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The EU Permanent Austerity Treaty

category national | eu | opinion/analysis author Tuesday February 21, 2012 01:04author by O.O'C. - Peoples' Movementauthor email post at people dot ieauthor address www.people.ie Report this post to the editors

Democrats should be mobilising to resist

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.”

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, 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. But 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,” to put Irish budgets under permanent and detailed euro-zone supervision, to 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, to impose conditions of “strict conditionality,” without limit, for ESM “solidarity” financial bail-outs, and to 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 euro-zone 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 while 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 and Conditional Support Treaties.

Of course it is totally irrelevant to this Eurofanatical mindset that the draconian fiscal measures imposed on Greece have only worsened the problems of that country. Also conveniently ignored in this version is that Ireland in the euro zone had to adopt unsuitably low interest rates in the early 2000s, because these suited Germany at the time. In the immortal words of Bertie Ahern, this made our “Celtic Tiger” boom “boomier.” It of course inflated the property bubble.

The former Taoiseach John Bruton and others have contended that the failure of the European Central Bank to supervise adequately the credit policy of the national 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 memberstates would follow rules that would be enforced by a system of Commission surveillance, 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 member-states persisting in breaches of these provisions.

The EU member-states adopted the rule regarding 3 per cent and 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 others states broke the excessive-deficit limits in the early 2000s.

Recommendations of measures to repair excessive deficits were made by the 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 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? Obviously not in the private sector, as corporations regularly borrow money for expenditure they don’t want to meet out of retained earnings, while most households aim to have a long-term mortgage.

Public debt is not a burden passed on from one generation to the next. The stock of public debt is a problem only when its servicing—i.e. the payment of interest—is unaffordable, such as when, in times of recession, growth is nil or negative, or when the interest rates demanded by the financial market are soaring.

The question is, when is the debt sustainable?

Sustainability means keeping the ratio of debt to GDP stable in the longer term. If GDP at the beginning of the year is €1,000 billion and the Government’s total stock of debt is €600 billion, the debt ratio is 60 per cent. The fiscal deficit is the extra borrowing that the Government makes in a year, so it adds to the stock of debt. But although the stock of debt may be rising, as long as GDP is rising proportionately the ratio of debt to GDP can be kept constant, or may even be falling.

The rule is that as long as the real economy is growing by at least as much as the real rate of interest on debt the debt-GDP ratio doesn’t rise. This holds true irrespective of whether the debt ratio is 60 per cent or 600 per cent.

But there’s a catch. In a modern economy the public sector accounts for about half the economy. If a country panics about its debt ratio and cuts back sharply on public-sector spending, this reduces aggregate demand and may lead to stagnation or even recession. When a country stops growing, financial markets decide that its debt ratio may rise and so become more cautious about lending and may demand a higher bond yield, i.e. interest rate.

The gloomy prophecy of growing public indebtedness becomes self-fulfilling. The way out cannot be greater austerity.

What works for a single household or firm doesn’t work for the economy as a whole. A household can tighten its belt by spending less, saving more, and thus “balancing the books”; but an economy cannot. If everybody saves more, national income falls. As no euro-zone country can devalue, to ask each member-state to balance the books by running an export surplus is empirically and logically impossible.

The way out of the “debt trap” is the same as the way out of recession: if the private sector won’t invest, the public sector must become the investor of last resort. It doesn’t matter whether new investment is financed by more government borrowing, quantitative easing, or redistribution (some combination of the three would be optimal). What matters is growth.

Why there must be a referendum

The contracting parties must apply the 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.”

A majority of the Supreme Court in the Crotty case in 1987 (which found that a referendum was necessary to ratify significant changes to EU treaties) held that an organ of the state cannot agree to circumscribe or restrict any unfettered power conferred on it by the Constitution.

In the judgement Mr Justice Walsh said that the freedom to form economic policy was an aspect of the state’s sovereignty. This meant that article 3 (1) would have to be protected by article 29.4 of the Constitution, which ratified the Maastricht Treaty, if it was to be constitutionally valid.

However, article 29 refers to treaties of the European Union, whereas the proposed treaty will only be a treaty agreed between 25 of the 27 member-states, so it will not be covered by article 29.

These rules and policy conditions in turn provide considerable scope for financially hard-pressed member-states to be pressured to take steps against their national interest, including in relation to harmonising corporate taxes. Establishing this permanent enhanced fiscal architecture would be a major step towards an EU fiscal and political union—something that has been recognised in statements by leading EU politicians.

This implies a significant diminution of national state sovereignty, going well beyond the scope of the existing European Union and the monetary union that it embodies, which only the people themselves can agree to.

The absence of limitations on the “strict conditionality” that will mark financial disbursements from the proposed ESM fund—such as might have been set out in an accompanying protocol, for instance—emphasises further the dangers to the state’s interests that could arise from harsh or excessively onerous conditions attaching to financial assistance that might be offered to member-states seeking assistance from the fund.

Related Link: http://peoples-movement-eire.blogspot.com/
author by Tpublication date Thu Feb 23, 2012 00:21author address author phone Report this post to the editors

It is likely that one way or another the politicians here regardless of whether it is FG, Labour or FF will sign us up to this permanent austerity treaty. If their hand is forced and we have a referendum the propaganda machine will swing into full tilt and present it as staying in the EU or not.

This time around because of the nature of the crisis, they won't have time to get us to vote twice and they will want to make sure we vote just once if at all. I suspect the government legal section is working day and night at the moment to find a way or rather loophole so that they don't have to have a referendum.

Regrettably there are still large numbers of people in the country who somehow have some level of faith in the mainstream politicans and it really does take a lot for some peoples illusions to be shattered and it is this relatively large silent group that give the likes of FG + Labour the confidence to sell us out.

People should ask themselves, imagine if it was just the UK government trying to impose all these conditions on Ireland and get us to sign up to it. There would be uproar from every quarter, republican and non republican alike. Yet because it is those friendly blokes in Europe, then it is obvious that they have no ill-intentions.

But ultimately the whole thing is really about denial because people foolishly want to believe that somehow world growth will return and Ireland will be able to grow its way out of the problem and return to the old days. It is the fact that the world has changed, reached its resource limits and growth globally is more or less dead and which automatically means all in-debted countries are now caught in a downwards debt-spiral -it is this which many are in denial about.

author by serfpublication date Thu Feb 23, 2012 16:35author address author phone Report this post to the editors

meanwhile, iceland has recently been rated up by moodys/fitch credit rating agency as a "good investment" despite its "unorthodox" measures

(translation: we can't cover up the fact that their approach worked great but despite the obvious facts, the people we serve still want everyone to believe they were wrong to act against the interests of financial institutions and they don't want anyone else try it!)

http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=934...Cat=3

the msm are all trying to play it down so we won't notice but the fact is, letting the banks fail and debt forgiveness for citizens was exactly the right policy. The current farce of paying off all the banks and austerity is ludicrous.

author by opus diablos - the regressive hypocrite partypublication date Thu Feb 23, 2012 16:39author address author phone Report this post to the editors

..trying to impose all these conditions..'

Actually the BBC website breaks it down as E104.5bn owed to the UK, E82bn to Germany, E40bn to the US....so its pretty well the City of London (scooped by Rotschild after Waterloo when he freaked the market into selling because of his private cross-channel communications)that has us by the liatrhroidai...no wonder they are being so sympathetic..and no doubt giving depleted political coffers a discrete transfusion..

Here's a breakdown from the other side of the axis of virtue...

http://www.globalresearch.ca/index.php?context=va&aid=29388

if you are not clocked in already, check out www.treasureislands.org for the stash holds where all the tigers go to bury their loot, while we reprime their syphon for them through our pensions and public services.

author by Tpublication date Thu Feb 23, 2012 18:05author address author phone Report this post to the editors

But the perception is that it is the EU rather than UK as such and as marketing and people say perception is everything.

The figures you trawled up though are interesting and it makes more sense that our nearest neighbour would have the closest economic relationship and was therefore most likely to lend the most too. ....maybe the City of Londons folks were clever enough to market this as an EU problem for Ireland rather than a UK problem.

author by leftypublication date Sun Feb 26, 2012 05:07author address author phone Report this post to the editors

A slight digression here but often in these conversations, the issue of visualising billions and trillions becomes relevant. This was an interesting and somewhat amusing link which brings it all home somewhat.

We really need an Irish / euro version of this graphic bringing in cost of schools, roads, bank bonuses etc etc!!

http://xkcd.com/980/

author by Michael Youlton - Campaign Against the Austerity Treatypublication date Tue Feb 28, 2012 14:35author address author phone Report this post to the editors

PRESS RELEASE – Tuesday February 298h 2012-02-28

The economy of our country is going through a most severe recession, with the number of citizens unable to pay their mortgages and even cover their electricity bills growing daily. The flood of people leaving Ireland to find work abroad is increasing-

The reason there is such a massive funding crisis in this State, with the combined debt in the hundreds of billions, is precisely because of the activities of speculators and banks, and the reason we have a regime of cutbacks is because of the austerity imposed to rescue their financial markets system from its crisis.

Yet the Fine Gael/Labour Party Government is considering signing a new Treaty requiring tougher deficit and debt rules, greater powers for the EU Commission and the European Court of Justice and arrangements that will mean austerity budgets and impossible targets for the foreseeable future. The Treaty states that these arrangements would be binding, permanent and preferably constitutional. The word preferably was inserted to enable the Government to avoid a referendum despite a Red C Opinion Poll published which showed 72% wanting a referendum.

The government is hiding behind the referral of the agreement to the Attorney General, attempting to give the impression that the final decision rests with her office and that an opinion by her that a referendum wasn’t required by the Constitution, would be the end of the matter. This is false. The Attorney General only advises, it is the government that is supposed to decide.

To counter this undemocratic situation, a number of political organisations and individuals have organised a campaign against this austerity Treaty. The Communist Party, Eirigi, the Irish Anti War Movement, PANA, the Peoples Movement, Sinn Fein, the Socialist Party, the Socialist Workers Party, the Workers Party, and the United Left Alliance in the Campaign Against the Austerity Treaty

The first Public Meeting of the Campaign will take place on Monday, March 5th, at 19.30 hours in Liberty Hall.

Speakers will include Soren Sondergaard a Danish MEP from the Danish Peoples Movement, our MEP Paul Murphy, Richard Boyd Barrett TD and Jimmy Kelly, National Secretary of the UNITE Trade Union.

For more info please contact

Michael Youlton (PRO) 086 8159487 or Seamas Rattigan (Chairperson ) Tel: 086-8369793

author by Michael Youlton - Campaign Against the Ausyerity Treatypublication date Tue Feb 28, 2012 15:24author address author phone Report this post to the editors

There will be a referendum it appears.....

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