Saturday 28 April 2012

Europe-wide effects of Fiscal Treaty policies

International Impoverishment, Made in Germany


The German austerity dictate is leading to new economic and social turbulence in the indebted counties of the southern Euro-zone. 

Spain, compelled in late March to make financial cutbacks totalling 27 billion Euros, must extend its austerity program to a total of 37 billion Euros. An increasing number of debtors cannot repay their credits on time. With their backlog of 143,8 billion Euros, the country's banks, in fact, can only refinance themselves through the European Central Bank.

Italy is also slipping into the downward spin of cutbacks, growing unemployment, decreasing purchasing power and increasing social spending and, like Greece a few years ago, must already readjust its savings goals.

Greece has been fully drawn into this development. Last year, 68,000 enterprises went bankrupt - the volume of incoming orders has dramatically shrunk. A high number of bankruptcies is also expected this year.

This offers German enterprises good opportunities for acquiring the fillet morsels of state enterprises at rock-bottom prices. 

Compulsory Social Cuts 


Germany's political elite firmly insists on maintaining this disastrous austerity policy, imposed on European countries within the framework of the measures to overcome the crisis.

At the end of last month, Chancellor Merkel imposed the political line of march to be taken by Madrid in this crisis.

Spain will meet all of its deficit obligations, decreed Merkel in a newspaper interview as the right wing Spanish government announced 27 billion Euros worth of new social cuts and austerity measures, to ward off the continued growing budged deficit.[1] "I am optimistic that everyone will meet their obligations," Merkel stated, referring also to the reduction of Spain's budget deficit to below the 3 percent GDP-limit by 2013.

Ten Billion More 


A mere three weeks later, the situation in Spain worsened dramatically again.

The burden for Spanish government bonds' interests has increased once more, the budget deficit has again grown, the economic outlook has become even more somber. After Madrid was forced at an auction to pay 5.7 percent for ten-year government bonds, Prime Minister, Mariano Rajoy's government took headlong flight into even more austerity measures.

This time, around ten billion Euros would be saved on the health and educational systems - through measures including higher supplementary payments for medicine and more pupils to school classrooms. Madrid's "clean-shave" austerity program would add up to about 37 billion Euros, withdrawn from the domestic economy, already in a tailspin.

Record Payment Backlogs 


According to its Minister of Economics, Luis de Guindos' preliminary estimates, Spain has re-entered a recession, with the first quarter in 2012 having turned out just as bad "as the last quarter of the preceding year," showing an economic contraction of 0.3 percent.[2]

The uncompromising austerity course is being applied to a country wracked by crisis. Since the burst of the real estate bubble, which, for years, had served as the economic motor, the economy has been groaning under the weight of a gigantic mountain of debts and an unemployment rate of around 23 percent - the highest in all of Europe.

Spain's youth unemployment rate has risen to 50 percent. Due to the disastrous economic trend, a diminishing number of mortgage holders can still use their credits, contributing to a destabilization of the Spanish - and indirectly also the European - financial systems.[3]

In the meantime, 8.16 percent of all credits issued in Spain have a backlog in payments, which is an absolute record, corresponding to 143.8 billion Euros. It is, therefore, no wonder that Spain's financial establishments are being drip-fed by the European Central Bank and can only refinance themselves through the ECB.[4]

Italy also in an Downward Spin 


As a consequence, Spain is undergoing the same catastrophic crisis spiral as Greece had been forced into by Berlin and Brussels. Repeatedly, new austerity measures are permitting a collapse of domestic consumption demand, leading, in its turn, to an escalating recession.

In the end, this course generates massive poverty and an economic collapse, which places the targeted savings goals out of reach - because the recession causes a breakdown of tax intake while bloating the social expenditures.

The devastating down spin that has so ravaged Greece and is now gripping Spain, is also reaching Italy. Applying more comprehensive and more ruthless austerity measures, the Italian Prime Minister, Mario Monti, imposed by Merkel and her French junior partner, Nicolas Sarkozy at the head of a technocratic government, hopes to achieve a balanced budget by 2013.

In 2011, the new debts were still at the level of 3.9 percent. Now Monti must sheepishly admit that this year, Italy's recession will reach 1.2 percent - much worse than his previous 0.5 percent forecast. The Italian technocrat no longer wants to talk in terms of a "balanced budget." In 2013 he expects a 0.5 percent deficit.[5]

200 Bankruptcies Daily 


The example of Greece shows where the Europe-wide austerity measures are ultimately heading.

After applying a number of the austerity measures and suffering about four years of recession, the country has an unemployment rate of nearly 22 percent and is undergoing a comprehensive de-industrialization.

Since June 2007, incoming orders for the Greek industry, characterized by small enterprises, has dropped by 35 percent. London's Markit Financial Information Services predicts a "markedly lower production, new orders and the number of employees." Many enterprises will not survive. In 2011, approx. 68,000 small and medium enterprises went bankrupt, an average of 200 per day. Experts are predicting around 63,000 more bankruptcies this year.[6]

Sell Out 


The industry and infrastructure still remaining in state ownership is now being sold off under German supervision.

The comprehensive sale of public property, that Athens was forced to agree to as the price for receiving further credits, is being carried out by the Hellenic Republic Asset Development Fund (HRADF). The German Ministry of Economics' Germany Trade and Invest (GTAI) agency is serving as its advisor. (german-foreign-policy.com reported.[7])

GTAI's listed duties conveniently include the counseling of German companies in their foreign activities. The agency is explicitly seeking German buyers for the fillet morsels of Greek bankruptcy assets, according to the German Economics Ministry's "Checklist of an Investment and Growth Offensive for Greece."[8]

"Assistance in finding German investors and placing the German experience in the privatization and restructuring process of the new [East German] federal states" will be GTAI's contribution to its Greek counterparts. The latter chore listed is in reference to the German Treuhand (Trust Fund), which, in a chaotic process beginning in 1990, squandered the public property of the German Democratic Republic.

Bargain Hunting 


The time is right for cheap "bargain deals" in Greece. The disastrous economic situation is rapidly shrinking the value of public property now being put up for sale. Already last February, the Greek government was forced to radically reduce its original prognosis of expected receipts for 2015 from its privatization measures from 50 billion to merely 15 billion Euros.

Hence, it seems that particularly German companies are profiting from Athens' economic collapse, for which the austerity policy imposed by Berlin bears the brunt of the responsibility. 

[1] Merkel: Spanien wird Defizit-Verpflichtungen einhalten; www.stern.de 31.03.2012
[2] Rezession! Spanien steckt im Schuldenstrudel; www.abendblatt.de 16.04.2012
[3] Spanien: Doubtful Loans auf 18-Jahreshoch; www.querschuesse.de 18.04.2012
[4] Spanische Banken ersticken an ihren faulen Krediten; www.welt.de 18.04.2012
[5] Rückschlag für Super-Mario; www.ftd.de 18.04.2012
[6] Griechen stecken tief im Tal der Tränen; www.mainpost.de 03.04.2012
[7] see also Patterned after the Treuhand
[8] Ausverkauf: Deutschland hilft Griechenland beim Privatisieren; www.deutsche-mittelstands-nachrichten.de 20.04.2012

 First published online @ http://www.indymedia.ie/article/101774

Wednesday 25 April 2012

Ireland has better options


The South East Region of People's Movement, which is a non party political organisation will be campaigning for a No vote in the referendum on 31st May next.

The grandly titled "Treaty on Stability, Coordination and Governance in the Economic and Monetary Union" is supposedly about "stability" in the Eurozone. Yet the treaty warns us that money from the new permanent European Stability Mechanism bailout fiund will only be given to States that have ratified it.  

The Economic and Monetary Union which Ireland signed up to under the 1992 Maastricht and 2009 Lisbon Treaties assumed that the 3% and 60% of GDP deficit rules for every Eurozone State would be abided by and enforced by means of the sanctions - warnings, special deposits, fines etc. - which are set out in those treaties.

If they had been and if the rules of the EU treaties had been enforced for all, there would have been no sovereign debt crisis in the Eurozone and no need for any Eurozone bailout fund. When Germany and France broke the rules of the EMU by running big government deficits in 2003, the EU treaty sanctions to enforce the 3% and 60% deficit rules were not applied against them, and they were thereafter effectively dropped for everyone else.

Ireland did not break these excessive deficit rules, yet now is being threatened that unless it votes to permanently hands over virtually the whole area of budgetary policy to the Eurozone we will not be able to access funding from the European Stability Mechanism should we require it in 2013. We have a gun to our head or so the supporters of the treaty would want us to believe.

In fact Ireland would have a number of options in this event: -


  • regardless of the Treaty vote, Ireland is guaranteed funding under the current programme as long as it meets its targets. A No vote will not change this;
  • there is no legal basis for punishing a state that doesn’t ratify, and to try to do so would damage the very Euro that the pact is supposed to defend;
  • if we adhere to the existing Treaties we cannot be excluded from their benefits. As Mr. Michael Noonan, Minister of Finance said after the last EU Summit, '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.”;
  • Ireland, if it should need a second bailout, could have access to funding sources such as the IMF, as well as our existing rights with Europe. This is the same insurance or back-stop that all EU countries are entitled to as members of the IMF. More EU countries have accessed IMF support than EU support in the last decade. These include Latvia, Lithuania, Poland, Bulgaria, Romania, Hungary, and Estonia.

Most economists regard a permanent balanced budget rule as absurdly inflexible. Governments need to run deficits on occasion to stimulate their economies and expand economic demand when that slumps heavily in their domestic or foreign markets.

In considering the possible implications of all this it is worth bearing in mind that in 2014, just two years time, under the Lisbon Treaty Germany's vote in making EU laws will double from its present 8% of total Council votes to 16%, while France's and Italy's vote will go from their present 8% each to 12% each, and Ireland's vote will halve to 1 %.This would be the context in which we had surrendered much of the stuff of national decision making and normal party politics from the arena of democratic consideration and debate.

For verification contact and further comment;

Kevin McCorry

086 3150301

For  information on People's Movement check out:
http://www.irishreferendum.org
http://www.people.ie
http://www.austeritytreaty.com

Wednesday 18 April 2012

People’s Movement patron begins legal challenge on treaties

Thomas Pringle TD explains why he felt compelled to take a court case
on the proposed amendment to article 136 of the Treaty on the Functioning of
the European Union and the ESM Treaty.

As an Irish public representative and citizen I keep asking myself if it would not be absurd if Irish voters were to vote on 31 May in the referendum on the Fiscal Compact Treaty in favour of imposing austerity rules on ourselves in order to get access to a proposed permanent euro-zone loan fund when the separate but “complementary” treaty establishing that fund is arguably illegal under EU law, unconstitutional in Ireland, has not yet come into force, and indeed may never do so.

On 9 March last I wrote to the Taoiseach, the Minister for Finance and the Minister for Foreign Affairs explaining some of these very serious concerns. I have received no reply to this correspondence beyond the usual standard acknowledgement of receipt of the communication.

I have now been left with no other option but to initiate legal proceedings, challenging the Government on fundamental aspects of both the European Stability Mechanism (ESM) Treaty and the Stability, Coordination and Governance in the Economic and Monetary Union (Fiscal Compact) Treaty.

I believe that both treaties raise serious legal difficulties, at the level both of EU treaty law and of Irish constitutional law. My primary democratic concern as both a citizen and an elected public representative is the integrity of the Constitution of Ireland and the EU treaties, which now form such an important part of our constitutional framework. I believe that the matters on which I seek the clarification and assistance of the court are of crucial importance not only for the citizens of this country but for the future of the EU.

My contention is that the particular stability mechanism being set up under the ESM Treaty is in breach of article 29.4.4 of the Constitution of Ireland, under which “Ireland affirms its commitment to the European Union within which the member states of that Union work together to promote peace, shared values and the well being of their peoples.”

The proposed stability mechanism seems on the face of it to permit member-states to work not in solidarity and togetherness but rather towards separation and exclusiveness. This is because it allows only some member-states, and indeed only some members of the euro zone rather than all of them, to participate in an arrangement that will clearly have implications for all.

I am asking the court to examine the legality of the amendment to article 136 of the Treaty on the Functioning of the European Union before any further action is taken by the Government to approve that amendment. That amendment permits the establishment of a “stability mechanism” that would be able to grant financial assistance, “subject to strict conditionality.”

This amendment is being adopted under the so-called “simplified revision procedure,” which I believe is legally wrong. My argument is that the changes being proposed are so fundamental that they should go through the ordinary revision procedure to ensure proper democratic scrutiny. They also require the approval of the Irish people in a referendum.

I am also asking the court to consider whether the ESM Treaty is in breach of existing EU treaty principles that have been approved by the Irish people in previous referendums and that are now therefore part of our law.

In addition, I am asking the court to decide whether the state can ratify the Treaty Establishing the European Stability Mechanism without first having the approval of the people in a referendum.

The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, signed on 2 March 2012, is intertwined with the ESM Treaty. Each one depends on the other. Therefore, if I am right in my belief that the ESM Treaty is unlawful, there is a serious question over the validity of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union.

And the implications for Ireland are vast, given its present economic situation. Under the ESM Treaty, Ireland would be obliged to make capital contributions of up to €11,145,400,000 in various forms of capital to the new permanent €500 billion bail-out fund that is to be set up. For Ireland this is the equivalent of approximately a third of Government tax revenue for 2011.

I believe that my application to the courts is just one more manifestation of a growing concern within the EU about developments towards a political union for the euro zone along the lines of what President Sarkozy has termed “a federation for the euro zone and a confederation for the EU as a whole.” It is not a direction that I want the EU to take, and I am sure that I am not alone.

Sunday 15 April 2012

‘Ah, but where will we get the money if we vote NO?’

1. Even if we don't ratify the EU Permanent Austerity Treaty on My 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. This would certainly be the case if such assistance was in the words of the ESM; indispensable to safeguard the financial stability of the euro area as a whole. Remember ‘contagion!’

2. If the EU doesn't come up with the money, we are entitled to apply to the IMF and their interest rates and conditions were more favourable than those of the EU/ECB! This is the same back-stop that all EU countries are entitled to as members of the IMF. After all, more EU countries have accessed IMF support than EU support in the last decade: Latvia, Lithuania, Poland, Bulgaria, Romania, Hungary, and Estonia.  
 
3. Sweden and Britain both advanced loans at a favourable rate to supplement our first bail-out. Norway has a pension reserve fund of over €500bn and might be similarly inclined. When Argentina defaulted, it was kept afloat by a number of countries until it re-entered the markets.  

4. In the unlikely event that we get no loans and have to close the deficit we can do so through instituting a progressive taxation system, including a wealth tax - we have over 20,000 declared millionaires - to fund social services.
 
5. The remaining money can be found through renegotiating (partially defaulting on) foreign debt.  This would take courage and resolve but would ultimately be successful.  The debt will have to be renegotiated a few years hence anyway.

6. Regardless of the Treaty vote, Ireland is guaranteed funding under the current programme as long as it meets its targets. 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.

www.people.ie
Peoples Movement campaigns against any measures that further develop the EU into a federal state and to defend and enhance popular sovereignty, democracy and social justice in Ireland.
25 Shanowen Cres., Dublin 9.   087- 230 8330.  post@people.ie

First published online @ http://www.indymedia.ie/article/101689

Friday 6 April 2012

EU austerity régime beginning to hurt German Economy


Germany is continuing to impose disastrous economic austerity measures all over Europe.


Senior German politicians and officials relentlessly plead for the continuation of the austerity policy, undeterred by the erupting recession in areas of the eurozone.


The policy became binding for almost all EU member-countries through the signing of the Fiscal Pact on 2 March. As the German Minister of Finance, Wolfgang Schäuble, declared on 6 March, by signing the pact Europe is on the “right path.” On 13 March the president of the Federal Bank, Jens Weidman, called for the southern euro countries, which are now slipping into recession, to apply “stiffer reforms” and additional austerity measures.


The austerity diktat is driving nearly all indebted southern European countries deeper into the recession, as shown by new data on the economic developments of Spain, Italy, Portugal, and Greece. 


According to this data, Portugal’s economy, for example, declined by 1.3 percent in the last quarter of 2011 and could shrink by up to 6 percent this year. Industrial production in Italy registered a sharp decline. In Spain, retail sales—an indicator of private consumption—declined by almost a quarter in comparison with 2007. Greece is approaching the economic level of countries in Latin America or south-east Asia, which up to now had clearly lagged behind European standards.


In the longer run the recession could have a backlash on Germany, because the massive slump is also affecting German exports. This could have serious repercussions. 


Where this austerity policy, imposed by the German government on Europe, will lead can be seen in Greece’s dramatic crash, which can simply be characterised as Greece saving itself to death. 


According to all predictions, in 2012 the country will remain in its fourth year of recession and continue to approach the economic level of the “Third World.”


The German business press predicts that if Greece’s economic contraction continues it will be bypassed by such countries as VietNam or Peru. A deeper recession could even saddle Greece with a GNP, in terms of buying power, lower than that of Bangladesh.


The German edition of the Financial Times speaks of a “historically exceptional” economic collapse.


"Some experts fear that the GNP for 2012 will again decline up to 8 percent, after an approximately 6 1⁄2 percent drop in 2011.”


This is “the worst recession that a western country has encountered since the war,” explains Barry Eichengreen, an economic historian at the University of Berkeley in California. 


In the end, Germany’s export industry will not escape the downward trend in the eurozone, despite its growing exports to so-called threshold countries. Orders from EU countries coming into German industry are dramatically diminishing. The business press reports, 


“Already since the middle of the year the quantity of new orders from countries of the monetary union has declined consistently, since the debt crisis resurged in the summer.” 


In other countries “a demand for German products has decreased also, because of their austerity measures.”


Berlin’s austerity diktat is ultimately threatening to push Germany’s export-dependent economy into a recession. Like the populations in Greece, Portugal, Spain and Italy today, the German population will most probably have to confront drastic austerity schemes. 

Thursday 5 April 2012

Promissory Notes: Negotiating or Play-Acting?



What other country in Europe is sticking 20 percent of its GDP on its national debt to support a completely bust bank? And how did we get into this position?

In a move clearly aimed at trying to upstage and divert attention from an extremely embarasing Sinn Féin private members’ motion on the ESM Treaty, the Minister for Finance, Michael Noonan, told the Dáil on 21 March that the Government is

now negotiating with the EU authorities, and principaly with the ECB, on the basis that the €3.06 bilion cash instalment due from the Minister to IBRC [Irish Bank Resolution Corporation] on 31 March 2012 under the terms of the IBRC promisory note could be settled by the delivery of a long-term Irish government bond. The details of the arrangement have still to be worked out.”

What other country in Europe is sticking 20 percent of its GDP on its national debt to support a completely bust bank? And how did we get into this position?

The loan losses in the Irish banks following the financial collapse in 2008 were calculated in March 2011 at €75 billion. In the twelve months since then it has become increasingly apparent that mortgage loan losses will get progressively worse. Evidence is mounting that the total loan losses in Ireland could rise towards €10 billion.
The guarantee in September 2008 to six Irish financial institutions, and the subsequent €31 billion in IOUs given to Anglo-Irish Bank, were the starting-point on this road to modern financial servitude.

Anglo-Irish took these promissory notes, or IOUs, and lodged them with the Central Bank of Ireland. The Central Bank effectively created €31 billion, which was given to Anglo-Irish by a procces known as “exceptional liquidity assistance.”

The money given to Anglo-Irish was not borowed from the European Central Bank, nor was it created by the European Central Bank. It was created by the Central Bank of Ireland, as the creation of money is decentralised in the eurozone.

The Irish Nationwide Building Society later came into the scheme when, from 1 July 2011, its assets and liabilities were transfered to Anglo-Irish in a merger ordered by the courts that created the Irish Bank Resolution Corporation.

So as a one-off, money was created and pumped into the Irish banks to keep them solvent. Normally when banks collapse, their investors do not get all their money back. After 2008, as payments to bond- holders fell due, neither the banks nor the state had the resources to pay them. That is where the ECB stepped in. It lent approximately €135 billion to Irish banks to enable them to repay the bond-holders, with interest, and also to replace lost deposits.

That repayment schedule for this ECB-dictated madness is punishing:

3.1billion every year until 2023, with smaller annual outlays due until 2031. 

3.1 billion is about three times the size of Ireland’s austerity measures this year and represents about 2 percent of GDP. To do this it must borrow the money, and pay interest on it, raise taxes, and cut spending. This will destroy any hope of economic recovery.

The Government is afraid to rock the boat too vigorously in these negotiations, because of a belief that the billions of “unprecedented” lending to Irish banks will be placed at risk if the promissory notes are not repaid and that they cannot be reneged on, or indeed disowned by a country that has already shouldered such debt to bail out banks and non-Irish financial institutions.

The country is fighting for its very survival, and the Government needs to negotiate accordingly. The terms of the deal should have more to do with asserting national sovereign rights than trying to look good for the forthcoming referendum.


First published online @ http://www.indymedia.ie/article/101646

Wednesday 4 April 2012

ESM Stroke politics = New National Disaster

The Government hopes to be able to pull a stroke within the next few weeks that could be as disastrous politically for this country as the blanket bank guarantee of 2008 has been socially and economically.

The stroke? Sign up, virtually ‘on the q.t.,’ to a new permanent euro-zone bail-out fund, the European Stability Mechanism, to which Ireland will be “irrevocably and unconditionally” obliged to the tune of €11 billion, while all the time making great palaver about holding a referendum on the Fiscal Compact Treaty.

Yet together the European Stability Mechanism and the Fiscal Compact Treaty represent quite fundamental moves in the direction of a qualitatively different euro zone from the one established under the Maastricht Treaty in 1992.

Under the new regime virtually the whole area of budgetary policy will be removed from the national level to the supranational level of the euro zone, without a referendum.

The ESM treaty describes the two treaties as being “complementary.” So why not a referendum on both treaties? Legal advice from none other than the Attorney-General.

The present incumbent of that position, Marie Whelan SC? No. Her predecessor, Paul Gallagher SC, advised the previous Government that there was no constitutional problem in not holding a referendum.

It will be recalled that Gallagher also advised that Government on the night of the blanket guarantee for the Irish banks in September 2008.

So a change of Government did not result in a new, more independent approach to a developing euro-zone fiscal union, any more than it meant any real and significant loosening of the financial servitude imposed on the country by the previous Government. All done for the good of Irish banking interests and the German and French banks from whom they had borrowed.

Even at this late stage it is not too late to demand that the Attorney-General advises on the constitutionality of what the Government is trying to do—particularly in the light of the fact that there are significant differences between the earlier ESM Treaty that the previous Attorney-General advised on and the second version.

Under the ESM Treaty mark 2, any money from the permanent bail-out fund would be given only to states that had inserted the so-called permanent budget rule or “debt brake” in their constitutions or equivalent.

First published online @ http://www.indymedia.ie/article/101640

Tuesday 3 April 2012

The Irish Veto: Why a referendum on one treaty and not on the other?

The Government wants the Dáil and Seanad in the very near future to approve a hugely important amendment to the EU treaties without any referendum, even though this amendment and its legal and political consequences would mark a qualitative change in the direction of the EU and in the character, scope and objectives of the Economic and Monetary Union.

The EU authorities are seeking to change the whole basis of the Economic and Monetary Union.


They are doing this by establishing a permanent ESM bail-out fund of €500 billion, which is to be surrounded by an apparatus of strict controls over national budgetary policy, including the permanent balanced-budget rule (0.5 per cent deficit rule).

This fund, which the euro-zone states want to set up from next July, would oblige Ireland to make a contribution of €11 billion, in various forms of capital, towards a permanent bail-out fund, called the European Stability Mechanism. This fund is to be set up by means of the European Stability Mechanism (ESM) Treaty for the seventeen euro-zone countries once all twenty-seven EU countries have amended article 136 of the Treaty on the Functioning of the European Union.

The amendment to article 136 would extend the scope of the existing EU treaties significantly and bears a huge weight of legal and political consequences.

It reads:

“The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”

It is widely recognised among economists that the proposed ESM Treaty, the permanent eurozone funding mechanism it would establish and the apparatus of control of national budgets goes nowhere near solving the present financial crisis of the euro area.

What is needed is more emphasis on stimulating economic growth and demand throughout the area, to the benefit of the common good of Ireland and the other euro-zone countries.

An Irish veto


The European Council of twenty-seven prime ministers and presidents decided in March 2011 to set up a permanent bail-out fund for the euro zone.

Ireland has a veto, for before the “decision” can come into force it must be approved by all twenty seven EU member-states “in accordance with their respective constitutional requirements,” which means that in Ireland it requires approval by the people in a referendum.

The proposed amendment in effect entails a surrender of state sovereignty, which goes beyond the original “licence” that the Irish people gave the state in earlier referendums to join a “developing” European Community and widens the scope and objectives of the present EU treaties by significantly increasing the powers of the EU.

 But there’s more . . .


The amendment is to be made under the so-called “self-amending” article 48 (6) of the Treaty on European Union, which was inserted in the EU treaties by the Treaty of Lisbon. By using this procedure, the 27-member European Council of Prime Ministers and Presidents can take decisions to amend most provisions in the policy areas of the EU treaties, as long as such amendment does not increase the Union’s powers or competence.

For the European Council to claim the authority under EU law to set up a permanent bail-out fund for a sub-group of EU states is an assertion of significantly increased powers for the EU as a whole, because up to now the EU treaties provided for no such fund or mechanism in the Monetary Union. The treaties provided rather for an EU monetary union that would not require or permit cross-national “bail-outs” under any circumstances and would be run on quite different principles from what is being now proposed.

The ESM Treaty sets up the European Stability Mechanism, and sets out the institutional structure and the rights and privileges of this “mechanism.”


The mechanism will include a permanent bail-out fund of €500 billion, to which each of the seventeen members of the euro zone must make a contribution in accordance with a “contribution key.” The treaty provides that the fund may be increased later by agreement—and there is already talk of increasing it.

Ireland must contribute €11 billion “irrevocably and unconditionally” to the fund in various forms of capital.


The ESM Treaty was signed by EU ambassadors on 2 February 2012—replacing an earlier ESM Treaty that was signed by Michael Noonan and other euro-zone Finance ministers in July last year but that was never sent around for ratification. The seventeen euro-zone states have agreed that ESM Treaty No. 2 will be ratified so that it can to come into force by July this year.

This is to happen once it is ratified by signatories representing 90 per cent of the initial capital of the fund, so that Ireland has no veto on it. Not only that, but the treaty could come into force when the eight largest euro-zone member-states, which together hold 90 per cent of the fund‘s capital, ratify the treaty.

The preamble to the treaty states (recital 5) that it is agreed that money from the permanent ESM fund will be given only to euro-zone states that have ratified the later Fiscal Compact Treaty (“Treaty on Stability, Coordination and Governance in the Economic and Monetary Union”) and its permanent balanced budget rule or “debt brake,” and that the two treaties are complementary.

The Fiscal Compact Treaty was insisted on by the German chancellor, Angela Merkel, over the winter of 2011, essentially as a gesture towards German public opinion.


When the Deutschmark was being abolished in 1999, the German people were not told that they would be committed to an EU monetary union with a huge permanent bail-out fund to which they would be expected to be the principal net contributors.

Instead they were told that the “no bail-out clause” of the EU treaties, article 125 of the Treaty on the Functioning of the European Union, guaranteed that there would be no bail-outs by the others for any member-state using the single currency that did not abide by the excessive-deficit rules.

Most economists regard a “permanent balanced budget” rule as absurdly inflexible, for governments do need to run deficits on occasion in order to stimulate their economies and expand economic demand when that slumps heavily in their domestic or foreign markets.

Approving the European Council’s decision to insert the article 136 amendment into the EU treaties, ratifying the subsequent ESM Treaty, with its strict budgetary rules, and ratifying what is stated to be the “complementary” Fiscal Compact Treaty towards the end of this year, will have the effect of removing virtually the whole area of budgetary policy from the national level to the supranational level of the euro zone—without a referendum in Ireland or even a Government white paper on the implications of that

The provisions of the Fiscal Compact Treaty were agreed at the EU summit meeting on 30 January and need not be ratified until the end of this year. This treaty provides for a rule requiring a permanent balanced budget, or “debt brake” of 0.5 per cent of GDP in any one year, to be inserted in the constitution (or equivalent) of euro-zone states.

All seventeen euro-zone states must ratify this treaty, but it comes into force once it is ratified by twelve of of them, so Ireland has no veto on it.


The preamble to the Fiscal Compact Treaty refers to the fact that money from the new permanent bail-out fund (the ESM) will be given only to states that have ratified it. Most of the provisions of the treaty overlap with the so-called “Six Pack” of EU regulations and a directive that constitutes the “Reinforced Stability and Growth Pact” and which were put into EU law last December.

It is important to note that the ESM Treaty and the Fiscal Compact Treaty are not EU treaties, binding in EU law, but are rather “intergovernmental treaties” among the seventeen member-states of the euro zone, although they provide for the full involvement of the EU Commission and the European Court of Justice in their day-to-day implementation.

These are clear moves towards a fiscal union for the euro zone, and the Oireachtas is being invited to approve them in the next couple of weeks, without any significant public discussion, at least to judge by the virtual total silence on them so far.

These developments would remove much of the stuff of national decision-making and normal party politics from the arena of democratic consideration and debate in this country.

At a minimum, the Irish public deserves a white paper on these hugely important developments before Ireland’s last EU veto of significance is abandoned and it becomes too late to save further large areas of our national democracy.



First published online @ http://www.indymedia.ie/article/101627