Olli Rehn, the European Commissioner for Economic and Financial Affairs, noted that the vast bulk of the Treaty on Stability, Coordination and Governance does not actually require treaty status. Its real usefulness will be evaluated once Germany is needed to put more funds on the table. Picture: Mark Stedman/Photocall
The treaty is just the first phase of bedding down the euro and taking the countries that use it to a safe distance from the predators
THE EU’s newest treaty is a kind of promissory note — for the Germans.It’s not easy to explain its rationale any other way.
Most of this 4,000-word document does little more than restate the rules countries have signed up to over the past year.
In fact the European Commissioner for the euro, Olli Rehn, said that 95% of it doesn’t need treaty status at all.
But according to political scientist Janis Emmanouilidis, that is to miss the point in this drawn-out battle with the markets, investors, punters, banks, politicians, debtors and creditors that has been going on since Ireland agreed to “the cheapest bailout in history”.
The fiscal compact treaty is just the first phase of bedding down the euro and taking the countries that use it to a safe distance from the predators, irrespective of the size of their debts and après-boom hangovers.
The golden word “eurobond” does not appear in any of the 16 articles. There are references to sustainable growth, employment, competitiveness and social cohesion, but no easy money.
At the beginning of this debate, members of the European Parliament said that in exchange for signing up to the treaty, EU members must be rewarded with greater fiscal union expressed in a common fundraising bond that would remain cheap thanks to Germany’s participation.
It was good thinking — after all investors are currently paying Germany to take their money as the return on Germany’s bonds falls into negative. This is a far cry from the usurious 8% expected from Ireland if it were to borrow from the markets.
But, points out Emmanouilidis of the European Policy Centre, the treaty is an investment in the future. “Its biggest value is as a key. I am sure Berlin needs this treaty for the government to argue with its own party first, its coalition partners, and the public to move towards a stability union, to ensure fiscal obedience will be assured in the future — this should not be underestimated,” he said.
The argument that it does not provide a solution may be true. But its usefulness will be evaluated once Germany is needed to put more funds on the table, and this will happen if the crisis deteriorates, but also once Greece concludes its deal in the next few days with the banks on burning bondholders, when Greece will need another bailout of billions of euro.
So the document is limited to a few issues, related to keeping down each country’s debts. It is fleshed out with paragraphs closing off loopholes, and makes countries promise that they will only spend as much as they have in the kitty each year.
The real detail is contained in the new framework, including the laws termed the six-pack that came into force on Jan 1 and adopted by euro countries. These control how governments draw up budgets, and agree to adjust them according to European Commission recommendations.
It goes further than getting deficits down to acceptable limits — first Ireland, for instance, has to cut its current deficit of 10%.
The policy is like cod liver oil — good for your health but tough to take. It should be what taxpayers would want, as its objectives include ensuring that educational standards are met, that bubbles such as housing are identified early and dealt with, that we can afford to look after people.
How this will work out in practice, we will have to wait and see. In some respects Ireland is more firmly in the grip of this new framework, being in a EU/IMF/ECB programme. But the strait jacket will not be removed once we have repaid our creditors — it will continue and that is what this treaty is aimed at ensuring.
While much of the public debate surrounding the treaty was whether it would be put to a referendum, a lot of time was spent by the national experts negotiating the detail on technical issues, such as whether or not the interest sums a country was paying should be included in its deficit.
They decided not and reference an annual structural deficit not exceeding 0.5% of GDP at market prices, rather than the 3% we normally hear about that includes interest paid.
The European Commission, along with smaller countries, were most anxious to limit the power of the inter-governmental arm. Governments acting together tend to prioritise what is good for their domestic needs and ignore how it can impact on the EU.
Ireland considers this community emphasis to be even more important now as we are reticent to irritate creditor countries. The European Parliament — granted three seats at the debating table — wanted a greater role. While they cannot veto the draft, they could create difficulties in other ways. For instance, if they rejected it, national parliaments could follow suit.
The treaty says their president “may’ be invited to the euro summits to be held at least twice a year to discuss domestic and global policy issues affecting the stability of the currency.
Both institutions emphasise a unified EU This danger was highlighted when Britain vetoed a new EU treaty, forcing the others to move outside the community and negotiate this inter-governmental agreement.
This has significant implications for Ireland. If it had been a full EU treaty, a referendum would have been less likely as the umbrella Article 29.4 in the Constitution protects EU treaties unless they make major changes, Dr Gavin Barrett, law professor at UCD points out.
The fact that it is intergovernmental means that a country cannot veto it as it will operate with however many members sign up to it. Twelve is the tentative number required under the draft, but this may change.
The stakes for a euro country of not ratifying are high as they will be cut off from accessing funds from the ESM, the new EU bailout fund to come into force in July. Even if Ireland does not need a second bailout, it will need to avail of ESM funds when re-entering the bond market or refinancing bank loans.
One of the most contentious issues still to be concluded in the draft is about the article that allows a country to refer another to the European Court of Justice for failing to respect the balanced budget rule.
While this has now been accepted generally, the latest addition that a country can be fined 0.1% of its GDP is new. It raises legal questions that have yet to be resolved.
The chances of it being challenged for violating our sovereignty still exists, especially on the grounds of the rush towards a common economic union, said Dr Barrett. But now, with so much of the provisions, including the implementing legislation, sourced in the EU treaties, it will be difficult to challenge the treaty in Irish courts.
“It’s not over until it’s over and this has still to go through the finance ministers, and more technical discussions and to the EU leaders summit”, said Dr Barrett.
And even if, as Sinn Féin and others are promising, it is challenged in the courts, the result could depend on how the panel of judges feel about the EU and its legislation, he adds.
The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, to give it its full title, still has some distance to go and may be just a tiny step towards stabilising euro economies.