THE SHAMROCK VETO ?
Another EU summit. Are we now entering the Endgame where the Euro is concerned? Or are we again, like the grand old Duke of York, marching the men up only to march them down again? There have been so many “crisis summits” at this stage – and numerous rescue plans – that the wise course for any commentator is to suggest that there will be yet another fudge.
It might be worth recalling a somewhat analogous situation in history (I don’t want to stretch it too far), i.e. that which faced the thirteen American states around 1790, a number of years after independence and just after the Constitution had been adopted. The situation was much less complicated than that facing Europe today, but the issues were not totally dissimilar. The new country had no money and faced a huge debt from the revolutionary war. Some of the states had paid off their debts, others had not, could not or would not. There was a North – South division, with up to 80% of the debt owed to Northern bondholders, many of whom had bought the debt at 10 or 15 cents to the dollar.
Alexander Hamilton, First Secretary of the Treasury, proposed that the new nation assume all state debts and fund them by issuing new bonds. There was strong opposition to this, with some states, like Virginia, objecting to buying out speculators and assuming or writing off the debts of the big borrowers like Massachusetts. Sound familiar? Congress was deadlocked for six months with sectional animosities mounting. Eventually a compromise was hammered out with Hamilton’s plan being adopted at the behest of Jefferson and Madison. To put it mildly, the plan worked, even though, in the early years of the USA, over half of government expenditure went on debt servicing.
Clearly there is a world of difference between the economic problems faced by thirteen pre-industrial states two centuries ago and those currently facing the multi-layered industrial economies of the Eurozone. And there’s not a Hamilton or Jefferson in sight. While there is unlikely to be any clear, sharp, definitive solution embraced by all without qualification at this week’s European Council, all the indications are that we are edging towards a solution that will hold – along the lines of a much closer fiscal and economic union. The alternative is that the Euro will go down the tube, perhaps in weeks, perhaps in months. A two-tier Euro will not work; who would buy the lower tier? Who would loan on the strength of it?
But there is another aspect. Any closer fiscal union will ultimately involve treaty change. However, some observers have noted that the survival of the Euro cannot await the several years needed to effect this. Some mechanism will have to be devised to short circuit the procedure. The forthcoming European Council may come up with something here. If it does there will presumably be some form of intergovernmental conference in the very short term either to negotiate (possible) or to accept a definite proposal from the countries needed to make the solution work (more likely). Given the emerging time pressure to save the Euro the issue for Ireland is what position will we adopt on anything that emerges against the background that any treaty change will involve us in a referendum.
Consider our options. And forget about the bank bailout. In the three years since the infamous guarantee was given, we have borrowed around €45 billion – just to keep our inflated and bloated economy and welfare system ticking over – and that’s without a cent for the banks. Our recent so-called harsh budgets have hardly made a dent in this structural deficit. It’s already matching what we will, over time, pay for the banks, and it’s increasing by €50 million every day. The cause of the deficit is clear and, again, has nothing to do with the banks, but seems to be ignored by most of the media and the prevailing public culture of entitlement.
Government revenues collapsed as the air escaped from the Celtic Tiger. The fatal and inexcusable narrowing of the tax base during the years of plenty coupled with an equally inexcusable spree of increase in welfare payments left the economy beached, and obliged to borrow heavily. Masochists can google the website www.budget.ie and read the disaster as it unfolded from the column on the left – previous budgets. Read McCreevy’s boast in the 2002 budget speech that “after this budget there will be over 690,000 income earners outside the tax net, or 37% of all those on Revenue’s records”.
It gets worse. Cowen, speaking on the 2007 budget boasted “ that nearly two out of every five earners (or 846,000 persons) will be outside the tax net in 2007 compared to one third (or 677,000 persons) in 2004 and one quarter (or 380,000 persons) in 1997. This is a highly significant development.” It was – it was a disaster. What modern economy, with aspirations towards good governance can sustain a situation where 40% of the workforce pay no tax? Meanwhile welfare benefits were jacked up disproportionately – one commentator has calculated that child benefit increased under Fianna fail by 330%, the dole by 130% and the standard old age pension by 120%, over a period when inflation amounted to 40%. Even half that largesse applied elsewhere would have been enough for a universal single tier health service and more besides.
The piper was calling for payment even before the bank guarantee; remember the October 2008 budget to try to deal with the collapse in revenue? Indeed the two budgets in 2009 (April and December – which introduced a new word for reductions in pay and benefits – “adjustments”) were calculated with the bank bailout almost as a side issue. The full extent of bailing out the banks when known gave us a hefty shove over the precipice for which we were heading; could we have avoided it without the banks? Take a moment to reflect.
So. We have “lost our economic sovereignty”. A disaster? Since no one would lend to us , except at unsustainable interest rates, we are now relying ion Europe and the IMF? How exactly would we function without them? Renege on our debts? Who would give us credit? Burn the unsecured bondholders? Who then would secure our credit? Leave the Eurozone? What level would the “Punt Nua” settle at and where would our welfare system be then? And what has been demanded of us? A property tax? Virtually every other country in Europe has one. A water tax? Ditto. Increases in taxes and cuts in spending to help bridge the fiscal gap? Is this so unreasonable – particularly when we are left to decide on the detail ourselves?
There’s a further level of myth to be faced. Underpinning it, something which has been gaining currency (a dreadful pun!) in recent months, is that Germany in particular, and also France, have been acting as bullies towards the rest of the Eurozone. “To protect their banks”. Maybe. To protect their economies, and the Eurozone. Certainly. Had we not had our national economic tsunami would we have expected any less of them? How would we perform in their position? And, specifically, what solutions would we have, were we to be suddenly the major player, rather than a very minor one, to the whole Eurozone crisis. Again, take a moment to reflect. Big boys games; big boys rules.
Reflect also on Greece. The whole Greek drama has yet to play out fully. We still don’t know if it will end up a comedy, a tragedy, or a farce. When Merkel and Sarkozy called time, it was to remind the Greeks that the issue in any referendum was not whether the rescue package should be approved, but rather that it was the only package available and that, if Greece wanted to continue to be assisted, it should vote on the only issue that mattered, whether it wanted to remain within the Eurozone. Where else would Greece get the money to continue to function? What will happen to Greece remains to be seen. The write-down of Greek debt was because Greece’s borrowing had put it in the economic basket case category. Ireland is not in that situation; do we want to go there?
What options then do we have? The myth, and it’s a dangerous one, is that we have a power of veto, that we can tell off those nasty Germans and French, tell them we will not wear their solution and that they had better come up with another plan. Mickawber-like we await a solution which will lift our burden of debt so that we can continue on regardless. Any solution will require treaty change and they know our record in that regard. It will not be too long before someone latches on to the 1790 solution in the US, which would suit us –the ECB becoming a type of Federal Reserve, and underwriting all Europe’s debts, including our own. With one bound the Irish hero would be free! And if we don’t like the small print – more outside control over our economy – we can threaten our veto until we get our way.
It is true we cannot be thrown out of the EU. That would require unanimity and we are unlikely to vote for that ourselves. But we could be frozen out and left behind. There was talk in Europe some years ago – faced with British foot-dragging – that a central core of countries might proceed to a deeper and closer union. Arguably the Eurozone represented a manifestation of this, though hardly a successful one. Schengen is another example in operation, even if reluctance by some countries to admit immigrants has wiped the gloss off. However, these examples show that it is possible for a group of member states to act together without the rest.
What then would happen were a solution acceptable to all except Ireland rejected by an Irish veto? This would not be a Nice, or a Lisbon. The stakes would be much higher. The alternative would be economic meltdown. We might get a second chance. Or Europe might decide to move forward – without us. Forget the veto. What is to prevent a new and identically worded treaty being put forward, identical except that it excluded references to Ireland? And Europe moved on without us – and perhaps one or two others. Unlikely? Probably. Improbable? Yes.
Impossible? The European Union would continue, but a new body would function alongside it. We should recall that the League of Nations continued to function throughout the Second World War. Indeed an Irishman, Sean Lester, became its last Secretary General in 1940. But by then the League had ceased to function in any meaningful sense; the major players had departed. Since 2008 we have seen developments until then thought unthinkable become reality. These are uncertain times. Do we want to be left on the field on our own?