First posted 2012-05-24
In many ways the EU”s new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union is a lot like a twimii recipe.
I’m not sure if I should admit to this…
Well, considering that I have already admitted to food poisoning and that no one actually reads this blog, I might as well…
Often times by the time I get around to writing the recipe I’ve forgotten the exact quantities I’ve used so I just throw down any measurement that sounds about right. Sometimes I’ve even forgotten exactly what ingredients I used. I had to rewrite the Vegetarian Shepherd’s Pie three times before I stumbled on the original recipe. The Lemon Meringue Pie is one of the few things that I was very accurate about – you don’t want to mess with a 70s classic.
In many ways the EU’s new Treaty on Stability, Coordination and Governance in the Economic and Monetary Union is a lot like a twimii recipe. Some of the percentages bear that certain unmistakeable “arragh I’ll just put down any old number and sure it’ll be grand” quality. And while you think to yourself “hey, it’s just a
recipe treaty on fiscal matters, how much harm could it cause?”, there is a little part of you that thinks “Nooooo, it’ll make me so sick I’ll never recover.” And who knows, maybe that little part of you is right. Apart from the stuff in the healthy treats and diet-be-damned sections – honestly I make those regularly (apart from the Baby Guinness Mousses) and they are good.
Now where was I?
Oh yes, the EU’s new fiscal treaty.
Now before I start into it, I suppose it is only right that I make it clear what my position on the EU is. I am very much in favour of European Union. I like the fact that I am an EU citizen. I love how Ireland has opened up since joining the EEC way back in 1973. Without doubt European integration and the free movement of EU workers, goods and services has benefited our little state not just economically but also culturally.
That said I have voted No on EU referendums since Nice. Why? Well, because the EU powers keep growing and growing, EU law is supreme to national law, and there is little to no effective democratic accountability at EU level. I could go on about the democratic deficit in the EU but that would be a different ramble (actually that would probably turn into a rant). But back to this little treaty, it’s only 10 pages long and it appears to have two main aims.
This treaty is clearly an attempt to rein in the national deficits in EU countries. It’s an attempt to show the markets, the world, and most importantly, ourselves that this is it we’ve got the formula for success and we’re going to stick to it no matter what. In percentages and ratios we trust!
But surely it is a wise strategy to ensure that GDP/Debt ratios are kept under certain levels? I’m not convinced it is. I know it might sound like a crazy thing to say but think about it for a minute, what is the underlying cause of this recession? In fact what is the underlying cause of every recession? The markets and the way they operate. Because the markets are unpredictable I think it’s important to allow for innovative (and individual) economic responses.
How did Ireland come to be in need of the IMF/EU bailouts? Can we please stop calling them bailouts when they must be paid back with interest? That’s called a loan. Were we going crazy following outlandish spending policies? No, we had set up the rather incomprehensible NAMA but that was with the approval of the ECB and we had already made significant cut-backs. Many economists at the time were saying that although times were going to be tough and recovery slow we were on track. So what happened? Well the credit ratings agencies downgraded our credit rating to the extent that we were effectively priced out of the market (i.e. we would have to offer bonds at prohibitively high interest rates in order to attract investors – which makes a bad credit risk appear more risky … so … it’s a vicious cycle). You can argue about whether they were correct or not to do so until you’re blue in the face. At the end of the day what does it matter if they were correct or not because if a country cannot access money on the markets at a reasonable price/interest rate it definitely will become a problem for its creditors. I know all this is obvious and has been said before (for many decades people made this argument about developing nations if only we had bothered to look at the fundamental flaws in the system rather than seeing it as an issue of charity).
So am I saying that the only way out of a recession is to spend spend spend? No, of course not. What I’m trying to say is that the markets are not under any government’s control and they tend towards boom-bust cycles. To protect a nation’s economy from market vagaries requires the careful manipulation of monetary and fiscal policy, and, let’s face it, a lot of luck. Ireland no longer has control over monetary policy since joining the Euro.
Until recently I was very much a fan of the Euro as I feel that sharing a currency with 17 other EU states has increased and deepened Ireland’s psychological connection to Europe and as I am very enthusiastically pro European integration I see this as a good thing.
So what changed recently? Is it because of the Greece’s troubles? No, I hope the Eurozone will have the sense to do all it can to keep Greece part of the Euro. No, what made me question my loyalty to the currency was Mr Michael Noonan, our Minister for Finance, who seems to have suggested that the fiscal treaty vote is a vote on our participation in the Eurozone. This is so plainly ridiculous that I can’t quite believe it – and in fairness a quick google search only gave me one source. Much as I like being part of eurozone (and I wish the UK was part of it also, although considering how having control of monetary policy has helped them through the downturn I doubt that many UK citizens would share this wish), much as I am fond of the euro, if the choice is monetary and fiscal union or neither then I will reluctantly have to choose neither.
Which brings me nicely to the second aim of this treaty.
The second aim of the treaty is the establishment of a “more closely coordinated economic policy” particularly among eurozone members. Unfortunately this translates to more and more finance ministers saying to voters I’m sorry we must introduce these cutbacks as this is was what was agreed … by a bunch of politicians and bureaucrats the vast majority of whom will be in no way accountable to you. Just consider the amount of times over the last year that you have heard ministers explain why they have had to abandon election promises or introduce much harsher than expected cutbacks because it was agreed in the terms of the IMF “bailout”.
We appear to be in the era of “It is beyond my control” politics.
If our politicians have, as appears to be the case, adopted Vicomte de Valmont as their hero does that mean they think of voters as being like Madame de Tourvel? High minded, virtuous, suffering in silence? Or as Cécile? Naive and easily manipulated? Are they that out of touch with the people they are supposed to represent? One thing’s for sure they know we’re not the Marquise.
Even if you would be in favour of coordinated economic policy within the eurozone you have to see that at moment we simply are not ready for it. The states within the eurozone cover a range of different types of economies, some are more free market orientated, some are more managed, to try and introduce full fiscal as well as monetary union would be a disaster. Not just economically but also politically – in terms of the internal political functioning of the union. Economic issues are oddly emotive. Look at the way I spoke about the euro. Look at how English people feel about the pound. People tie much more into money and money matters than numbers, ratios and percentages.
A vote for austerity or a vote for stability?
Will a No vote ease the austere spending policies of the Irish government? I don’t know but I doubt it. Sure wasn’t all that agreed with the “Troika” and it is now beyond our government’s control?
Will a Yes vote guarantee the future stability of the Irish economy? How on earth could it? You can’t guarantee the future stability of anything in life. I think that fiscal union would be a disaster. And the prospect of the “it is beyond my control” era never ending is beyond maddening.
Will we be unable to access EU funds if we vote No? Well, look at how the markets have reacted to news that Greece might leave the euro. They cannot risk letting another country fail. They cannot afford not to fund us. To lose one eurzone member may be regarded as a misfortune; to lose a second looks like carelessness.
Am I sure about all the above? Look I’m not an expert on anything. I’m simply voicing my concerns. Maybe you share them. Maybe you don’t. If you haven’t decided yet, don’t decide based on what you’ve read here or on any opinion piece – read the treaty. It’s only 10 pages long.