Let's get fiscal

With the Fiscal Compact referendum looming, Cormac Duffy argues the case for a cautious yes voteTo many, the impending referendum on our ratification of the Fiscal Compact (with the catchy formal title being the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) is the strongest case for wanting to dwell in some fantasy Carlsberg world, with an omnipresent Option C. To take the most cynical tone, as many will between now and May 31st, a yes vote is one to shackle us further to the domineering sway of the European Union, while a no is a death knell for our role in the global markets. Can’t we just have a ‘sometimes’ option on the ballot?That said, the truth is that we should not approach this with the trepidation we did previous referenda. This treaty is a concise, accessible plan for economic stability in the Eurozone, which may give it the potential to engage voters in a way that the tome of jargon that was Lisbon failed to. In fact, the worst thing the yes side could do is patronise the electorate by shouting the word “Jobs!” at them again à la the first Lisbon referendum. Clearly explained as what it is and taken on that one criterion, as a plan for getting the continent out of the dire straits it is currently floating in, there is a lot to be said for the treaty.The media spectacle that complemented our planet’s financial meltdown meant that we all know what went wrong and how it was allowed to happen. The treaty aims to respond to this by setting limits on public debt levels, as well as deficit levels, with mandated balanced budget legislation. The proposed debt ceiling of sixty per cent is one that Ireland held mostly throughout its boom years, only to be hoisted well over it by the need to socialise bad bank debt to keep the markets (and the EU) happy. For these extreme, unanticipated cases, the treaty establishes the European Stability Mechanism, a formalised bailout fund of €500 billion. A common criticism has been that this entrenches austerity over stimulus as the go-to policy in a downturn, but room is left for stimulus as long as it is tenable to do so within the existing target. High stimulus spending often only increases debt levels, making it difficult to access money markets due to high yields on what are now risky bonds, making the situation far worse than it started out. The adoption of the treaty itself is likely to send a strong signal to money markets about our commitment to stability, a step along the process of restoring our international standing.The accumulation of public debt is a domestic problem, one that arises from a political willingness to keep the masses appeased with current high spending, putting the short term ahead of the long term. In as much as the policies here are relatively more technocratic and less pressured by the public, they’re more likely to be a fair judge of how our debt accumulation should go, particularly in comparison to the parochial vote-buyers that too often fall into power.Yet that hits on the problem. The treaty, no matter how you put it, is a surrender of sovereignty. While that word alone will get the republican left foaming at the mouth, the sovereignty we lose is real policy power, not just symbolic identity. The common currency and earlier agreements removed our capacity for independent monetary policy; now we are constraining our fiscal policy, but it is a trade-off. To reap the gains that we get from our shared currency, capital markets, and powerful union, we have to accept that the risks of our policies no longer affect just us. While this time around, the centre was bailing out the periphery, we do not want to end up in a future situation where we are bailing out a country for their flippant behaviour.At that point, the only question is whether or not you believe the European project is still something we want to be part of. Each referendum and each crisis we face is a functional spillover to a more centralised union. Many have made the interesting argument that we should use this referendum as a bargaining chip to get better terms on our bailout, especially given how stringently we have stuck to its terms so far. While there is a lot to be said for pursuing this for our long-term stability, we have much less bargaining power than we did with Lisbon and prior treaties. Although the former status quo was unanimous passage of treaties for implementation, that is no longer the case. The Fiscal Compact, approved by all EU countries bar the UK and Czech Republic, is to become a reality; our decision is whether or not we want in, and whether or not we are happy to be in the slower part of a two-speed Europe. In that sense, the yes option seems pertinent. What it will come down to is how we weigh our own sovereignty and independence against fiscal stability, and while a no vote is not the end of the world, it should warrant us to rethink our place in the future of the monetary union.