Next Monday’s meeting of the leaders of Europe is shaping up to be yet another Summit where they will fail to take any decisive steps to overcome the economic crisis which is accelerating in Europe. Since they last met the growth forecasts for most countries have been reduced. The sovereign ratings of many have been downgraded. Unemployment has continued to rise. Yet in spite of this, the agenda for Monday involves nothing more than a series of side issues or failed policies. No matter how many times leaders use the word ‘jobs’ in their statements all they are discussing is fiscal consolidation and a Franco-German obsession with tax harmonisation.
It is also yet another summit which Ireland will attend without its head of government having made any effort to promote an agenda by undertaking even a basic round of serious bilateral meetings.
Since last March our party leader Deputy Micheál Martin has taken the lead in this chamber in setting out specifics for what is needed to address the crisis. He was well ahead of most commentators in pointing to the likely impact of the delays from March to July in implementing a debt sustainability deal which has been agreed in principle in December 2010. In spite of the jibes thrown at him by the Taoiseach and Minister Creighton on many occasions, he has been correct in challenging the false dawns which have been announced after every new measure is adopted.
His consistent critique has been that the Council has been focused on addressing issues which did not cause the crisis and which will not solve it. The failure of Europe’s leaders to challenge the failed orthodoxies continues to do immense damage. It is true that key bond yields on the secondary market have fallen, however the evidence suggests that this is purely as a result of unsustainable coordination between a range of institutions and banks.
At the same time he has also set out a constructive agenda of measures which Fianna Fáil supports. Unlike others, we have not taken the path of angry opposition or unthinking support. I would like later to return to specific proposals which we believe that, even at this late stage, the Taoiseach should formally place on the Council’s agenda.
As these are the first statements since the Croatian referendum I would like to join with others in welcoming the very strong Yes to membership of the EU. Croatia is a country which was born in difficult circumstances and has overcome many hurdles in the last two decades. It has built a strong liberal democracy and has worked hard to overcome ethnic divisions which could have festered for a long time. Ireland has been a strong supporter of Croatian membership and we opposed the artificial barriers placed in its way at different time.
I would also like to acknowledge the leadership role in the referendum played by Foreign Minister Vesna Pusic who is Vice-President of our European Party and who we look forward to welcoming to the ELDR Congress in Dublin later this year.
The referendum shows that, even at this time of crisis, the idea of the European Union has a strong attraction for all those who want to build a democratic and peaceful Europe.
I would also like to welcome the early statements of the Danish Presidency and its very constructive approach. Last week Prime Minister Thorning-Schmidt placed the issue of youth unemployment at the centre of her address to the European Parliament. It was a very positive start to their presidency and I hope that President Sarkozy will have the decency to apologise for his insulting attitude to Denmark and other small countries made in statements at the December Summit.
The proposed Fiscal Treaty will be finalised next Monday, but there is no indication that anything of substance is likely to change. In a move which is typical of this government, even though there is a final text available it will not reveal its understanding of the Treaty until it has been agreed.
The debate on this Treaty has been the worst of any Europe-related Treaty since we first applied to join the then EEC fifty years ago. The likelihood of a treaty emerging became clear in August following a Franco-German summit. The only response of the Taoiseach was a doorstep interview some time later where he said that a referendum should be avoided. From that point on the basic strategy of the government has been to focus on whether or not the people need to be consulted and not in looking for a deal capable of restoring stability and growth.
Last week the Tánaiste said that it was disgraceful to suggest that the government was trying to avoid a referendum. As we know from Wikileaks, the Tánaiste has a record on this issue.
There is simply no doubt that the sole thrust of negotiations since December 9th has been to finalise a Treaty which can be ratified by the Oireachtas and will withstand the inevitable Supreme Court case. Ireland was not alone in trying to reduce the radicalism of December’s agreement and to deny this is to deny the obvious. In spite of what the Taoiseach has said, the truth is that he has received legal advice at every step on whether a vote may be required. He has to wait for a final text to get a final piece of advice, but he knows exactly what the Attorney’s view of the current text is and he should be honest enough to outline it before he signs off on it.
The text which will go to the Summit does not represent the implementation of December’s deal. The provisions have been carefully drawn to leave out legally-binding provision for, in-effect, a ‘two-speed Europe’. Enhanced cooperation may happen, but there is no legal obligation to agree in advance to be covered by policies you disagree with. In addition, for all of the fighting in December about the place of existing EU Treaties and institutions, existing Treaty law will remain fully in force. The draft Treaty explicitly says that the whole issue of real change is being kicked down the road – with a target for doing something within five years.
As currently drafted, it is a minimalist Treaty, which appears to do little more than put a small amount of extra enforcement behind policies which are already incorporated in EU regulations.
As the draft points out, the specific fiscal targets are those which were agreed last year and finalised in a regulation which came into force in November. What is new is the idea that the ECJ would be able to fine member states through cases which will be easier to initiate. At the heart of this is perhaps the most ridiculous idea in the construction of the Stability & Growth Pact – that is that the way to deal with a government in debt is to fine it an amount which is a fraction of that debt.
No doubt others contributing to this debate will be speaking in force about how this Treaty spells the end the world and is revolutionary. In truth it is nothing of the sort. As drafted it is a tokenistic effort which entrenches already agreed policies but fails completely to address the causes of the crisis.
Various parties and individuals have already started a competition for who can get to the High Court fastest when the Government tries to ratify the Treaty through the Oireachtas. Just as the government’s main interest is avoiding a vote their main interest is to have something to campaign against. What people ignore is that there have been at least 8 treaties between member states since we joined which have not required a referendum. For example, the 2003 Accession Treaty included amendments which were agreed for Ireland in response to the Nice vote. It is not true to say that everything automatically requires a referendum.
Let’s see the final text first.
The problem with this Treaty is not that it does too much, it is that it does nothing about the real causes of this crisis and, especially, it completely ignores the policies required to return growth and job creation to Europe.
The Fiscal Control Agenda is Flawed
Not one single provision in this Treaty would have prevented the current economic crisis. In Ireland’s case we fully met every provision in the Treaty right up to the start of the recession. Others would have had to run slightly tighter budgets, but they would have adopted no policies which would have averted the crisis. It is a great pity that the Taoiseach put party politics first by repeatedly linking Ireland’s problems to the failure to operate to these fiscal rules. In doing this he has significantly reduced Ireland’s hand.
We support the idea of greater efforts to ensure that long-term fiscal stability is achieved in Europe. What we don’t support is the idea that strengthening fiscal control will solve any problem.
Britain, America and many other countries with no sovereign borrowing problems have worse fiscal balances than the Eurozone. In the case of America, the yields on Treasury Bonds are at a historic low. Outside of the governments of a handful of European countries and, tragically, the Board of the ECB there is no one who believes that the crisis will end by showing greater resolve on borrowing and debt. In fact, the recent downgrading of France and other countries was explicitly justified on the basis that the agenda agreed in December is the wrong one.
The core reason why there is a sovereign debt problem in the Eurozone is the lack of a lender of last resort for the primary bond markets. Investors are losing confidence that the money will be there when they seek to redeem bonds and have been driving up yields. In the last month there has been some respite but the evidence is that this is because of the background manipulation of the market to try and restore confidence.
In reality you have the ridiculous situation where the ECB is lending money to banks in the hope that they will use some of it to buy sovereign bonds. Other central banks are buying them directly – with lower costs and risks together with a greater impact.
The failure of the draft Treaty to include a single word about any reform of the ECB is the biggest symbol of its irrelevance to solving the crisis.
The policy of Europe remains the funding of bailouts rather than preventing them from being required. The failed policy which drove Ireland and then Portugal out of the markets in the last year and a half remains untouched.
New Measures are Required
If the leaders of Europe actually want to address the causes of the crisis there are a series of specific steps which they should announce at least an intention of exploring.
The first, and most significant, is the need to change the mandate and policy of the ECB. At a minimum the Bank should be given a mandate to target economic growth as well as low inflation. Equally it needs to lead a unified financial regulatory approach.
Secondly, before trying to establish and fiscal union, the leaders should agree to establish a significant fund to assist countries in facing major economic shocks. This was understood by President Delors when he pushed for cohesion funding, but appears to have been forgotten by those who think that growth can come from control without investment.
Thirdly, leaders should agree to significantly increase funding for employment creation in the work affected countries. The reason why people here and elsewhere grew in their respect for the Union was how it played a major role in tackling unemployment in the past. It should remember this and address it in their agreement next week.
Finally, we need leaders to signal that they will no longer tolerate the fracturing of the Union and the arrogant behaviour of a couple of leaders more concerned with domestic opinion polls than the worst economic crisis since the 1940s. They have been helped by the timidity of the Taoiseach and others who have failed to build alliances or forward alternative agenda. If President Sarkozy and Chancellor Merkel turn up on Monday with a pre-packaged agreement and demand that everyone shut up and sign they should be told No. All 27 members have rights which must be respected.
Given the government’s primary concern with the presentation of policy rather than its substance the Taoiseach’s staff have already been busy trying to set low expectations for Monday. Given the enthusiasm of their briefing over the weekend no doubt there are a few things lined-up which will be claimed as the result of intensive negotiating.
What Ireland needs from this summit is clear:
- We need to rebuff not just proposals to harmonise taxes, but also the deeply dangerous common tax base which the Taoiseach has so far not ruled out.
- We need to insist that the rights of all members be respected and that a new effort be made to get the government of Britain to agree to the Treaty.
- We need to insist that reform of the ECB be discussed.
- We need say unequivocally that the ECB-driven blockages to burning our bank bondholders be removed and that new terms be given for funding for bank recapitalisation.
- Finally, and most importantly, we need to insist that support for growth and job creation receive real attention and not just empty words.
If all that emerges from this Summit is an agreement to plough-on regardless with the policies which have already failed then every country will lose out. Fiscal controls are required but they are not the answer. It is only when confidence in Europe’s ability to take bold and creative action is restored that the crisis will be overcome. For everyone’s sake, I hope that the Taoiseach’s agenda and that of the other leaders goes beyond the one which has been outlined so far.