The (Fiscal) Austerity Treaty, which we will vote on..., is designed to tackle fiscal issues which were not an Irish problem, as we – unlike France and Germany - ran a fiscal surplus every year bar one between 1999 and 2007. It would employ severe austerity measures in order to ensure that we can continue to service the debts of the banks. This means cutting public spending, including infrastructural investment, selling off state assets, introducing new charges and levies and an acceleration of other measures that we are becoming increasingly familiar with.
The inevitable result would be a further contraction in the size of the economy – already decreased by over a quarter since 2008 – with an accompanying increase in unemployment and decrease in government revenue. As Nobel laureate Paul Krugman simply put it, austerity “pushes depressed economies deeper into depression”. We, and others, have pointed out that a fiscal stimulus is what is required and have suggested, to no avail, a means of applying it.
How can we avoid this outcome?
As no Eurozone country can devalue, to ask each Eurozone country 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 investor of the last resort. It doesn’t matter whether new investment is financed by more government borrowing, quantitative easing or redistribution. What matters is growth, which brings jobs and increased government revenue.
Not through balanced budgets!
And, in a form of blackmail, loans from the yet to be ratified European Stability Mechanism (ESM) will be conditional on the adoption of the debt brake in the Austerity treaty! This requires the state to observe a balanced budget rule. Once the debt brake has come into full operation each state will be required in general to run their budgets in surplus or balance, and at a minimum to keep their structural deficit (a measure on which economists do not agree) below 0.5% of GDP.
No wonder Jack O’Connor told us that, “It would be disastrous for the Irish people to insert the terms of the Fiscal Treaty agreement into the Constitution”.
And that’s not all!
Those who have exceeded this target are required to reduce their debt by one twentieth each year. The Irish debt to GDP ratio will be somewhere in the region of 120% by the end of this year thanks in the main to the bank bailout. So, a reduction of 60% - or 3% of GDP per year - will be required. This alone will take up to a further €4.5bn out of the economy each year.
As pointed out, one of the main positions taken by the government in support of the Austerity Treaty is one of blackmail: vote Yes!, or there will be no money from the (ESM) when we need it - despite their continued mantra that another bailout will not be needed.
The government set us up!
When the ESM was agreed last July, there was no mention of Member States being forced to implement aggressive deficit limitation measures. However, in January 2012 the Heads of Government agreed to insert a blackmail clause into the ESM Treaty. This must have been done with the collaboration of the Irish government against the interests of the Irish people, as that insertion required unanimity and is now to be used to try to frighten us into voting YES!
But where can we get the money if we need it?
But even if we Vote NO on May 31st and we can’t access the ESM, we are small but important for the EU financial system and so funds will be found elsewhere outside the ESM structures to lend to us, especially if, as the ESM says, they were: ‘indispensable to safeguard the financial stability of the euro area as a whole’ or to combat ‘contagion!’
But we are also entitled to apply to the IMF, whose interest rates are more favourable than those of the EU/ECB! More EU countries have already accessed IMF support than EU support:
ie Latvia, Lithuania, Poland, Bulgaria, Romania, Hungary, and Estonia.
Remember, Sweden and Britain advanced loans at a favourable rate to supplement our first bail-out loan. Norway has a pension reserve fund of €500bn - and others- might be similarly inclined. In the unlikely event that we get no loans and must close the deficit we can institute a progressive taxation system and a wealth tax – having over 20,000 declared millionaires. Any remaining money required can be found through renegotiating foreign debt which, it is generally accepted, will have to be renegotiated anyway. In the meantime, EFSF funds are guaranteed to us until at least mid- 2013.
Even Michael Noonan says we’re fine
Regardless of the Treaty vote, Michael Noonan, said recently,
“There is a commitment that if countries continue to fulfil the conditions of their programme the European authorities will continue to supply them with money even when the programme is concluded ... The commitment is now written in that if we are not back in the markets the European authorities will give us money until we get back in the markets”;a position confirmed by EU heads of state in on March 30th, while Tanaiste Eamon Gilmore at the recent Labour Party Conference reassured us that; ‘We are on course to return to the markets in 2013’.
A motion unanimously accepted at the last ICTU BDC called on ‘those in authority, in both jurisdictions and at EU level, to accept the complete failure of the austerity recipe as a response to the economic challenge’. But, ultimately, as David Begg has correctly pointed out, “Permanent austerity means that the debt we have will become even more unsustainable and un-payable.”
And that’s why the TEEU Executive Committee is urging you to reject this treaty on May 31st.