No ‘win-win’ if treaty passes

IF there is a yes vote on Thursday, there will be cheerleaders on one side and a lot of worried people on the other.

A yes vote would be another step closer to the full treaty coming into force.

If this happens, it would not in any sense be a win-win situation. It is a clear case that there will be winners and losers.

Let’s start with the winners.

If the treaty comes in to force, the euro and the business community will be the first clear winners. The past two years have witnessed its increasingly perilous existence. Once the ratification of the treaty by at least 12 of the 17 eurozone members allows it to be enacted, one would expect a very positive response by the bond and money markets.

The euro itself would likely appreciate against sterling and the dollar. The currency would stabilise and any volatility in currency trading in the euro should strongly subside. This would strongly benefit businesses, providing a more stable trading environment. It would also eliminate the fear of investors and private savers of holding their long term money in euros.

The markets would also win: They will be impressed by the treaty which will virtually eliminate structural deficits in the eurozone and will be confident that this will put the lid on any escalation in government debt.

The €500bn European Stability Mechanism, a firewall, will also assure them, but not to the fullest extent given that it would not be enough to bail out Spain or Italy.

Bondholders in Irish banks will also be very happy. Once the treaty is passed and Ireland can access a further bailout in 2014 if it needs it, they will be confident that the Government would be happy to go back for more cash.

The business community itself, in particular Ibec, will be in a cheerful mood if the treaty comes in to force. They will be confident that economic stability will be a real dividend and its members will press ahead sourcing new markets across the 27 EU countries.

The Irish Farmers’ Association will be happy if the treaty comes to pass and if there is a yes vote on Thursday. They are joined by the Irish Creamery and Milk Suppliers’ Association and Macra na Feirme. Like the business community, this is really only about one thing: Money. Farmers have done very well from the Common Agricultural Policy and other EU support mechanisms and, despite cutbacks in these areas, do not wish to jeopardise their access to funds.

The Government will be a winner if the treaty is enforced. It would give Enda Kenny and Michael Noonan an opportunity to confirm to Angela Merkel and the European Commission what they have been saying all along: That Irish people are not like the Greeks, that we are good Europeans.

It is easy to see that the winners of a full force fiscal treaty are those whose pockets will benefit handsomely from it. The losers in this context are those whose pockets and access to services will suffer and others who believe that it is the Irish government should dictate Irish economic policy.

The biggest losers will be the myriad victims of austerity. Ireland’s austerity since 2008 has caused unemployment to rise to 440,000. GNP has fallen by 26% from 2008-2011 and 100,000 people have emigrated.

The Government’s tax take has collapsed from €48bn in 2007 to €34bn in 2011. Financial credit to households has fallen from €145bn to €100bn and the amount of credit advanced to businesses is down by €73bn; 141,000 are in mortgage arrears and there are 98,000 on housing waiting lists; the numbers on hospital waiting lists is 178,000.

After €22bn worth of cutbacks and tax increases, the general government deficit still stands at €15.3bn, after being €1bn in surplus at the end of 2007.

The austerity demanded by the conditions of the 2010 EU/ECB/IMF bailout will have to continue for Ireland to move to reaching the fiscal treaty deficit target of 0.5% of GDP.

Already the Government has been committed to reducing the general deficit to 3% of GDP by 2015, requiring cutbacks and taxes of €3.8bn this year, €3.5bn in 2013, €3.1bn in 2014, and €2bn in 2015.

However, once the new “structural” deficit measure kicks in with the enforcement of the treaty and needing to come in under 0.5% by 2015, a further €5.7bn in cutbacks and taxation increases will be required. There is little prospect of an economic recovery under these conditions.

The Government itself is not forecasting any significant falls in unemployment in the coming three years, despite increasing levels of emigration. All these households, the unemployed and emigrants will be losers.

The scale of the cutbacks in current spending — €1.7bn in 2013 and a further €2.2bn in 2014-15 already planned — will no doubt drive up the pupil-teacher ratios and reduce whole panoply of public services.

Social welfare recipients are also likely to experience both a reduction in payments over the period and higher levels of inspections to monitor eligibility.

The unions will lose, with a fall in membership. Other losers will be those who believe that Ireland will never again have control over its own economic affairs while locked in to this system, and many others who fear the loss of Irish identity, within a move towards a perceived United States of Europe.

The winners and losers that emerge from the enforcement of the fiscal treaty tend to resemble the growing and often divergent interests between the haves and have nots.

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