LISTOWEL "No to the Fiscal Treaty"

kerry | eu | event notice Tuesday May 08, 2012 11:17 by Josh

Public Meeting

Speakers are Vanessa O'Sullivan (People Before Profit) and Martin Ferris TD (Sinn Fein)

Venue: The Three Mermaids, Listowel, Wednsday 9th May @ 8pm.

All Welcome

The Fiscal Treaty is a small document, consisting of 19 points or articles. It was created in December 2011, to act as a control against government spending.

The details boil down to two important articles, Article 3 and Article 4.

Article 3 insists that countries run a balanced budget, with a small lee-way allowed of 0.5%. The definition of a balanced budget is where the state only spends what it takes in in revenue. Obviously, during a recession, a depression, that rule would result in tiny state spending. And that would mean poverty for state employees, and people on social welfare, and pensioners.

Article 4 insists that if government debt exceeds 60% of Gross Domestic Product the excess must be reduced by 5% a year. (Gross Domestic Product refers to the value of all the goods and services produced within a country.) That article would mean that further austerity measures would have to be introduced as state spending would be diverted into paying down the excess of state debt. So not only would we have to endure the cuts that we have done, and are to continue to endure, under the Troika programme, we would have to put up with EU Fiscal Treaty cuts.

The countries that fail to stick to these two rules would be brought into line in three ways. Firstly, they can be “named and shamed” by the EU and be forced to enter a partnership programme with the EU to correct their errors. This can include what are called “structural reforms”. Structural reforms are fundamental changes to a country’s economy, such as the removal of state subsidies; that mite include subsidies to the elderly such as the removal of cheaper electricity, free travel, and medical cards. Secondly, the treaty establishes in each country so-called Fiscal Councils, whose job is to police government spending. Thirdly, and most shockingly, one EU country can take another EU country to the European Court of Justice and charge it with excessive public spending, with the result that the country can be fined 0.1% of its Gross Domestic Product. In this last scenario, we could have a situation where Germany takes Ireland to court and gets us fined.

Running a balanced budget, and paying a price for it if it is wrong, is complicated by the fact that there are different ways of measuring how balanced a country’s budget is, and the different methods therefore give different results. In addition, even using the same method can give wildly different results; for example, in 2007, the IMF announced that the budget balance of Ireland was a surplus of 0.7% of GDP, then they issued a revised figure which stated that the balance was in deficit by 8.7%. If we were to vote Yes to the Fiscal Treaty we would have to go on and insert into our constitution a reference to a difficult-to-establish idea and then to treat this concept as a golden rule.

Where does this madness come from? Yes, some of it comes from Germany; after all, the Germans introduced a balanced budget rule into their constitution in 2009. But more of it comes from the business lobby groups which surround the EU bodies. In the year 2000 the European Round Table of Industrialists stated that they were tired of the powers of the nation-state and wanted different structures to be established at a higher level, that of the EU. Another lobby group, called BusinessEurope demanded that the EU have “greater responsibility in improving economic governance” and called for “strong enforcement mechanisms to ensure compliance”, as well as “a system of gradual penalties and sanctions in the case of repeated indiscipline”. What this represents is a trend towards greater rule through EU organisations and less through national democracies which mite be subject to some degree of popular control or pressure. Angela Merkel commented: “The debt brakes will be binding and valid forever. Never will you be able to change them through a parliamentary majority.”

The balanced budget rule was tried during the 1930s during the Great Depression in the United States. Economist Frederick Hayek said at the time, “We are of the opinion that many of the troubles of the world at the present are due to imprudent borrowing and spending on the part of the public authorities.” President Herbert Hoover agreed, saying, “Nothing is more important than balancing the budget with the least increase in taxes.”. The push for a balanced budget at that time led to tens of thousands of Americans losing their jobs and their homes and being forced to live in tent cities and shanty towns, humorously known as Hoovervilles.

The combined desire of the EU and the world of business to cut government spending is extremely foolish. In a recession private investment in economic activity tumbles. Those businesses and investors with surplus savings or profits hold onto their money instead of injecting it into new business activities. There is an investment strike. Economies stagnate and unemployment rises. That is why people on the Left always advocate government spending programmes on job creation schemes: the state has to step in and take up the slack left by business inactivity. During the American Depression change only began to come about when President Roosevelt increased public spending and gave a stimulus to the economy.