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

The German role in the euro-zone crisis

The Economic and Monetary Union that Ireland signed up to under the Maastricht Treaty (1992) and Lisbon Treaty (2009) assumed that the deficit rules of 3 per cent and 60 per cent of GDP for every euro-zone state would be complied with and enforced by means of sanctions that are set out in those treaties.

When Germany and France broke these rules in 2003, the EU treaty sanctions were not applied against them, and they were effectually dropped for everyone else.

Now Germany and France are using the present euro-zone crisis to set about increasing their political sway over the euro zone by changing the whole basis of the Economic and Monetary Union that Ireland signed up to by establishing a permanent €500 billion so-called European Stability Mechanism bail-out fund, surrounded by a framework of controls over national budgetary policy, including a permanent balanced-budget rule (0.5 per cent deficit rule) proposed in the Fiscal Compact Treaty.

Remember that, under the Lisbon Treaty, in two years’ time Germany’s vote in making EU laws, as well as voting in euro-zone matters will double, from its present 8 per cent to 16 per cent, while that of France and Italy will go up from 8 to 12 per cent.

And Ireland’s vote? Cut by half, to 1 per cent.

But what about the German economic model?

Here is a typical portrayal, by Martin Hart-Landsberg at www.spectrezine.org:

As growing numbers of countries face renewed austerity pressures, there is a tendency to explain the trend by searching for specific policy failures in each country rather than considering broader structural dynamics.

Key to the credibility of those who argue for a focus on national decisions is the existence of countries that people believe are performing well. Thus, the argument goes, if only policy makers followed best practices their people wouldn’t find themselves in such a bad place. Recently, German has become one of these model countries.

Here is a typical framing of the German experience:

At a time when unemployment rates in France, Italy, the UK, and the US are stuck around 8%–9%, many are turning to the apparent miracle in the German labor market in search of lessons. In 2008–09, German GDP plummeted 6.6% from peak to trough, yet joblessness rose only 0.5 percentage points before resuming a downward trend, and employment fell only 0.5%. In August 2011, the standardized unemployment rate was about 6.5%, the lowest since the post-reunification boom of 20 years ago.

In other words, Germany seems to be doing things right. Despite suffering a deep decline it actually enjoyed a lower unemployment rate. So, how did it do it? Often cited are recent German policies which have increased labour market flexibility.

But are these the best practices that should be adopted elsewhere? One way to answer that question is to look at what these changes have meant to German workers.

A Reuters report concluded: “Job growth in Germany has been especially strong for low wage and temporary agency employment because of deregulation and the promotion of flexible, low-income, state-subsidised so-called ‘mini-jobs’.”

The number of full-time workers on low wages—sometimes defined as less than two thirds of middle income—rose by 13.5% to 4.3 million between 2005 and 2010, three times faster than other employment, according to the Labour Office.

Jobs at temporary work agencies reached a record high in 2011 of 910,000—triple the number from 2002 when Berlin started deregulating the temp sector . . .

Data from the Organization for Economic Cooperation and Development shows low-wage employment accounts for 20% of full-time jobs in Germany compared to 8.0% in Italy and 13.5% in Greece . . .

One out of five jobs is a now a “mini-job,” earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.

“Regular full-time jobs are being split up into mini-jobs,” said Holger Bonin of the Mannheim-based ZEW think tank.

And there is little to stop employers paying “mini-jobbers” low hourly wages given they know the government will top them up and there is no legal minimum wage.

As the New York Times astutely reported,

But hidden behind the so-called German economic miracle is an underclass of low-paid employees whose incomes have benefited little from the country’s stability and in fact have shrunk in real terms over the last decade, according to recent data.

And because of government policies intended to keep wages low to discourage outsourcing and encourage skills training, the incomes of these workers are not likely to rise anytime soon.

That, in turn, means they are likely to continue to depend on government aid programs to make ends meet, costing taxpayers billions of euros a year.

The paradox of a rising tide that does not lift all boats stems in part from the fact that Germany has no federally set minimum wage. But it also has its roots in recent German politics, which have favoured measures to keep unemployment low and win support from employers . . .

The Confederation of German Employers’ Associations says the introduction of a minimum wage would push up labour costs and lead to more unemployment. Jobs would simply move out of Germany and to Eastern Europe or Asia.

An ILO report, Global Employment Trends, 2012, shows the connection between these policies and the euro-zone crisis.

For they have not only taken a toll on German workers, they have also greatly contributed to the crisis in Europe. The low wages and insecure employment conditions have enabled German employers to boost exports and limited imports.

The ILO report concludes:

The rising competitiveness of German exporters has increasingly been identified as the structural cause underlying the recent difficulties in the Euro area. Crisis countries had not been able to export enough of their goods to Germany as domestic demand there was not strong enough because of low wages. 

German policies to keep down wages had created conditions for a prolonged slump in Europe as other nations on the continent increasingly saw only even harsher wage deflation as a solution to their lack of competitiveness.

The report called on Germany to enact swift changes.

“An end to a low-wage policy would create positive spill-over effects to the rest of Europe and restore a more equitable income distribution . . . An end to a low-wage policy would create positive spillover effects to the rest of Europe and restore a more equitable income distribution.”

As the chart shows, German wages have been stagnating for more than a decade. No wonder Germany has been exporting so successfully and other countries in Europe have found it difficult to compete.

While German politicians blame these other countries for their problems, the fact is that German growth has depended on the high consumption and borrowing in those other countries.

The "Fiscal Compact" has an equally obnoxious brother—the European Stability Mechanism (ESM) Treaty

A massive No, and No again if necessary!

From now to the forthcoming referendum we should be informing and organising ourselves; organising our neighbours and friends, trade unions, social and community groups about what the grandly named “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union“ means. For the future of this country, and about the antidemocratic and anti-social dangers that it poses.

The treaty has been quite properly renamed the “Permanent Austerity Treaty.” It provides for a permanent balanced-budget rule or debt brake of 0.5 per cent of GDP in any one year to be inserted in euro-zone members’ constitutions or the equivalent.

But it has an equally obnoxious brother—the European Stability Mechanism (ESM) Treaty—which the Government will not be holding a referendum on and will be trying to push through the Oireachtas in the next few weeks with an absolute minimum of public scrutiny. It is in fact a virtual coup, with equally disastrous consequences for the country.

Democrats of all political persuasions should be very concerned.

Yet, as the preamble to the ESM Treaty states, it and the Permanent Austerity Treaty are “complementary in fostering fiscal responsibility and solidarity within the economic and monetary union.” So why a referendum on one and not on the other?

This treaty sets up the European Stability Mechanism.

This also includes a permanent €500 billion bail-out fund and the contributions each of the seventeen euro-zone members must make to it.

In Ireland’s case this will amount to €11 billion, “irrevocably and unconditionally,” in various forms of capital.

The changes represented by the two treaties would make euro-zone member-states permanently 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.

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 the larger EU states would, regularly and permanently, vet members’ fiscal policies and impose punitive fines on those failing to observe deflationary budget rules.

It should not be forgotten that after 2014, by courtesy of the Lisbon Treaty, the voting arrangements for making EU laws as well as voting on eurozone matters will see a doubling of Germany’s vote in making EU laws, from its present 8 per cent to 16 per cent. While France’s and Italy’s vote will go from their present 8 per cent each to 12 per cent each, and Ireland’s vote will be halved, to 1 per cent.

We should work for a powerful No vote in the referendum on the Permanent Austerity Treaty, but we should also not be distracted from the anti-democratic process that the Government is using to bring the European Stability Mechanism into being.

The ESM Treaty was signed by EU ambassadors on 2 February—replacing an earlier ESM Treaty. The seventeen euro-zone states have agreed that this ESM Treaty No. 2 will be ratified so that it can to come into force by July.

This ESM Treaty must therefore be brought before the Oireachtas for approval of its ratification in the next few weeks before Easter. There will also be an accompanying European Communities Amendment Bill to implement the amendment of article 136 of the Treaty on the Functioning of the European Union, as well as the provisions of the ESM Treaty in Irish domestic law.

The “decision” of the twenty-seven prime ministers and presidents to give permission under EU law to the seventeen euro-zone member-states to set up a permanent bail-out fund for the euro zone must be agreed by all twenty-seven EU member-states in accordance with their respective constitutional requirements.

This means that the European Council “decision” to make this amendment requires approval either by the Oireachtas or by the people in a referendum.

For the European Council to purport to authorise under EU law the setting up of a permanent bail-out fund for a sub-group of EU states can arguably be said to be a significant claim to increased powers for the EU as a whole, as hitherto the EU treaties provided for no such fund, either directly or indirectly.

Arguably, therefore, this amendment would put the Economic and Monetary Union that Ireland signed up to when the people ratified the Maastricht and Lisbon Treaties on a new and different basis, which entails a significant move towards a fiscal union for the euro zone as well as an Irish commitment to a framework of accompanying supranational controls over national budgetary policy.

Therefore, the People’s Movement believes that it would be unconstitutional for the Oireachtas to attempt to give the necessary approval of such a European Council decision without a referendum of the people in Ireland, especially when the Government is prepared to hold a referendum on the Permanent Austerity Treaty.

The EU member-states adopted the rules regarding 3 per cent and 60 per cent of GDP to ensure that euro-zone member-states 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 excessive-deficit limits in the early 2000s.

When Germany and France broke the rules of the EMU by running big government deficits in 2003, the EU treaty sanctions for enforcing the deficit rules were not applied against them, and they were thereafter effectually dropped for everyone else. Ireland did not break these excessive-deficit rules, however.

Now Germany and France are seeking to change the whole basis of the Economic and Monetary Union that Ireland signed up to by including, in addition to establishing a framework of controls over national budgetary policy, the permanent balanced-budget rule (0.5 per cent deficit rule) through the Permanent Austerity Treaty.

The ESM Treaty is to come into force once it is ratified by signatories representing 90 per cent of the initial capital of the fund; and the preamble to the ESM Treaty states that money from the permanent ESM fund will be given only to euro-zone states that have ratified the Permanent Austerity Treaty and its permanent balanced budget rule or “debt brake.

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 ?