25th Mar 2018


Another treaty, another Irish referendum

  • The significance of the Irish referendum seems also to have escaped Ireland's EU partners. (Photo: James Stringer)

Another European treaty. Another Irish referendum. Once again the main political parties, somewhat battle weary, join forces to argue Yes. Sinn Fein and Declan Ganley, the maverick federalist, campaign for a No.

Most voters evince no or little knowledge about what the referendum is officially about ‑ the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union, or fiscal compact treaty for short. Come polling day, 31 May, many may not vote.

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The significance of the Irish referendum seems also to have escaped Ireland's EU partners.

Pierre Moscovici, France's new minister of finance, speaks blithely about changing the treaty. The German Bundestag has postponed its own ratification of the treaty from 25 May until after the Greek elections on 17 June. For the moment, the SDP and Greens are happy to play domestic electoral politics with ratification by depriving Chancellor Angela Merkel of the two-thirds majority she needs.

These second thoughts about the treaty in Paris and Berlin are distinctly unhelpful to the Irish Yes cause. Such cavalier treatment of the Irish voter is rightly resented in Ireland.

The rest of Europe should have learnt by now that Ireland's verdict is very important. The opinion polls give the Yes side a lead but, as always in referendums, the gap narrows. What is really at stake?

The fiscal compact treaty was conceived at the December European Council in the teeth of British opposition. It is not, of course, another European Union treaty, but works by explicit analogy with them, respecting EU competences and seeking to deploy EU institutions.

It is an archetypal confederal treaty, committing the governments which sign it to a course of action which, in the event, they may choose not to pursue without formal penalty. The price of confederacy is high moral hazard.

The European Commission may help to implement the fiscal compact treaty, but cannot use its full powers vested under the EU treaties.

The European Court of Justice (ECJ) is enjoined to act at the behest of one member state against another according to Article 273 of the Treaty on the Functioning of the EU in a dispute "which relates to the subject matter of the [EU] Treaties."

Here the vessel of the fiscal compact sails into uncharted seas: Article 273, which postulates the ECJ as a federal supreme court, has never been used. At the very least, as the UK government already made clear in a letter on 22 February to the EU Council, EU institutions will act under the fiscal compact treaty beneath the shadow of hostile litigation from the UK if EU law is breached.

Ironically, the fiscal compact treaty will only work at all if the general principle of EU law that enjoins sincere co-operation among member states and between the institutions is strictly respected.

Despite its portentous title, the new treaty does not go all the way to remedy the flawed structure of European Monetary Union (Emu) as handed down by the Treaty of Maastricht.

But it does consolidate the many reforms put in place by the EU since 2008 to strengthen regulation and supervision of the financial sector and to tighten the nuts and bolts of the Stability and Growth Pact. The treaty makes it much more difficult for states, even large ones, to evade their mutual responsibility to observe fiscal rectitude. Ireland, which saw Germany and France get off scot free when they broke the rules in 2003 and 2004, should be chuffed.

An important innovation of the fiscal compact treaty is that signatory states commit to passing cardinal laws to install a debt-brake on national budgets if structural deficits rise above 0.5 percent of GDP. The contracting parties also agree to use reverse qualified majority in the Council of Ministers throughout the excessive deficit procedure.

The full effect of the corrective provisions of the new treaty will only be felt in a number of years time, once the present austerity regime has reduced current deficits (and possibly increased sovereign debt).

The immediate impact of the treaty falls on any eurozone state which by not ratifying it will be unable to access bail-out funding from the European Stability Mechanism (ESM).

Worst of both worlds

The link between the two intergovernmental treaties on the fiscal compact and the ESM is critical and for that reason alone the significance of an Irish Yes cannot be underestimated. If Ireland were to say No it would lower its credibility in the financial markets, raising the probability that it would need a second bail-out. But the No vote would cut it off from ESM funds ‑ the worst of both worlds indeed.

The treaty commits its signatories to using the enhanced co-operation provisions of the Treaty of Lisbon to go further and faster in the many sectors of the EU's non-exclusive competence.

Also significant is the institutional innovation of the twice yearly summit meetings of the eurozone, which will discuss Europe's competitiveness, the modification of the global architecture of the euro and its fundamental rules ‑ that is, the euro convergence criteria, the Stability and Growth Pact and budgetary and taxation policy. The Taoiseach had better be there.

Like all good confederal pacts, the treaty will come into force before all signatory states complete their ratification process ‑ indeed, when only 12 of the 17 eurozone states have done so. By itself, therefore, an Irish No will not stop the fiscal compact in its tracks. The nay-sayers are deprived of the (somewhat misplaced) importance they attached to themselves in earlier referendums on EU treaties proper when an Irish No would block all Europe.

All in all, the fiscal compact treaty, if not an entirely good thing, is a necessary expedient, and adds to the pressure of market discipline and continual peer assessment to which all EU states are now subjected to a greater or lesser extent.

What is really needed now is faster economic growth to make palatable to a sceptical democracy the inevitably painful process of structural reform. The Irish, who are making impressive efforts to return to fiscal rectitude, certainly need to hear the language of Italian leader Mario Monti and French President Francois Hollande about growth.

Article 16 of the new treaty foresees its substantive incorporation within the EU legal framework "within five years at most" following entry into force.

It thus predicates a situation five years from now in which the United Kingdom (and the Czech Republic) have changed their mind and are prepared to concede what in 2012 they blocked.

Naturally, such incorporation of the fiscal compact will trigger a general revision of the EU treaties under the ordinary revision procedure (Convention plus Intergovernmental Conference). Other matters, some of them rectifying aspects of Lisbon, will crowd the agenda.

Big push coming

But the big push will be on fiscal union, involving both discipline and solidarity, where the states will be expected to accept joint and several liability for a portion of sovereign debt. This fiscal union will need a federal economic government, including a treasury, a widening of the remit of the European Central Bank, and, at last, the issuance of eurobonds.

Such a mighty step towards turning the EU into a truly federal polity is unlikely to be attempted before 2015 at the earliest. But attempted it must be if the project of European unity has a chance of lasting success on a sound financial and democratic basis.

The first item of business at the new Convention will have to be how to deal with the British problem. It is only realistic to assume that the British people in their own inevitable referendum are not going to be ready to take the federal step. That means that a form of associate membership will have to be crafted to park the UK.

Other countries may join the British, temporarily or permanently, in their semi-detached status. But it is not immediately obvious how such a detachment by Ireland from mainstream mainland European politics would serve the Irish national interest.

After all, the true significance of the December European Council was not the British prime minister's veto of EU treaty change but, rather, the decision by his EU partners to call his bluff by proceeding in any case without him. An Irish No on 31 May would indeed be sweet revenge for Cameron.

Andrew Duff is a British MEP with the Liberal Alde group in the European Parliament. He is the group's spokesman on consitutional affairs

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