The Irish Veto: Why a referendum on one treaty, and not on the other?

EU authorities are seeking to change the whole basis of the Economic and Monetary Union.

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.