The Fiscal Treaty promises stability, growth and to prevent future recessions. It will not provide any of this. It completely misses the point and addresses issues irrelevant to the cause of and solution to, the recession. It will lead to future austerity, lower growth, higher unemployment and more poverty.
In essence the Fiscal Treaty will require that always balance our books and never borrow money. It is often compared to a household that has to balance its books. But let’s just say a household or business was forced never to borrow money. A person could never get a student loan, a car loan, a mortgage etc. A business couldn’t borrow for investment or expansion. The result would be unnecessary stagnation. That’s what the Fiscal Treaty will do; it will unnecessarily close off some of our options by implementing overly rigid rules. We do not know what the future will bring, it’s quite possible that we will find ourselves in trouble and need a loan. This treaty will prevent us getting one.
The Treaty technically does allow for some borrowing, so long as it is less than 0.5% of the structural deficit. The structural deficit is what the deficit would be in the economy’s natural state that is if it was in neither boom nor bust. The problem is no one has the slightest idea what this is and can only guess. This renders the concept meaningless and useless. In 2006 the IMF declared that Ireland had a healthy structural surplus, only in 2010 did it realise Ireland actually had a large structural deficit in 2006. It is extremely worrying that such an incredibly vague concept that is only good in hindsight is going to put into Irish law.
The Treaty will not prevent future crisis or recessions. After all, during the Celtic Tiger Ireland ran budget surpluses and had the lowest national debt in Europe. Spain had a lower national debt than Germany. None of this prevented the recession. Budget deficits are a symptom not a cause of the recession. This Treaty completely misses the point and fails to address the actual cause of the recession, namely a housing bubble and lack of banking regulation. Neither the government nor the European Union have done anything to prevent a repeat of these problems, instead focusing on a side issue of balancing budgets.
“Stability” is a buzz word that sounds good, not an economic plan. No one on the Yes side has been able to explain how a Yes vote will reduce unemployment or aid recovery. (Instead they go for fear tactics regarding a No vote). In fact it has been estimated by the German Institute for Macroeconomic and Economic Research that the effect of the Treaty requirements to cut deficits will be to drive down Eurozone growth to a mere ½ percent average annual growth up to 2016, depending on the timing of the fiscal consolidation.
The Yes side often asks where the money would come from in the event of a No vote. This is ironic as the Treaty will prevent Ireland from getting future loans (there is a cop-out excluding this current recession). It also ignores the fact that the reason Ireland cannot borrow from the bond market is due to the bank bailout, so restructuring of the bank debt is essential if we wish to borrow again. Even still there are several options available such as the European Financial Stability Facility (EFSF). This is set up with the express aim of bailing out countries that cannot borrow from the bond market. It has reserves of 500 billion to lend out, which is more than adequate. It will continue negating new deals until July 2013, which is after the government intends to return to the bond market. There is also the EU-IMF whose bailout includes the possibility for future loans if conditions and targets are met (which they have been so far). The Yes side also misunderstands the European Stability Mechanism. It will give loans to member countries (those that vote Yes) and countries to whom assistance is essential for the stability of the Euro (Ireland even if we vote No).
The policies of austerity don’t work (see here). The Fiscal Treaty will not address the fundamental problems facing the Irish economy. It will not create jobs or end the recession (remember the same promises were made about the Lisbon Treaty). Vote No, after all, you can also vote Yes next time.