Should we postpone the referendum on the Fiscal Compact?

The Change is Now!

Posted by Eoin O’Malley (26 April, 2012)

François Hollande had made it clear in campaigning for the French presidency that he was no fan of the Fiscal Compact and indicated that he would be against French ratification of the Treaty. Now that his election looks more than likely he has again stated his opposition to the Treaty. In today’s Irish Times he is reported as saying

“There will be a renegotiation. Will the Treaty be changed? I hope so. Or another Treaty arranged? That is up for negotiation. But the Treaty, as is, will not be ratified.”

Now obviously French ratification of the Treaty doesn’t matter in a legal sense, it can still go ahead. But politically we know it is unlikely that France and Germany, the two biggest economies in the Eurozone, would allow it be put in force if both were not signed up.

This takes us to the wording of the Irish Bill on the change to the constitution currently going through the Oireachtas. It indicates that the likely addition to the constitution will take a form of words such as this:

“The State may ratify the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union done at Brussels on the 2nd day of March 2012. No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State that are necessitated by the obligations of the State under that Treaty or prevents laws enacted, acts done or measures adopted by bodies competent under that Treaty from having the force of law in the State.”

This is to be inserted as Art. 29.4.10°. Now Hollande may change his mind once elected (it’d hardly be the first time a politician changes his mind once in office) and if the Irish vote yes, this won’t be a problem.

But if there is a renegotiation, then the Irish vote will irrelevant – the Treaty agreed on the 2nd of March won’t be the one we will then want to ratify. We cannot change the words to accede to a Treaty that is to be negotiated at a future date. We could just put in a wording that says that no Irish government will be allowed to run a long-term structural deficit (although it wouldn’t be pretty to watch the Supreme Court trying to agree a definition of what that might be). This would have us insert in our constitution the main provision of the Treaty and what the Germans really want us to do. An alternative might be to postpone the referendum and wait until after the summer, though this might renew the sense of crisis in the Eurozone, with Ireland at the centre of the crisis.

An obvious compromise, and one that they seem to be working towards, is to have a new Treaty, a so-called ‘Growth Compact’ referred to by Mario Draghi on Wednesday. This could allow the Fiscal Compact Treaty remain unchanged in return for German acceptance that Europe needs to put more emphasis on growth (what this Treaty might look like is unclear).

Regardless of what eventually happens, Hollande’s intervention could be seized on by No campaigners as a way to increase uncertainty – the Yes side is banking on the certainty the Treaty might give as its way of framing the campaign. Just look at how it’s effectively renamed the Fiscal Compact the ‘Stability Treaty’. Hollande seems to be encouraging the Irish to vote no (see the IT report). It could be the sort of insurance policy potential Irish no voters want, that is, if we were to vote no, we’d have a big country with us and so would not be isolated.

7 thoughts on “Should we postpone the referendum on the Fiscal Compact?

  1. This guy is just trying to get elected and the anti-Sarko line is working for him. Talk of “renegotiation” reminds the French that Sarkozy has been Dr. Merkel’s right-hand man in Europe. Hollande is quite technocratic and centrist. Basically, he buys into the need for budgetary control. I suppose, as a seemingly sane European, he would like some commitment by the Germans to boost domestic demand or commit to Eurobonds. However, I don’t think France’s agreement to the Fiscal Compact is remotely strong enough a bargaining chip to win those concessions. Hollande knows that any attempt to seriously renegotiate the pact is likely to encounter furious German opposition and spread panic in the markets. I suspect all he can achieve is a rhetorical concession. There is a very, very clear precedent for Franco-German negotiations on exactly this topic. This is exactly what happened in 1997, when an incoming French Socialist government was unhappy with German insistence on Europeanising fiscal discipline. The resulting Stability and Growth pact had the word “growth” in the title and claimed to be “based on the objective of sound government finances as a means of strengthening the conditions for price stability and for strong sustainable growth conducive to employment creation”. However, all the articles with real bite were about budgetary control.

    Ireland has half the population of Paris and is governed from Brussels and Frankfurt. I doubt very much that Hollande put much thought into his mention of Ireland. I also doubt very much that he will be enormously grateful if we vote “No”. I know the Germans won’t. I also know that ratification of the Fiscal Compact is necessary for access to the European Stability Mechanism. Hollande’s comment is great for the “No” campaign, but I don’t see how it appreciably reduces the risks of a “No” vote. By the way, I don’t think the treaty proposes a sensible way of managing fiscal policy or dealing with the Euro crisis, but the risks of voting “No” for Ireland are very real and very substantial.

    This should link to the 1997 Stability and Growth Pact

  2. Hollande, “There will be a renegotiation. Will the Treaty be changed? I hope so. Or another Treaty arranged? That is up for negotiation. But the Treaty, as is, will not be ratified.”

    Fantastic! So what pig in a poke, Treaty am I and other Irish people actually voting on? This is not just a “guy” he is the likely next President of France and if he says, this Treaty as it is, will not be ratified I for one believe him.

    It is very interesting to see all the academics that have been silent almost to a man on the Croke Park little arrangement, costing the country billions each year, now stepping forward to wring their hands as the weasel words tumble out and they try to persuade ordinary people that sinking the country even more into debt under the guise of a fiscal austerity compact is the way to go.

    I have even heard the dreaded “only game in town” caption being spouted again. On the one hand they tell us it is a cobbled together treaty doomed to failure but on the other hand when they think about their salaries, and ask themselves will this effect me? They nod and say “this is horrible for you guys but on the balance of probabilities, if, when we need another bailout, more hand wringing it would be better etc.” So the horrible state of our public finances can only be tackled by further bailouts and even higher debt to GDP ratio’s. So we are voting for growth by more austerity and even more borrowing. So much for the Ph’d brigade. Ireland needs to be honest with itself and have a policy other than serially robbing from our own children.

  3. We all buy into the need for reform and for cuts. We all understand that.

    What some of us don’t believe is that the cuts have to be made so as to protect the wealth of the few at the expense of the many.

    For example the size of the cake is big enough to provide the quality of services we expect in a modern western country. The problem is how those who get to divide it out do so.

    If the banks had been allowed go to the wall the way these things happen in the free market then we wouldn’t be ‘were we are’. We’d be far further down the road to recovery.

    Here we are still in 2012 paying millions out in pension tax relief, paid for from the taxes of people who themselves don’t have any pension. That’s just one example.

    Then add in 800 public sector allowances and let’s not even start on the myriad of allowances, expenses and pensions paid to people at senior level in the public from the President down.

    So when we see the likes of Mr Kenny and Mr Bruton and MR Gilmore and others tell us how we ‘must’ accept more sacrifices, it is perfectly legitimate to ask them what sacrifices have they made, are they lying awake at night worrying about paying bills etc. No of course not because the people telling us what we must sacrifice have themselves made sure they are insulated from those sacrifices and enough is enough.

    The reaction of people in Greece, Spain, The Netherlands and France isn’t against reform and cuts.It’s a demonstration seeking fairness.

    It’s revealing that the agenda of some in the media seeks to make out that seeking such fairness is wrong – as if how dare the people of EU states challenge their betters.

    The European People’s Party will do nothing to facilitate a fairness agenda because they are too far in thrall to the vested interests of a few who provide large financial backing to it.

    We can only hope that in France at least the word socialist still has some meaning because the parties that claim its mantel in the UK and Ireland are in breach of copyright and ceased being socialist long ago – they are not even socialist lite like Mr Hollande.

  4. There seems to be a lot of desperate talk that there is a “better deal to be had” and talk of a “wind of change” blowing through Europe against austerity. We even had the spectacle on Vincent Browne of a Sinn Féin TD speaking of the bravery of a Partido Popular President! I wonder what their colleagues in Batasuna make of that.

    I don’t really see a dramatic change in attitudes across Europe. Sarkozy has been under pressure for reelection for the last two years and the French have hardly undergone ‘austerity’. So his supposed defeat was well expected. Wilders was always going to do something to get attention for himself but it appears that D66 and Groenlinks have stepped into the breach to show him up. So the Dutch people are not revolting, just that the hard-right has pulled out and the centre-left have stepped in.

    Protests always happen in Spain. National politicians are so distant it’s the only way the public can engage in any way with them outside of elections. The protests are working in that they are slowing down austerity but there is no alternative for Spain. Zapatero tried massive stimulus and failed. Long, slow, painful structural reform is the only route for them. This mindset is ingrained in Germany and the ECB. Peer Steinbrück, the likely SPD candidate against Merkel, and main opposition figure has been ranting against stimulus for several years now, so not even political change in Germany will have any effect.

    Given that the entire ‘bailout’ process is contingent on funding from Germany (and don’t forget the likes of Finland and Slovakia where election debates called for more austerity) who is not going to back down on the fiscal measures, it appears to me that the most likely scenario will be that the Fiscal Compact stays but that a new capital investment programme emerges for the periphary funded by low German bond yields. FP has a nice article fleshing this idea out a bit more.,0

    Iain has summarised the limit of what Hollande can achieve. But I think that the current situation is that more serious that it will force Germany to institutionally spread out its economic success, and not just a surface change as happened before. This will be solely on German terms,. So no renegotiation on the Fiscal Compact but the addition of stimulus spending. Quite what form that will take is the interesting question. The Eurobond Treaty next?

    • Isn’t the ECB an arm of the EU which is meant to be run by its member states not just Germany.

      It is conveniently forgotten that despite all its mistakes, and there are so many, the governments of Ahern/Cowen ran current account surplus’s year after year running into the billions.

      When you separate out the cost of the banking mess, we would have been perfectly well placed to deal with the current spending side of things – granted whether we would have had the actual will to do is unlikely but in pure financial terms we could have sorted that side out without the IMF.

      When the banking debt came into play it was game over.

      Everyone knows there will be Eurobonds sooner or later because EU economies simply cannot deal with private banking debt and sort out their national finances and foster growth. At best some countries can do two out of three but not three out of three.

      The real issue is why Germany has been allowed act as if the ECB is the German treasury. So there would be a little bit of inflation if the printing presses were put into overtime and Eurbonds means accepting that there should be a transfer of wealth within the EU – just as happens within the US.

      The idea is nuts that we would add into our constitution a legally binding rule that we have to get our national debt down from a peak of 120% of GDP to 60% ie from €200b to €100b – where are we meant to get that €100 to lower our debt from?

      Angela Merkel is not just from the former East Germany she is also from the former Prussia which goes part of the way to explain her inability to not succumb to the desire to punish. This mindset also prevents her from admitting she was wrong to punish so severely or to not compromise on things like private sector banking debt remaining just that and not being passed onto the taxpayer and Eurobonds. It also prevents her facing the fact that it was Germany that first broke the rules of the monetary union treaties not Greece or Ireland.

      Politicians are no different to the rest of us in that they have certain mindsets which are shaped by their upbringing and try as they might, it is very difficult for those influences not to shape their thinking.

  5. I would be a little more optimistic about a SPD victory. They might concur with the Christian Democrats that Germany should keep her budget deficit and public debt low, but they have made much more positive noises about Eurobonds. One interpretation of the Treaty is that it was necessary so that the Germans could consider a move towards Eurobonds and/or stimulus spending. So, it might set things up for a more long-term approach from a new German government. I very much agree with John’s emphasis on Germany. Ireland has little or no basis for negotiation while her budget comes from Europe.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s