic and monetary union whose member-states would follow rules that would be enforced by a system of surveillance by the Commission and formal recommendations and warnings for delinquent states, followed by sanctions in the form of compulsory deposits and fines of an appropriate size in the event of a member-state persisting in breaches of these provisions.

The member-states adopted the rule that the annual budget deficit would be no higher than 3 per cent of GDP and national debt no higher than 60 per cent of GDP to ensure that member-states of the euro zone would avoid excessive deficits and consequent borrowing, for that would affect all euro-zone states using the same currency.

But the excessive-deficit articles were not enforced once Germany, France and other states broke the limits in the early 2000s.

Recommendations of measures to repair excessive deficits were made by the European Commission to a number of member-states, including Ireland, in the early 2000s; but when in 2003 France and Germany found themselves in violation of the excessive-deficit criteria the European Council failed to take any of the other steps set out in the rules to remedy their breaches.

No proposal to impose sanctions for breaking the rules was ever put by the Commission to the Council of Ministers, and no sanctions were adopted against countries violating the rules. As a result, several member-states ran up huge annual government deficits and national public debts that were near to, or in some cases well over, 100 per cent of GDP.

Is debt always a bad thing ?

Commentary on the EU Permanent Austerity Treaty (Fiscal Compact Treaty & Irish referendum)

After they had agreed the final wording of the intergovernmental agreement—the "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union"—the member-states of the euro area pronounced that the treaty “represents a major step towards closer and irrevocable fiscal and economic integration and stronger governance in the euro area,” which they claimed “will significantly bolster the outlook for fiscal sustainability and euro area sovereign debt and enhance growth.”

According to the German chancellor, Angela Merkel, the euro-zone member-states have set themselves on an “irreversible course towards a fiscal union.” She told an international gathering at Davos:

“We have to become used to the European Commission becoming more and more like a government.”

The Government seems determined to push ahead in the next few months with the ratification of this treaty and its partner, the revised Treaty on the European Stability Mechanism (ESM).

The two treaties would make euro-zone member-states into regimes of economic austerity, involving deeper and deeper cuts in public expenditure, increases in indirect taxes, reductions in wages, sustained liberalisation of markets, and privatisation of public property.

The cumulative effect of being bound by both treaties would be an obligation to insert a balanced-budget rule

“through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes,” 

put Irish budgets under permanent and detailed euro-zone supervision, make the existing subordination of Ireland’s interests to those of the “stability of the euro area as a whole” even more systematic and pronounced, impose conditions of “strict conditionality” without limit for ESM “solidarity” financial bail-outs, and require Ireland to contribute some €11 billion to the ESM fund when it is established later this year.

In other words, the EU Permanent Austerity Treaty will make a permanent feature of that external interference in our economic governance that was so obnoxious when Fianna Fáil surrendered sovereignty to the European Central Bank and the International Monetary Fund. But if it’s bad in the short term—and it is—it’s even worse when it’s made permanent.

The fact that the British and Czech governments are not going to ratify the treaty is clear evidence that an EU member-state can stay outside it and still remain within the European Union. So the Irish Government cannot avoid holding a referendum by claiming that signing it is, in the words of article 29.4.10 of the Constitution, “necessitated by the obligations of membership of the European Union .”

And from a democratic and sovereignty point of view the treaties represent an abject surrender of governmental powers clearly vested by the Constitution exclusively in the democratically accountable organs of the state. This places a clear obligation on the Government to seek the consent of the people in a referendum before it makes any attempt to ratify these treaties.

Below is an annotated version of the treaty, which the Taoiseach, Enda Kenny, hopes to sign at a meeting of the European Council in March and which his Government hope to be able to ratify by the end of the year.

There is a fundamental division between those who advocate that euro-zone member-states should abandon more and more control over their financial and economic affairs and those who see a solution to our crisis in establishing genuine national independence and democracy. Central to the latter position is winning back for this country, and the other countries of Europe, the fundamental state powers that have been surrendered and using them intelligently for the benefit of the majority of the people, rather than for the social and economic elite.

The treaty has been drafted in such a way as to hoodwink the gullible into believing that the institutions of the European Union will not be involved in actions and procedures beyond those that they have already been involved in and that they will act only within the framework of EU treaties. However, the fact is that the EU institutions will be used in new procedures and would exercise new powers created by the treaty.

What is involved is further EU integration through an intergovernmental agreement that confers new powers on the EU institutions outside the EU legal framework and changes the rules concerning the powers of the EU institutions. The main issue during the negotiations on the treaty was whether the contracting parties should be allowed to use the EU institutions to implement, monitor and enforce compliance with the proposed new set-up.

The EU institutions were created by the EU treaties, which conferred upon them powers and duties. The role of the EU institutions is not only dened by the European Treaties fi but is limited by those treaties, and it would be unlawful for an institution to operate beyond the powers granted to it by the treaties.

---

TREATY ON STABILITY, COORDINATION AND GOVERNANCE IN THE ECONOMIC AND MONETARY UNION

Annotated version

THE CONTRACTING PARTIES [. . .]

Kenny promised “constructive engagement”!

The French minister of finance, François Baroin, and his German counterpart, Wolfgang Schäuble, have unveiled a “green paper” describing plans for Franco-German tax convergence. According to the document, France and Germany will aim to harmonise their corporate tax rates by 2013.

Remember before the election that Fine Gael was not going to put a cent into Anglo-Irish Bank?

Well, would you give our corporation tax rate much chance?

This week the finance ministers of all twenty seven EU member-states will meet to discuss economic governance legislation put forward by the Commission, which would give it greater powers in assessing and correcting financial instability. There will also be a Franco-German presentation on plans for a common consolidated corporate-tax base. It will be interesting to hear Noonan’s take on the event!

Meanwhile the EU commissioner for taxation and customs union, Algirdas Šemeta, has assured the British House of Lords that the implementation of a financial transaction tax would “minimise the risk of relocation,” saying that it is expected to raise €60 billion throughout the region every year.

Remember “own resources” in the Lisbon Treaty?

Does Enda Kenny know about this? (Parte Dois) "Sonnets to the Portugeuse"

The German minister of finance, Wolfgang Schäuble, was caught by a cameraman at the euro-zone ministers’ meeting promising Portugal an adjustment to its programme after a deal with Greece is concluded—the first time an EU minister has publicly spoken of such plans.

EU Observer reported that Schäuble is telling his Portuguese counterpart, Vítor Gaspar, that after the Greek deal is done the German government will approve a loosening of the conditions attached to Portugal’s €78 billion bail-out programme.

“If at the end we need to make an adjustment to the programme, having taken large decisions about Greece . . . this is essential. But then, if necessary, an adjustment of the Portuguese programme will be prepared,” he says.

The Portuguese minister, not unexpectedly, says,
“Thank you very much.”
“No problem,” Schäuble replies.

And we thought the “independent” European Central Bank made these decisions!

And Kenny, on his own admission, didn’t even ask.

Does Enda Kenny know about this?

A group of nine euro countries, led by France and Germany, has asked the Danish EU presidency to fast-track plans for a financial transactions tax—a move indicating that they will forge ahead on their own in the absence of an EU-wide consensus.

“We strongly believe in the need for a financial transactions tax implemented at European level as a crucial instrument to secure a fair contribution from the financial sector to the costs of the financial crisis and to better regulate European financial markets,” the letter says. The nine signatories are the finance ministers of France, Germany, Austria, Belgium, Finland, Greece, Spain and Portugal and the prime minister of Italy, Mario Monti.

Meanwhile in Ireland the Finance Bill contained twenty-nine measures to assist the International Financial Services Centre—an offshore money-laundering operation—while piling taxes, levies and cuts on the overburdened people of this country.

The group of nine asks the Danish presidency “to accelerate the analysis and negotiation process” of a proposal by the EU Commission to introduce a 0.1 per cent tax on shares and 0.01 per cent on trading in derivatives—the larger and riskier financial market, widely held responsible for the 2008 financial crisis.

The Fine Gael-Labour coalition fiercely opposes the tax, continuing that fine Fianna Fáil tradition of looking after the wealthier in our society.

The ghost of “Social Europe” returns

Remember Delors?

In speeches to mark the twentieth anniversary of the Maastricht Treaty, signed on 7 February 1992, which led to the creation of the euro, both Jacques Delors, former president of the European Commission, and José Manuel Barroso, in a fit of federalist zeal regretted the national “resistance” and “lack of spirit of co-operation” among the leaders of the twenty-seven EU countries.

Delors said that the Maastricht anniversary provided lessons for the future, and gave his support to Barroso for heralding the community approach in the face of the recourse to intergovernmental arrangements. “I would like to express my full support to the Commission, in a moment when others take distance from the community method,” he said.

Delors was asked by journalists to comment on the social dimension of the Commission’s action, which, they argued, was less present in the present Commission, headed by Barroso; but he dodged any mention of his vaunted concept of “Social Europe,” putting the markets first, saying that the issue today was to restore the financial situation of EU countries while maintaining economic growth. “On these problems, governments should do the effort to cooperate more and to listen more to the Commission in this regard,” he said.

Asked about the present trend towards austerity, Delors said: “I was the first to use the term when I was finance minister. When it’s necessary, I talk about it. And I remain popular. See, it’s curious.”

Perhaps he has always been delusional!

Canny Scots!

An independent Scotland would be one of the wealthiest parts of Europe, but it would stay out of the euro, the deputy first minister of Scotland, Nicola Sturgeon, told EU Observer.

Permanence of debt brake “may not be constitutional"

A “debt brake” that sought to be “permanent and binding,” as envisaged in the proposed EU Permanent Austerity Treaty, could be unconstitutional, according to the professor of constitutional law at TCD, Gerry Whyte.

The Government has referred the proposed treaty to the attorney-general for her opinion on whether it will require a referendum, and has said that if not it will legislate to give effect to it.

Prof. Whyte told the Irish Times that any assumption that ordinary legislation would be sufficient to meet the terms of the proposed treaty should be “stress-tested.” “Legislative provisions do not have a ‘permanent character’,” he said, “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.”

He pointed out that article 3 (1) of the proposed treaty required measures to reduce the structural deficit to 0.5 per cent of GDP “through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.” However, he said that a majority of the Supreme Court in the Crotty case in 1987 (which found that a referendum was necessary to ratify significant changes to EU treaties) held that an organ of the state cannot agree to circumscribe or restrict any unfettered power conferred on it by the Constitution.

In the judgement Mr Justice Walsh said that the freedom to form economic policy was an aspect of the state’s sovereignty. This meant that article 3 (1) of the treaty would have to be protected by article 29.4 of the Constitution, which ratified the Maastricht Treaty, if it was to be constitutionally valid. However, article 29 refers to treaties of the European Union, whereas the proposed treaty will only be a treaty agreed between 25 of the 27 member-states, so it will not be covered by article 29.

“Given the UK and the Czech Republic have opted out of the proposed treaty, it would seem very difficult to argue that the treaty is ‘necessitated’ by our membership of the EU,” Prof Whyte said.

Dr Gavin Barrett of UCD agreed that the proposed treaty was not protected by article 29, but he pointed out that all legislation, when passed, is “of binding force and permanent character.” If the Government tried to make the proposed treaty more permanent than any other law, it would run into constitutional difficulties, he said.

People’s Movement rejects EU Permanent Austerity Treaty and demands a referendum

At a People’s Movement meeting on the EU Permanent Austerity Treaty held in the Town Hall Theatre, Galway, last week, a capacity audience heard Robert Ballagh, Prof. Terence McDonagh and Cllr Catherine Connolly reject its terms and demand a referendum. A follow-up meeting is planned.

Thought for the day

“Germany offers assistance—yet is demonised by people who swindled their way into the monetary union and have driven it to the edge of the abyss. They are using the fine principle of solidarity as a means for extortion. The EU has no future as such an extortion community.”

—Frankfurter Allgemeine Zeitung (Frankfurt), 14 February 2012

The EU Permanent Austerity Treaty

The Government seems determined to push ahead in the next few months with the ratification of two important treaties: the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” and the revised “Treaty on the European Stability Mechanism.”
The two treaties would make member-states of the euro zone into regimes of economic austerity, involving deeper and deeper cuts in public expenditure, increases in indirect taxes, reductions in wages, sustained liberalisation of markets, and the privatisation of public property.

It would really be more accurate to call the first treaty the EU Permanent Austerity Treaty and the second the Conditional Support Treaty. But whatever they are called, the two treaties represent a seriously dangerous threat, and democrats should be mobilising to resist them.

The cumulative effect of being bound by both treaties would be an obligation to insert a balanced-budget rule “through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes,” to put Irish budgets under permanent and detailed euro-zone supervision, to make the existing subordination of Ireland’s interests to those of the “stability of the euro area as a whole” even more systematic and pronounced, to impose conditions of “strict conditionality,” without limit, for ESM “solidarity” financial bail-outs, and to require Ireland to contribute some €11 billion to the ESM fund when it is established later this year.

The European Commission and the European Central Bank are obsessed with “economic governance,” which would require smaller euro-zone states in particular to make themselves permanently amenable to a regime under which Germany and its allies would regularly and permanently vet members’ fiscal policies and impose punitive fines on those failing to observe deflationary budget rules.

When politicians like Enda Kenny urge us to stomach a particular draconian measure while claiming that it would help us to ultimately “restore economic sovereignty” they conveniently fail to mention that this is the sort of “economic sovereignty” they have in mind. For them, permanent austerity plus the IMF is “national shame”; permanent austerity minus the IMF is “national recovery.” The latter is what is on offer through the EU Permanent Austerity and Conditional Support Treaties.

Of course it is totally irrelevant to this Eurofanatical mindset that the draconian fiscal measures imposed on Greece have only worsened the problems of that country. Also conveniently ignored in this version is that Ireland in the euro zone had to adopt unsuitably low interest rates in the early 2000s, because these suited Germany at the time. In the immortal words of Bertie Ahern, this made our “Celtic Tiger” boom “boomier.” It of course inflated the property bubble.

The former Taoiseach John Bruton and others have contended that the failure of the European Central Bank to supervise adequately the credit policy of the national central banks in relation to the commercial banks in Ireland and various other euro-zone countries was significantly responsible for the emergence of asset bubbles in those countries in the early and middle 2000s, and thereby contributed hugely to the financial crisis they are now in.

And the then head of the European Central Bank, Jean-Claude Trichet, was probably engaging in a variety of “economic governance” when he told Brian Cowen and Brian Lenihan on 29 September 2008, at the time of the criminally irresponsible blanket bank guarantee, that Anglo-Irish Bank must on no account be allowed to go bust and that the foreign creditors and bond-holders must be paid every penny.

When the Irish people ratified the Maastricht Treaty in 1992, setting up economic and monetary union, and when they ratified the Lisbon Treaty, establishing the European Union on a new constitutional basis in 2009, they approved membership of an economic and monetary union whose memberstates would follow rules that would be enforced by a system of Commission surveillance, formal recommendations, and warnings for delinquent states, followed by sanctions in the form of compulsory deposits and fines of an appropriate size in the event of member-states persisting in breaches of these provisions.

The EU member-states adopted the rule regarding 3 per cent and 60 per cent of GDP to ensure that member-states of the euro zone would avoid excessive deficits and consequent borrowing, for that would affect all euro-zone states using the same currency. But the excessive-deficit articles were not enforced once Germany, France and others states broke the excessive-deficit limits in the early 2000s.

Recommendations of measures to repair excessive deficits were made by the Commission to a number of member-states, including Ireland, in the early 2000s, but when in 2003 France and Germany found themselves in violation of the excessive-deficit criteria the Council failed to take any of the other steps set out in the rules to remedy their breaches.

No proposal to impose sanctions for breaking the rules was ever put by the Commission to the Council of Ministers, and no sanctions were adopted against countries violating the rules. As a result, several member-states ran up huge annual government deficits and national public debts that were near to, or in some cases well over, 100 per cent of GDP.

Is debt always a bad thing? Obviously not in the private sector, as corporations regularly borrow money for expenditure they don’t want to meet out of retained earnings, while most households aim to have a long-term mortgage.

Public debt is not a burden passed on from one generation to the next. The stock of public debt is a problem only when its servicing—i.e. the payment of interest—is unaffordable, such as when, in times of recession, growth is nil or negative, or when the interest rates demanded by the financial market are soaring.

The question is, when is the debt sustainable?

Sustainability means keeping the ratio of debt to GDP stable in the longer term. If GDP at the beginning of the year is €1,000 billion and the Government’s total stock of debt is €600 billion, the debt ratio is 60 per cent. The fiscal deficit is the extra borrowing that the Government makes in a year, so it adds to the stock of debt. But although the stock of debt may be rising, as long as GDP is rising proportionately the ratio of debt to GDP can be kept constant, or may even be falling.

The rule is that as long as the real economy is growing by at least as much as the real rate of interest on debt the debt-GDP ratio doesn’t rise. This holds true irrespective of whether the debt ratio is 60 per cent or 600 per cent.

But there’s a catch. In a modern economy the public sector accounts for about half the economy. If a country panics about its debt ratio and cuts back sharply on public-sector spending, this reduces aggregate demand and may lead to stagnation or even recession. When a country stops growing, financial markets decide that its debt ratio may rise and so become more cautious about lending and may demand a higher bond yield, i.e. interest rate.

The gloomy prophecy of growing public indebtedness becomes self-fulfilling. The way out cannot be greater austerity.

What works for a single household or firm doesn’t work for the economy as a whole. A household can tighten its belt by spending less, saving more, and thus “balancing the books”; but an economy cannot. If everybody saves more, national income falls. As no euro-zone country can devalue, to ask each member-state to balance the books by running an export surplus is empirically and logically impossible.

The way out of the “debt trap” is the same as the way out of recession: if the private sector won’t invest, the public sector must become the investor of last resort. It doesn’t matter whether new investment is financed by more government borrowing, quantitative easing, or redistribution (some combination of the three would be optimal). What matters is growth.

Why there must be a referendum

The contracting parties must apply the balanced-budget rule “through provisions of binding force and permanent character, preferably constitutional or otherwise guaranteed to be fully respected and adhered to throughout the national budgetary processes.”

A majority of the Supreme Court in the Crotty case in 1987 (which found that a referendum was necessary to ratify significant changes to EU treaties) held that an organ of the state cannot agree to circumscribe or restrict any unfettered power conferred on it by the Constitution.

In the judgement Mr Justice Walsh said that the freedom to form economic policy was an aspect of the state’s sovereignty. This meant that article 3 (1) would have to be protected by article 29.4 of the Constitution, which ratified the Maastricht Treaty, if it was to be constitutionally valid.

However, article 29 refers to treaties of the European Union, whereas the proposed treaty will only be a treaty agreed between 25 of the 27 member-states, so it will not be covered by article 29.

These rules and policy conditions in turn provide considerable scope for financially hard-pressed member-states to be pressured to take steps against their national interest, including in relation to harmonising corporate taxes. Establishing this permanent enhanced fiscal architecture would be a major step towards an EU fiscal and political union—something that has been recognised in statements by leading EU politicians.

This implies a significant diminution of national state sovereignty, going well beyond the scope of the existing European Union and the monetary union that it embodies, which only the people themselves can agree to.

The absence of limitations on the “strict conditionality” that will mark financial disbursements from the proposed ESM fund—such as might have been set out in an accompanying protocol, for instance—emphasises further the dangers to the state’s interests that could arise from harsh or excessively onerous conditions attaching to financial assistance that might be offered to member-states seeking assistance from the fund.

From PEOPLE’S NEWS
News Digest of the People’s Movement
www.people.ie | post@people.ie
No. 64 18 February 2012