Monday, 14 May 2012

THE FISCAL COMPACT IN SIMPLE TERMS


May 15th 2012

Dear Sir or Madam;

The forthcoming Fiscal Compact referendum isn’t nearly as complex as many would have you believe. Taken entirely on its own (as we’re told it should be taken) there are five main elements to the compact:

1.       Debt will have to be maintained at 60% of GDP or less
2.       Budget general government deficits will have to be maintained at 3% of GDP or less
3.       Budget structural deficit will have to be maintained at 0.5% or less
4.       If any government steps outside the above parameters, automatic penalties will kick in
5.       The only exception to those penalties is if a country manages to get a ‘qualified majority’ to overrule the  Commission’s recommendations on how they get back into line

The first two conditions are already enshrined in EU law with accompanying penalties. The third condition contains the term ‘structural deficit’ and here my problem begins. According to the Referendum booklet, structural deficit is what the general government deficit would be if economic conditions were normal and if one-off spending or income were not taken into account. And there’s the rub –two undefined variables in that one little clause; according to David McWilliams, if you locked ten economists into a room with a set of figures for an individual country they would come up with 40 different numbers as to what that structural deficit might be. In this compact the EU’s version of how they would arrive at this critical number is NOT defined  - pig in a poke comes to mind. A compact of this significance between nations should be defined in absolute terms, no grey areas to be fudged afterwards.

Then we come to the last two items. According to every economist I've read, in times of crisis a government needs flexibility in fixing its budget. If we sign up to this Compact and do happen to find ourselves in trouble again in the future, the EU, through the Commission, will fix our targets – they will, in effect, write our budgets for us, the government of the day will NOT have that flexibility.

Unless, of course, we happen to be Germany or France or one of the major European powers, in which case if we manage to get a ‘qualified majority’ we’ll be off the hook. Little Ireland’s chances of getting that majority?

I will not succumb to the immorality of either bribery or blackmail; that’s the kind of fear-driven decision-making that has us where we are now, the crushing bank debt burden forced on us by the ECB. Neither on the other hand will I be frightened by talk of decades of austerity.

Ignore all the chaff, all the short-termism, before you vote ask yourself this single simple question – yes or no, and bearing in mind all of the above, is it right for this generation and for every future generation that an article enabling legislation for a Compact over which there is so much expert disagreement, an article specifically over-ruling any other existing articles with which it might clash (which the clause does),should be enshrined in our Constitution?

I have reached my own conclusion – No. Come to your own decision but don’t be bounced into anything; be ruled by courage and vision, not by fear or short-term gain.

Yours sincerely,
Diarmuid O'Flynn.

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