EU Fiscal Compact Treaty: Statements, Questions and Answers

07.02.2012

http://debates.oireachtas.ie/seanad/2012/02/07/00007.asp

 

Senator Katherine Zappone

 

I welcome the Minister of State, Deputy Creighton, to the House and thank her for coming to hear our views prior to the publication of the fiscal responsibility Bill. I note her comments at the beginning of her speech about the Government’s commitment and the importance of engaging with the Houses of the Oireachtas. Shall we take it this is another sign of the relevance of Seanad Éireann? I thank her for being here.

I will order my comments and questions in three areas. First, what is missing in the treaty? The people of Ireland would have been happier with the treaty if the fiscal compact offered was an holistic compact. They would have been happier if it was a true and trusting compact that asks us to sign up not only to fiscal rules but to fiscal insurance. Such a treaty would offer a carrot with a stick, mutual support of EU membership as well as mutual monitoring, particularly in light of our high current debt-to-GDP ratio of 120%, our high level of unemployment and our high level of structural deficit, as distinct from our deficit at a point in time. I am referring to the average deficit over a long period of time.

As the Minister of State will be aware, the Taoiseach denied that Ireland’s acceptance of the fiscal compact will condemn the State to further years of austerity and there have been a few comments from Senators on the issue of austerity. However, as she also will be aware, the Department of Finance recently predicted a budget structural deficit of 8% of GDP for 2012, reducing to approximately 3.7% in 2015 after, hopefully, we have exited from the bailout programme. This is a far cry from the 0.05% of structural deficit target that we must reach according to the treaty, if we are to follow the golden rule and not end up in the European Court of Justice because we deviate too much from the corrective mechanism. If we are only at a structural deficit of 3.7%, we need to contract our budget by another 3.2% which, some economists predict, would be approximately €5.5 billion and which sounds like more austerity to me post 2015. The structural deficit target is simply oppressive, certainly for the Irish.

That is not to say that we do not require fiscal rules for the EU. I am in favour of a fiscal union to match our monetary union if the euro is to survive and our economy is to move towards sustainability. I am not in favour of the fancy financial wizardry to which the Minister of State referred in her speech although if we were looking for an example of that, we might look at the emergency liquidity assistance that was used for the promissory notes, but that is a discussion for another day.

I suggest that what we also need are mutual insurance mechanisms such as the ESM being provided with more fire power, for example, a banking licence so that it can borrow from the ECB to be in a position to buy sovereign bonds for those countries in need of lower bond yields to stimulate growth, or the offering of eurobonds or some form of fiscal transfers such as the financial transaction tax or European VAT rate. Can the Minister of State give us any indication of some type of mutual insurance mechanism coming on stream relatively soon after the incorporation of this treaty? Such an indication would go a long way towards making the treaty somewhat more palatable to the Irish public.

Can we get clarification on the treaty’s elements? Professor John McHale of the Irish Fiscal Advisory Council has argued that the real innovation of this treaty relates to its enforcement - the Minister of State referred to that in her speech - particularly the proposal for the correction mechanism if we are deviating from our adjustment path towards the structural deficit target. The proposed treaty does not provide much detail on the form the correction mechanism must take, only noting vaguely that we must follow common principles proposed by the European Commission. Can the Minister of State provide any clarity on the substance of these principles, or when they might likely be clarified? This will help us to have a better sense of the amount of flexibility, if any, we and other countries will have in moving towards the fiscal discipline targets. It seems that we must have some margin of flexibility in terms of the identification of a required adjustment path to ensure that lengthy austerity does not put us under for good.

My last question for the Minister of State is rather more brief. In the Minister of State’s view, where is the added value to Ireland of signing the treaty? Is it that if we sign up we will be allowed access to European Stability Mechanism, ESM, funds should we require them again and, if we do not sign up to it, then we will not be allowed access? If we do not sign up, will we forego the solidarity of the European-wide safety net or the benefit of other mutual insurance mechanisms when and should they come on stream?

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