Nearly two weeks ago, An Taoiseach Enda Kenny announced the date for the upcoming referendum on the EU fiscal compact treaty. It’ll be May 31, a Thursday, always an inconvenient day for students. It’s fair to say that most of the talk around the referendum is like double-dutch to those of us without degrees in economics. So what exactly are we voting on next month?
What is a ‘fiscal compact’?
Good question. The fiscal compact is basically a name for the treaty which was signed by all EU nations apart from the UK and the Czech Republic on March 2 this year.
What is the treaty about?
The treaty, aka the fiscal compact, aka the Fiscal Stability Treaty, formerly the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (never say those EU financial wizards can’t come up with catchy titles) is a treaty to ensure that national debt in the EU member countries does not spiral out of control, leading to Europe-wide financial crisis.
It aims to prevent another Greece.
It wants to standardise budgets across the EU. A ‘debt brake’ will be applied to any country with an out of control budget. Each member’s budget deficit will be capped in relation to their GDP (Gross Domestic Product, a way of measuring wealth and productivity of any given country). Government’s public debt also cannot exceed 60% of GDP, or for basket cases like Ireland, governments must show that their public debt is declining steadily to the magic 60% mark.
Members can also be financially penalised by the EU if they break the rules. They face a maximum penalty of 0.1% of their GDP if they go over budget.
Essentially, the member state is you, and the EU is the bank. If you are constantly overdrawn, the bank will penalise you with heavy charges.
The treaty will not affect our bailout, which is already negotiated. But if- touch wood- we ever need to be bailed out again, the treaty will give us access to the EU bailout fund. The new European Stability Mechanism is a €500bn fund which is open only to members of the treaty.
The Attorney General Máire Whelan examined the treaty and advised it to go to a referendum as it contains constitutional changes.
What do the yes side say?
The Yes side comprise of the government coalition of Fine Gael and Labour, and opposition party Fianna Fáil. Taoiseach Enda Kenny has called for a yes vote saying it is vital to build on our economic progress. “Do not kick the future in the face,” he has said.
The yes side say that access to the fund is crucial, and also that tighter regulation in the EU will ensure a commitment to sensible budgeting among EU member states and lead to lower interest rates, good news for debt-ridden countries like ourselves. They also say if we vote no, our lack of access to the EU bailout fund will make the international markets nervous about Ireland.
Tanáiste Eamon Gilmore has said it will aid our stability and economic recovery. He also argued that it will lead to restoration of confidence in Ireland’s economic image abroad.
Proponents also say that it will lead to a stronger EU and less chance of trouble in the Eurozone. They also say it will benefit exporters and other sectors of the economy because Ireland will be seen as a financially safe place to do business in.
How about the no side?
The treaty negotiations took weeks last December, which you may remember led to British Prime Minister David Cameron annoying the EU and getting allegedly snubbed by French President Nicolas Sarkozy. Cameron blocked proposed changes to existing EU treaties, leading them to negotiate a new one. He also disliked the perceived rigidity of the system and felt it would negatively affect the City, London’s bustling financial district.
This rigidity is also of concern to Irish critics. The Fiscal Advisory Council has said they would prefer if the treaty is signed into legislation rather than into the constitution, as changes to law can be made more flexibly than changes to the constitution.
Those who do not favour heavy regulation in economic affairs have expressed concern about the strong regulation implied in the treaty.
Sinn Fein’s Gerry Adams has said that a yes vote will lead to further austerity for the people of Ireland as the government attempts to stay within budget.
Opponents are also worried that the treaty erodes Ireland’s economic sovereignty and leads to a federalisation of Europe.
Hopefully you’re no longer quite as confused on the fiscal compact. Whatever you decide on the treaty, Studenty urges you to use your vote on May 31.