Wednesday, 2 May 2012

Fiscal Stability Treaty Referendum, bailouts and austerity

The referendum campaign on the Fiscal Stability Treaty is underway in Ireland. The main argument on the No side is that the treaty would impose endless austerity that would have to continue even after the bailout has expired, whereas the Yes side claims that if we don't ratify the treaty, we won't have access to the ESM ("Stability Mechanism") and we cannot count on the IMF for funding, meaning that a No vote leaves Ireland's means of funding itself uncertain.

It's accepted that Ireland cannot access the ESM funds if it does not ratify the treaty, but there's confusion over the level of funding the IMF can provide to Ireland. First, despite earlier Yes claims, Ireland will be able to apply to the IMF for funding. However, I'm not sure how much we can expect from the IMF. As pointed out over at Slugger O'Toole, the IMF usually lends around 3 to 5 times quote for borrowing, whereas funding has already reached 15 times of Ireland's quota. Funding has reached this level because of the certainty being part of the Eurozone bailout system has provided Ireland. If Ireland needs another bailout, could it really get the required money from the IMF? I can't see the IMF committing itself on an application that hasn't been made in circumstances that aren't fully known yet, so this uncertainty will likely dog the campaign right through to polling day. The uncertainty will benefit the Yes side if they can get these numbers across: it seems very unlikely that we will be provided with the level of funding we can avail of currently.

Depending on the IMF isn't as toxic to the Left as it might have been before in Ireland, given that the IMF seems to be making noises on the desirability of some stimulus spending, while the EU hasn't budged so far on that front. What's striking is that the Yes side have managed to determine the battleground of the referendum campaign. When it comes down to funding the state, it seems that it is no longer about avoiding bailouts, but trying to find the most advantageous bailout. To me this seems like a big change - a far cry from the general election last year when Sinn Féin was advocating leaving the bailout, spending the pension fund money for the budget and on a stimulus, and then returning to the markets in 6 months. Although I don't know if it will be picked up on much in the campaign, this shift should support the Yes side. Both sides don't have a clear vision of what a functioning Eurozone would look like, but in this case it favours the Yes side as the No side needs to actively portray a realistic alternative. If they accept that bailouts are needed to avoid immediate austerity through default, then it becomes much harder.

One option floated by the No side is that, if Ireland votes No, the government could block the ratification of the ESM Treaty (PDF), to force renegotiation of the terms of the treaty. Article 48 of the Treaty says that it will enter into force when it has been ratified by contracting parties representing 90% of the subscriptions to the ESM. Since Ireland represents less than 2%, it would need to ally with several countries in order to block it (or hope that Hollande's France takes up the tactic too). Without a common platform for an alliance to negotiate on, it's hard to see other countries going out on a limb for Ireland here (the Irish government should take note of this: if we don't have a vision for Europe, we can't complain when we can't drum up the allies to change things...). Will this be a factor in the campaign? Probably not explicitly, but the No side is weakened without a credible alternative strategy other than "vote against austerity policies".

[As an aside, the quality of this campaign so far is much better than the Lisbon campaigns. Nobody can read conscription or abortion into the Fiscal Stability Treaty, and argument have been about the substance (or at least the substance of different political tactics). However the move by the Socialist Party to link water charges with the referendum is shameful as it devalues the idea of referendums - that people are really deciding on an issue - and opens up the charge that at least some No votes are simply anti-government. It's even stranger since a No vote wouldn't affect the water charges issue. (For non-Irish readers: we don't pay for our water in Ireland apart from general taxation, and the government will eventually bring in water meters so people will have to pay water charges. Water charges will be brought in too in Northern Ireland eventually. When I've told people from different countries that we don't pay water charges, it always seems to shock them).]

I haven't yet written a post on my own stance on the Treaty - Yes or No - because I'm still undecided, and I have been considering supporting a No vote.

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