So I’ve managed to land at a rather complicated position regarding tomorrow’s referendum. I don’t agree with the methods of attaining economic success as outlined by the treaty, but I still think that voting Yes is the right call. Allow me to try and explain why.
I will warn you before I begin, I am by no stretch an economist, my understanding comes from reading opinions and analyses from people far more qualified than I to interpret the treaty. As a result there’s a decent chance that I say something incredibly stupid or overlook some significant fact here. I don’t think I have, but if you notice any errors, please let me know in the comments.
I believe in free and open markets, I believe that consumer purchasing habits should be the primary mover in any economy and that tax collection should be driven by increasing the number of transactions, rather than from raising taxes. Taxing your way out of a recession is not the way to go. I believe that you have to spend money to make money. On a national level much of that money should be spent on education. Entrepreneurs create jobs and the best way to make sure there are as many possible entrepreneurs is to ensure that all potential entrepreneurs are educated to a level whereby they have the know-how to set-up or improve businesses.
In order to allow a government to be able to fund this kind education, as well as many other incentives and programmes, they need to be able to borrow. They need to be able to invest. They need to be able to plan on spending more money than they have, provided that they have made a reasonable estimate as to how much of a return on their investment they will receive. The ‘balanced budget rule’ of the Fiscal Treaty essentially eliminates this ability. By capping the structural deficit at 0.5% governments can’t spend more than they have. This seems like a logical position but what it really means is that governments can’t make big investments in the future. The economy can’t be encouraged to boom, there’ll just be a steady trickle of growth.
The view is that this also means that there can’t really be a bust either. But economies are supposed to boom and bust. We just don’t want the boom to hit the heights of the Celtic Tiger, otherwise the bust at the far end will be just as painful. Economic policy is a delicate area, managing a boom is just as important as managing a bust, but for there to be any real change and development the rough up/down pattern must continue. By enforcing the ‘balanced budget rule’ economies will move at a glacial state.
One upside of this slow moving economy is that it allows for the Euro to be saved. Yes the Fiscal treaty makes for a slow moving economy, but it is stable enough to allow the Euro to be saved. If none of the rules in this treaty are enforced, the Euro will fail. A Yes saves the Euro.
Many of you may be saying now; “who cares? Let the Euro fail.” Well I oppose that view for a couple of reasons. Number 1; reverting to individual currencies for the Eurozone would result in an unholy economic shitstorm. Each country would grapple with their own plans for a changeover while also trying to work together for a unified plan. Larger and more influential countries would be in a better position to control the EU policy of the changeover so smaller, and economically weaker countries like Ireland, would have to work extremely hard to keep their heads above the water. If the Euro were to fail now, things would get a lot worse before they got better. And even if our economy did survive such a massive changeover, there would be a phenomenal amount of uncertainty as to how to move forward afterwards.
The second reason I’m opposed to dropping the Euro is because I believe that it is a step in the right direction toward more unity in Europe. The Euro has been criticised for trying to operate a single currency without the advantage of a single central government, like the US has. But the longer that the Euro exists, the more countries must therefore cooperate to help make it work. The central government of the EU would have to become stronger and more efficient and gradually the need for economic borders would dissolve. With economic borders dissolving, so too would other borders. Nationalistic squabbles would die out. I believe the Euro is a step toward uniting the people of this planet and making our goals and interests more shared and aligned. So I want the Euro to continue.
All of this is rather irrelevant however, as whether the treaty is passed or not, most of the rules are already in place due to other EU agreements and directives. This is not a choice between an open economy and a 0.5% structural deficit limit, it’s a choice between a 0.5% limit and a 1% limit. The structural deficit is already limited to 1%. Another 0.5% doesn’t really make a huge hell of a difference. But there are some things which are different.
Firstly, if we don’t ratify the treaty we have to hit that 1% limit by 2015, whereas if we ratify the treaty we have until 2019. Meaning we can allow more time to allow the economy to grow (which it is doing) in order to hit the target rather than having to rapidly implement a mountain of new taxes in order to reach the target.
Voting Yes would also mean that we would have access to the ESM fund to hit our target if we needed to. Campaigners for a No vote have said that we still have access to other funds, they’re right, we do. But those other sources would likely have higher interest rates and more would have to be borrowed in a smaller amount of time, so it would cost us more money in the long run. Some No campaigners have even insisted we would still have access to the ESM. That’s pretty tricky, I don’t know if we do, but if we do it would be a hack of a lot more difficult to get at, and we’d have to borrow more money more quickly, meaning greater debt and interest to be paid. Quite simply, a No vote means higher taxes very quickly, a Yes vote means slow growth in the economy as we move forward.
In the short term, a Yes vote makes it easier for us to reach our obligations. We have more support and more time to comply with EU regulations. So a Yes vote makes more sense. In the long term however, we get locked into an economic plan which discourages real growth and open investment. But that doesn’t really matter, because by the time we get to the long term, this treaty will be largely relaxed and/or dismantled.
Back in 2003 France and Germany breached a 3% deficit limit imposed by the Stability & Growth Pact (under the Maastricht Treaty, which established the Euro in the first place). So what happened? Germany and France used their clout to have the rules relaxed. At the moment the Fiscal Treaty and it’s austerity measures have been pushed by France and Germany, particularly by Nicolas Sarkozy and Angela Merkel. But Sarkozy got voted out of office this year and Merkel is likely to experience the same fate next year. Europeans are rejecting Austerity measures. So in the not too distant future the two most powerful EU countries will be led by governments opposed to the type of Austerity plans laid out in this treaty. This treaty does however make it more difficult for those countries to change the rules, they need far more cooperation from the other EU countries to make changes, but it won’t take too long before the other nations, including Ireland, are finding economic growth limited due to this treaty. It’s going to become very unpopular so more than likely it’s going to get changed.
To try and avoid this change, the Fiscal Treaty says that it would be preferable to have some of its provisions constitutionally enshrined. That is a bad plan, we need the ability to dismantle this treaty later, so if we’re ever asked in a referendum to put the measures of this treaty directly into our constituion, be sure to vote No.
The EU is constantly evolving and changing, there is going to be greater economic cooperation which fosters additional cooperation. Meaning that in the long term, this treaty will become increasingly irrelevant, both as it’s policies are rejected as we exit this phase of extreme economic pessimism, and as the EU evolves to a more experienced and unified entity.
So in the short term, this treaty helps Ireland stabilise and makes it easier to achieve our economic targets, while in the long term, this treaty will become more irrelevant. If we stuck with this treaty to the letter in the long run, then yes, that would be rather rubbish, but I really don’t see that happening. Economies are robust and unpredictable things, driven by confidence. As Ireland and Europe become more confident, economies should improve and policy will reflect that. A No vote triggers panic mode, meaning things would get much worse before they got better. A Yes vote gives enough confidence to help pump up an economy, and a pumped up economy rejects austerity easily.