How will a No vote prevent austerity?

Eliot Rosewater

It's been the primary argument put forward by the No side: vote No because austerity isn't working.



I'm not voting in the referendum as I'll be in Germany, so my interest in the campaign is purely academic. How does the primary No argument work? From what I see, if we vote No then a source of cheaper credit will be cut off to us and the cost of running the government will increase, perhaps significantly. All other things being even, this will surely require more austerity (that is, more spending cuts).

On the other hand, if you believe in ending the cuts and imposing more taxes, then voting No doesn't make sense either. For such a policy approach we'd still need credit, and by voting No we risk increasing the amount we spend on borrowing.

So I'm a bit bemused. Can anyone explain how the vote No to austerity argument works?

Or, is it merely a cheap political tactic that, despite a seemingly inherent contradiction, has gained a ton of support? I'm currently reading The Myth of the Rational Voter and so have come around to the idea that it might be rational for individual voters to believe incorrect things, but the blatant nature of this one surprises me - assuming, of course, voting No in protest at austerity doesn't make sense. Does it?

hatrickpatrick

I think the primary reason for that argument is because the treaty includes a 0.5% deficit limit and proposes penalties for anyone who breaches it.

Those who argue against austerity are saying that sometimes, it makes more economic sense to run a deficit in the short term, and/or that sometimes in a shock or crisis, such a deficit is completely unavoidable without horrific austerity, AND thirdly that sometimes, prioritizing a deficit target above getting the economy back to growth causes an endless cycle of further negative growth and therefore an ever growing deficit to try and close. The original EU (or perhaps it's just the Eurozone, can someone clarify?) deficit limit was 3%, which is the original limit we breached and the limit we're currently aiming to satisfy.

Supposedly the treaty contains provisions for suspending these strict rules in the case of a shock or emergency, but in my view these are far to vaguely worded. Dangerously so, in fact.

Ozymandius2011

It is possible that if we vote no, we could use possible renegotiations of the Fiscal Compact (today a French govt minister Pierre Moscovici said France will not ratify unless the Treaty is amended) to press for a write-down/write-off of Irish debt. If that succeeds it could reduce austerity.

Godge

hatrickpatrick wrote: »

I think the primary reason for that argument is because the treaty includes a 0.5% deficit limit and proposes penalties for anyone who breaches it.

Those who argue against austerity are saying that sometimes, it makes more economic sense to run a deficit in the short term, and/or that sometimes in a shock or crisis, such a deficit is completely unavoidable without horrific austerity, AND thirdly that sometimes, prioritizing a deficit target above getting the economy back to growth causes an endless cycle of further negative growth and therefore an ever growing deficit to try and close. The original EU (or perhaps it's just the Eurozone, can someone clarify?) deficit limit was 3%, which is the original limit we breached and the limit we're currently aiming to satisfy.

Supposedly the treaty contains provisions for suspending these strict rules in the case of a shock or emergency, but in my view these are far to vaguely worded. Dangerously so, in fact.

You keep peddling this misinformation.

http://economic-incentives.blogspot.com/2012/05/debt-and-deficits-in-eu-fiscal-rules.html

The 0.5% rule has been in place since 2005.

Godge

Ozymandius2011 wrote: »

It is possible that if we vote no, we could use possible renegotiations of the Fiscal Compact (today a French govt minister Pierre Moscovici said France will not ratify unless the Treaty is amended) to press for a write-down/write-off of Irish debt. If that succeeds it could reduce austerity.

sorry, do you mean that if we vote no, we could somehow force taxpayers in the rest of Europe to pay for the debts that we have run up? Are you having a laugh? Seriously, who would pay for the write-down? The Germans? The Greeks? Somebody would have to pay and ultimately that is the failure of the "No" campaign on this sort of thing, they have absolutely no clue as to who would pay up for our budget deficits if we voted no.

hatrickpatrick

Godge wrote: »

You keep peddling this misinformation.

http://economic-incentives.blogspot.com/2012/05/debt-and-deficits-in-eu-fiscal-rules.html

The 0.5% rule has been in place since 2005.

In that case, what new things does the treaty actually do which aren't already in previous agreements?

If there's nothing new in it, there's no need for a further treaty at all, if it's giving enforcement to hitherto unenforced rules, than to all practical intents it still counts as a 'new rule'.

Gurgle

Ozymandius2011 wrote: »

It is possible that if we vote no, we could use possible renegotiations of the Fiscal Compact (today a French govt minister Pierre Moscovici said France will not ratify unless the Treaty is amended) to press for a write-down/write-off of Irish debt. If that succeeds it could reduce austerity.

If I understand this case: Vote no, not because of what's in the treaty but because Germany wants it and we want something else (unrelated) from Germany.

That sounds like a bad reason to me.

christmas2012

iceland let the banks burn and their growth is doing alright now,maybe we did the wrong thing

Gurgle

christmas2012 wrote: »

did

The word that makes the difference between a better plan and great hindsight.
Its just a pity we didn't get to vote on implementing the bank guarantee scheme rather than see it rolled out on a wave of lies and propaganda.

bladespin

christmas2012 wrote: »

iceland let the banks burn and their growth is doing alright now,maybe we did the wrong thing

Their budget was/is better balanced.

Ozymandius2011

Gurgle wrote: »

If I understand this case: Vote no, not because of what's in the treaty but because Germany wants it and we want something else (unrelated) from Germany.

That sounds like a bad reason to me.

I call it haggling, GFA style.

Godge wrote:

sorry, do you mean that if we vote no, we could somehow force taxpayers in the rest of Europe to pay for the debts that we have run up? Are you having a laugh? Seriously, who would pay for the write-down? The Germans? The Greeks? Somebody would have to pay and ultimately that is the failure of the "No" campaign on this sort of thing, they have absolutely no clue as to who would pay up for our budget deficits if we voted no.

Well the Spaniards and the Greeks recently got concessions on their debts by outright refusing to cooperate so why not? Our trumpt card is the risk of contagion if Ireland goes down. The media today are reporting warnings by an economist of "Armageddon" if Greece leaves the Euro - including the elimination of the capital of the ECB. It is in the interests of the ECB that Ireland pay bak some of the debt rather than none. In that context a write-down of debt is preferable.

caff

christmas2012 wrote: »

iceland let the banks burn and their growth is doing alright now,maybe we did the wrong thing

Iceland has a population of 320,000, 200,000 of which live in or near the captial city. Its governemnt budget is about 3billion euro. 81% of energy is Iceland is produced domestically. The costs of imports have soared since Iceland has devalued is currency and the country is only now unwinding capital flight controls while trying to battle inflation. Comparing Iceland burning the banks and Ireland is not like for like.

meglome

Eliot Rosewater wrote: »

So I'm a bit bemused. Can anyone explain how the vote No to austerity argument works?

I can't help but notice that no one has explained this yet.

sliabh

christmas2012 wrote: »

iceland let the banks burn and their growth is doing alright now,maybe we did the wrong thing

Iceland is still on the hook for the bank debts that their state guaranteed. The people voted down the specific deal on offer in a referendum, but that didn't erase their obligation to the British and Dutch governments (amongst others).

The Icelandic government is still trying to come to an arrangement with their creditors that they can sell at home. One way or another they will have to pay. What is up for debate is how much, how fast.

antoobrien

hatrickpatrick wrote: »

In that case, what new things does the treaty actually do which aren't already in previous agreements?

It prevents us from accessing the ESM (which didn't exist at the time of the previous agreements) if we don't ratify it.

Godge

hatrickpatrick wrote: »

In that case, what new things does the treaty actually do which aren't already in previous agreements?

If there's nothing new in it, there's no need for a further treaty at all, if it's giving enforcement to hitherto unenforced rules, than to all practical intents it still counts as a 'new rule'.

That is like saying that it was all right to drink and drive before they intoduced breathalyzers. That is was all right to disregard speed limits before the introduction of speed cameras.

The question you should ask yourself is where were Cuddly Uncle Joe and the Boy Wonder when the rules were introduced in 2005?

Anyway, are you ever going to answer the OP's question?

I will. The "No" vote campaign people are right. Vote "Yes" for austerity but they have left out the other bit. Vote "No" for even more austerity. You see austerity or balancing the books which is the less emotive way of putting it is the only way to get the country out of this mess. If we vote "Yes", we get time, space and money to do it gradually without wrecking the country. If we vote "No" we have to do it much more quickly and in a scenario where no investers will have confidence in the country and no sane bank, bondholder or person will lend to us which means a lot more austerity. That is the reality.

Scofflaw

hatrickpatrick wrote: »

In that case, what new things does the treaty actually do which aren't already in previous agreements?

If there's nothing new in it, there's no need for a further treaty at all, if it's giving enforcement to hitherto unenforced rules, than to all practical intents it still counts as a 'new rule'.

What's not new:

1. the 3% deficit rule
2. the 60% debt rule
3. the structural balance rule
4. the penalties and procedures attached to breaches of the rules

What's new:

1. transposing the fiscal rules into national law
2. creating a national 'correction mechanism'
3. making 1 and 2 subject to a ruling of the CJEU
4. the voting mechanism for determining whether the rules have been breached, which moves from requiring majority to support to requiring a majority to block

That's more or less it, plus the ESM conditionality. After all, it's only 11 pages.

cordially,
Scofflaw

Scofflaw

Ozymandius2011 wrote: »

It is possible that if we vote no, we could use possible renegotiations of the Fiscal Compact (today a French govt minister Pierre Moscovici said France will not ratify unless the Treaty is amended) to press for a write-down/write-off of Irish debt. If that succeeds it could reduce austerity.

We're not in a position to use our No in order to extort anything from the other countries, because our No doesn't prevent the Treaty coming into operation. It affects only us.

cordially,
Scofflaw

meglome

Scofflaw wrote: »

We're not in a position to use our No in order to extort anything from the other countries, because our No doesn't prevent the Treaty coming into operation. It affects only us.

cordially,
Scofflaw

I've been repeatedly explaining this to people for several weeks and it's still not getting through. It's a pretty simple concept as well, I really start to despair sometimes.

nicholasn7322

Vote no...and stop paying back the speculators who bet on anglo and the other banks that should have been left go. The IMF will fund anyone with a credible plan to pay it back...if we weren't paying off debts that we shouldn't have taken on we could come up with a reasonable plan. The interest rates will be higher than the ESMs rates alright so there's Austerity either way (we do have to get our house in order) but at least we wouldnt be borrowing money from an organization who are above all laws and cannot be prosecuted and who can demand any amount of money when ever they see fit.

Ozymandius2011

Scofflaw wrote: »

We're not in a position to use our No in order to extort anything from the other countries, because our No doesn't prevent the Treaty coming into operation. It affects only us.

cordially,
Scofflaw

It needs 12 countries to ratify to come into force and that is looking less and less likely to happen - at least in its present form. I think a no vote from Ireland would strengthen the political momentum against ratification in Europe, and kill it that way. Also the situation with the ESM is in some doubt regarding Article 125. I find the RC's statements on it contradictory. On the one hand they say the time for vetoing it is past. On the other hand they say the Oireachtas has yet to ratify it. That is contradictory because changing Article 125 requires a Treaty change and that requires unanimity. Even Shane Coleman said on Newstalk this afternoon he was surprised at the RC's stance on the question of a referendum delay.

beeftotheheels

nicholasn7322 wrote: »

Vote no...and stop paying back the speculators who bet on anglo and the other banks that should have been left go.

Except that for the most part they're already paid and the debt assumed by the sovereign. The vast majority of Anglo funding was deposits per Alan Ahearne 70% if I recall correctly.

The deposits fled, Anglo borrowed made up money off the Central Bank of Ireland (who we own by the way and thus we're responsible for any losses it makes) to replace those deposits and the Gov guaranteed the CBI via the promissory notes. This has already happened. We're already on the hook for this. Money going out of the gov to fill a hole in one entity we own (IBRC) to avoid creating a hole in another entity we own (CBI). Holes which we have to fill one way or another as owners of those entites.

So to summarise "Vote no to shut the stable door after the horse has bolted"

nicholasn7322 wrote: »

The IMF will fund anyone with a credible plan to pay it back...if we weren't paying off debts that we shouldn't have taken on we could come up with a reasonable plan.

Except that we've already take on those debts, they are now debts of Ireland owed to our EU partners and we cannot default on them without being prepared to risk our EU Membership.

Horse. Stable. Bolt. Door.

nicholasn7322 wrote: »

The interest rates will be higher than the ESMs rates alright so there's Austerity either way (we do have to get our house in order) but at least we wouldnt be borrowing money from an organization who are above all laws and cannot be prosecuted and who can demand any amount of money when ever they see fit.

Total, unadulterated rubbish.

The ESM is not above the law. It is a construct of the law. Yes the ESM treaty grants it immunity from certain spurious litigation. But it is an EU Institution and it is not above the core EU laws in the TEU and TFEU, nor is the jurisdiction of the CJEU excluded (read Article 37 on dispute resolution).

ARTICLE 37

Interpretation and dispute settlement

1. Any question of interpretation or application of the provisions of this Treaty and the by-laws of the ESM arising between any ESM Member and the ESM, or between ESM Members, shall be submitted to the Board of Directors for its decision.

2. The Board of Governors shall decide on any dispute arising between an ESM Member and the ESM, or between ESM Members, in connection with the interpretation and application of this Treaty, including any dispute about the compatibility of the decisions adopted by the ESM with this
Treaty. The votes of the member(s) of the Board of Governors of the ESM Member(s) concerned shall be suspended when the Board of Governors votes on such decision and the voting threshold needed for the adoption of that decision shall be recalculated accordingly.

3. If an ESM Member contests the decision referred to in paragraph 2, the dispute shall be submitted to the Court of Justice of the European Union. The judgement of the Court of Justice of the European Union shall be binding on the parties in the procedure, which shall take the necessary measures to comply with the judgment within a period to be decided by said Court.

So if the ESM tomorrow decided to lend Ireland additional money it would be immune from litigation by a German taxpayer as breaching German laws.

If the ESM tomorrow made it a condition of lending to Ireland that it got to control our corporate tax rate for example, it would not be immune from an action in the CJEU that it had breached the principles of proportionality, subsidiarity, conferral etc etc. Ireland would first off make a complaint to the board, but if we weren't happy with their conclusion the case would go before the CJEU.

If we're not in a position to pony up the cash for a capital call made on us (by virtue of being in programme) the ESM treaty provides that a revised capital call can be made on other members to make up our short fall although it would make little sense for us to go down this road and more sense to borrow from the ESM to fund the ESM. I don't know why they didn't have a step out clause as with the EFSF, perhaps the issue was Italy and Spain.

But either way it strikes me as rich that Irish people can criticize the ESM both for imposing conditionality on our borrowing from it through ratification of the TCSG, and from the other side of their mouth criticize the possibility that we might have to put cash into the ESM for them to lend to anyone else.

hatrickpatrick

Scofflaw wrote: »

What's not new:

1. the 3% deficit rule
2. the 60% debt rule
3. the structural balance rule
4. the penalties and procedures attached to breaches of the rules

What's new:

1. transposing the fiscal rules into national law
2. creating a national 'correction mechanism'
3. making 1 and 2 subject to a ruling of the CJEU
4. the voting mechanism for determining whether the rules have been breached, which moves from requiring majority to support to requiring a majority to block

That's more or less it, plus the ESM conditionality. After all, it's only 11 pages.

cordially,
Scofflaw

Sorry but where does the 0.5% limit come into any of that?
A "structural deficit" applies to a deficit when a country is performing to its full economic potential rather than being in the middle of a bust, but who defines "normality"? I doubt the Irish high point in 05/06 counts as normal either...

As I say, it just seems far too vague and open to many interpretations.

beeftotheheels

hatrickpatrick wrote: »

Sorry but where does the 0.5% limit come into any of that?
A "structural deficit" applies to a deficit when a country is performing to its full economic potential rather than being in the middle of a bust, but who defines "normality"? I doubt the Irish high point in 05/06 counts as normal either...

As I say, it just seems far too vague and open to many interpretations.

In the current rules there must be a structural balance or surplus. In the treaty a structural deficit of 0.5% is allowed.

So whether you think the definition is vague or otherwise, the treaty relaxes rather than tightens this rule.

05/06 clearly wasn't a structural balance since at the very least the treaty requires cyclical tax take be excluded from the calculation and in 05/06 we were buoyant with pro-cyclical property taxes which should have been excluded.

nua domhan

caff wrote: »

Iceland has a population of 320,000, 200,000 of which live in or near the captial city. Its governemnt budget is about 3billion euro. 81% of energy is Iceland is produced domestically. The costs of imports have soared since Iceland has devalued is currency and the country is only now unwinding capital flight controls while trying to battle inflation. Comparing Iceland burning the banks and Ireland is not like for like.

What about comparing Argentina and Ireland?

beeftotheheels

nua domhan wrote: »

What about comparing Argentina and Ireland?

Equally spurious. We're not in any where near as bad a position as Argentina was in pre default, and I hope to god we don't visit the position of Argentina post default.

Although I would advocate setting up a little test camp in the Curragh where food had to be foraged by middle class journalists out of rubbish bins in order to give them a better sense of what they're actually advocating.

We could film them 24 hours a day as they try to feed their families, but they can't get voted out until they've actually endured that level of pain for a similar time scale to that suffered by the people of Argentina.

It could simultaneously amuse and inform any Irish people tempted by the analogy.

Scofflaw

Ozymandius2011 wrote: »

It needs 12 countries to ratify to come into force and that is looking less and less likely to happen - at least in its present form. I think a no vote from Ireland would strengthen the political momentum against ratification in Europe, and kill it that way. Also the situation with the ESM is in some doubt regarding Article 125. I find the RC's statements on it contradictory. On the one hand they say the time for vetoing it is past. On the other hand they say the Oireachtas has yet to ratify it. That is contradictory because changing Article 125 requires a Treaty change and that requires unanimity. Even Shane Coleman said on Newstalk this afternoon he was surprised at the RC's stance on the question of a referendum delay.

That's Article 136, not 125, I think - the amendment in question is desirable to provide a solid legal base for ESM in the Treaties, but it's not regarded as necessary. So vetoing the change is not guaranteed to stop ESM going ahead, even were the government contemplating doing so, which they've made clear they're not. To be honest, I can't imagine an action more calculated to lose allies than trying to veto ESM right now - not ratifying it would be one thing, but trying to veto it would probably push at least Spain right into bailout territory.

On the question of delaying the referendum - it's not legally possible, nor can the wording be changed. So on May 31st you get to say Yes or No to the Treaty as it now stands - and not any other version.

cordially,
Scofflaw

stringed theory

Eliot Rosewater wrote: »

It's been the primary argument put forward by the No side: vote No because austerity isn't working......

voting No in protest at austerity doesn't make sense. Does it?

No. Except maybe in the long term you could make a case for borrowing more money on the markets, once you ignore the probable short term catastrophic increase in austerity.
Except you can't ignore it. But you can't pin these guys down. Straightaway they'll argue that we'll be able to access EU funds anyway, while simultaneously arguing that we don't need it anyway, and this is the only way to cut fat cat salaries...

I think that for many the basic problem is a deep seated unease with Ireland's place in the world, and a willingness to smash something. Sinn Fein, leftists, and assorted British malcontents can then conjure up their intellectual fig leaves for these emotions.

karlth

sliabh wrote: »

Iceland is still on the hook for the bank debts that their state guaranteed. The people voted down the specific deal on offer in a referendum, but that didn't erase their obligation to the British and Dutch governments (amongst others).

Just to clarify: The British and Dutch governments paid deposit holders in their country when an Icelandic bank went bankrupt. They then told the Icelandic government it was a loan. Icelanders said it wasn't (after a ballot).

The case is now before the EFTA court and as the total amount will be paid out anyhow by the failed bank it is unlikely that Iceland will have to pay anything.

Godge

hatrickpatrick wrote: »

Sorry but where does the 0.5% limit come into any of that?
A "structural deficit" applies to a deficit when a country is performing to its full economic potential rather than being in the middle of a bust, but who defines "normality"? I doubt the Irish high point in 05/06 counts as normal either...

As I say, it just seems far too vague and open to many interpretations.

Wow, are you a politician in disguise?

(1) How will a no vote prevent austerity? That was the OP, any chance of answering it?

(2) Most of the rules are already there, how will voting no change that?

(3) What is wrong with the changes as already outlined by Scofflaw?

Scofflaw

hatrickpatrick wrote: »

Sorry but where does the 0.5% limit come into any of that?

"Structural balance" rule - sorry, may not have been obvious. Something worth noting, though, is that the 0.5% structural balance rule isn't a limit in quite the same way as the 3% and 60% - it cannot trigger an excessive deficit procedure.

hatrickpatrick wrote: »

A "structural deficit" applies to a deficit when a country is performing to its full economic potential rather than being in the middle of a bust, but who defines "normality"? I doubt the Irish high point in 05/06 counts as normal either...

As I say, it just seems far too vague and open to many interpretations.

Then you should probably read the implementation decisions: http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/coc/2012-01-24.pdf

The Stability & Growth Pact is 20 years old - the implementation, and the factors to be taken into consideration, seem vague to you because they're not explicit in the Treaty, but the reason they're not in the Treaty is because they already exist, and the Treaty just refers to them.

cordially,
Scofflaw