Ireland to vote on EU rescue plans

In December last year, the leaders of the various member states of the EU, other than the UK and the Czech Republic, agreed that an intergovernmental treaty should be drawn up that would give the EU greater power to control the economies of member states, in order, theoretically, to prevent any state from racking up unpayable debts.

A document, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (or, more familiarly, the European Fiscal Compact), was duly drafted and finalised at the end of January this year, but, in view of British and Czech recalcitrance, it is only to affect those states that are signatories.

The European Fiscal Compact

The signatories to this treaty, which comes into effect on 1 January 2013, undertake that their national budgets will never run a deficit but will adopt a standardised balanced budget as part of their constitution. A country could be fined up to 0.1 percent of GDP by order of the European Court of Justice if this undertaking is broken, and indeed the court is given a major role in ensuring that countries implement their treaty obligations in an appropriate manner.

In addition, no signatory country is permitted to have a government debt exceeding 60 percent of GDP. Those whose debt exceeds this level when the treaty comes into effect (“Member States in Excessive Deficit Procedure”) are obliged to reduce it to this level or below at an average rate of one twentieth a year.

The treaty has a dual purpose, the first of which is to start creating fiscal harmony between the various member states of the EU, ensuring that all of them in the long run have identical policies on such questions as rates of taxation and generally on budget deployment, thus paving the way for the entire EU to act as a single sovereign power in a similar manner to the US.

The second, and more immediate, purpose, however, is to reassure the relatively financially secure countries (Germany in particular) that this closer unity will not result in their having to pay even more for the ‘profligacy’ of others – mainly by ensuring that other countries don’t get a chance to indulge in ‘profligacy’.

Of course, in imposing such measures throughout the EU, the German bourgeoisie is systematically destroying the market for its own (and incidentally British) exports to Europe, much to the astonished amazement of its British counterpart, which does not, however, have any better ‘solution’ to offer to the present economic crisis, but which feels that it is better to trust in time to disperse the economic clouds rather than actually to engage in shooting all capitalist enterprise in the foot German style. No doubt Germany is more confident than Britain in its ability to continue to export to other parts of the world, assisted as it is by a far stronger industrial base and by the weakening exchange value of the euro.

Be that as it may, the British bourgeoisie has flatly refused to commit to the economic straitjacket embodied in the treaty.

The treaty will come into effect provided at least 12 of the 17 eurozone states ratify it. Any states that do not ratify it will not be bound by it, but neither will they be able to have recourse to the financial support (‘bail-outs’) to be provided by the new European Stability Mechanism currently being established. The aim of this mechanism will be to try to protect member states from the effects of negative speculation with its bonds that have in recent years led in several cases to states having to pay gigantic and unaffordable rates of interest for the privilege of borrowing enough money to meet their running costs.

While the heads of all 17 states involved duly endorsed the new treaty on 2 March, it has to be ratified by the various national parliaments by the end of this year, and little or no difficulty is expected in most cases in obtaining the necessary ratification. The case of Ireland, however, is different.

Irish referendum

Under Ireland’s constitution, a referendum has to be held to approve any transfer of sovereignty, including transfer of any sovereign powers to the EU. While Ireland’s various governments, which have all served the interests of finance capital, would have been happy to side-step this constitutional requirement, they have, under threat of legal proceedings to enforce the Irish constitution, been forced to hold referendums at various stages in relation to Ireland’s submission to the requirements of the EU.

Dublin has held referendums on every significant EU treaty since 1987, when Raymond Crotty, an economics professor, won a landmark legal challenge against the state, forcing a plebiscite on the Single European Act, and the people of Ireland have twice used the referendums to reject EU treaties. In both cases, the referendums were subsequently re-run after months of propaganda campaigns had persuaded the Irish people to vote the ‘right’ way.

Once again – but only after heavy pressure from Sinn Féin – the Irish government has been forced to call a referendum in order to be able to pass these laws that – despite attempts to disguise the fact – cannot but further transfer Irish sovereign powers from its government to the European Union. “The compact gives the EU intrusive powers to police the budgets of debtor states, and has been denounced as feudal bondage by Sinn Féin and Ireland’s vociferous eurosceptics,” says Ambrose Evans-Pritchard. (‘Irish EU treaty vote threatens chaos’, Daily Telegraph, 29 February 2012)

As is well known, Ireland is one of three eurozone member states that have been forced to seek a bail-out from the EU and IMF as a result of its bankruptcy. This came about because property speculation caused a house-price bubble largely financed by loans from Irish banks. When the bubble burst, and Irish property prices fell by almost half, the banks suffered such massive losses that without state intervention they would have collapsed.

But the money supplied by the Irish state to the banks was money that the government itself had to borrow from financiers, and which it had to commit to repaying out of future tax income. As the borrowing escalated, lenders calculated that the loans were becoming too risky and started demanding higher rates of interest – leaving the government with outgoings greater than its income.

At that point, the EU and IMF had to intervene to provide loans to the Irish government at more affordable rates of interest (the European Union and the International Monetary Fund lent €85bn to the Irish government in November 2010) – but even these obligations could only be met by drastic reductions in public spending.

These cuts were at the expense of public-sector jobs, thousands of which were lost, and of public-sector contracts that were not renewed (leading to loss of employment and business in the private sector too). And, of course, they were at the expense of even the most essential services benefiting the working class – schools, health care, welfare, pensions and support for the elderly and the disabled.

As a result, in the February 2011 general election, the Irish electorate delivered a shattering defeat to the ruling Fianna Fáil party, which it held responsible for the dire straits in which the Irish working masses were finding themselves.

They voted in, however, not a government committed to maintaining jobs and services, but a government that was undertaking to try to negotiate with the EU and the IMF for less harsh conditions for repayment. Since the latter were unwilling to soften these conditions, there is in practice absolutely no difference between the policies of Fianna Fáil and its Fine Gael-Labour coalition successor government.

The cuts that have already been implemented in Ireland, amounting to €20bn since 2008, are draconian beyond belief. Unemployment levels now stand at over 14 percent, and would be higher still were it not for the steady exodus of Irish people to countries such as Australia. Nearly 40,000 (nigh on one percent of the population) left Ireland permanently last year alone.

Salaries of nurses, teachers and other public-sector workers have been slashed by a fifth, while taxes continue to increase. Investment in public works has virtually ceased. As a result, retail sales have been declining by about 4 percent per year.

Following the implementation of this austerity programme, Irish competitiveness has improved, and exports, apparently, are booming, having increased by 5.4 percent for the first nine months of 2011. The beneficiaries of this boom, however, are mainly multinational companies such as Pfizer, Intel, SAP, LinkedIn and Facebook, which operate from Ireland, not least because of the latter’s very low rates of corporation tax.

Modest growth has returned and the budget deficit is shrinking. GDP has grown by some 1.2 percent in the last year, but this has to be seen in the context of a fall of 7 percent in 2009 and 0.4 percent in 2010. As a result, the budget deficit is now a mere 10 percent of GDP (as compared to 32 percent in 2010). But the EU target is 3 percent, which, even with the further austerity cuts imposed last December, could not be reached before 2015 – at which point Ireland will have the privilege, if it ratifies the treaty, of becoming a ‘Member State in Excessive Deficit’, forced to endure still more austerity until its budget deficit is eliminated altogether.

It is envisaged that there would need to be a further €12.4bn in cuts over the next three years to bring the deficit to 3 percent of GDP. Therefore, the Irish people, whose deprivation has duly perked up Ireland’s economic statistics, are to be rewarded for their suffering only with further cuts.

In the budget for the current year, the first Fine Gael-Labour coalition budget, another €543m is coming off the health budget, €475m off the social welfare budget and €132.3 off the education budget. The winter fuel allowance for pensioners, the number of assistant teachers for disadvantaged students and lone parent support are all due to be cut also, while taxes will increase by €1.6bn. The total value of the 2012 austerity package is estimated at €3.8bn.

How will they vote?

In the light of all this, one might have thought that to expect the Irish people to vote in favour of the new treaty would be the equivalent of asking turkeys to vote for Christmas. For this reason, “Ireland’s decision to hold a referendum was greeted with disbelief and dread in the EU among politicians and public servants, with the greatest fear being that it will open a Pandora’s box of other countries seeking a vote also.” (‘Europe fears decision will open “a Pandora’s box”’ by Ann Cahill, Irish Examiner, 29 February 2012)

Nevertheless, plans are already afoot to secure a ‘Yes’ vote from the unsuspecting Irish electorate. Current opinion polls, if they are to be believed, actually show slightly more Irish voters supporting the treaty. A survey for the Sunday Business Post apparently found 44 percent of respondents would vote Yes, 26 percent would vote No, with another 26 percent undecided.

However, according to the Financial Times, “A recent opinion poll found 40 percent of the 1,000 Irish people questioned said they would support the treaty, with 36 percent against and 24 percent undecided.” (‘Ireland calls vote on European fiscal pact’ by Jamie Smyth and Peter Spiegel, 29 February 2012)

Nevertheless, Pat Leahy, political editor of the Sunday Business Post, has said that “our experience of European referendum campaigns here in the past has often been that the campaign starts with strong support for the treaty and is whittled down over the course of the campaign and is finally rejected on polling day”.

What has then happened in the past is that various concessions have been extracted from Europe to make the treaty in question (the Single European Act and the Lisbon Treaty in Ireland’s case) more acceptable, at which point the referendum has been re-run to get the required ratification second time round. On this occasion, however, it has been made clear that there is to be no re-run. Whatever vote is registered in the referendum likely to be held next May or June, that decision will stand.

In these circumstances, David Gardner of the Financial Times has argued that sufficient concessions must be offered straight away to ensure that the ‘right’ result is obtained first time: “There will be no second vote as there was with Nice and Lisbon; the sweeteners need to be front-loaded.”

“In this referendum … the coalition government of Fine Gael and Labour will campaign hard for a Yes vote, alongside … Irish employers, who have seen the economy become a magnet for foreign investment and an exports engine as a result of EU and euro membership, [and who] have come out strongly for the new treaty. The fight against will be led by Sinn Féin, the republican party, along with clusters of socialists and independents.

“While this might look like an unequal battle, it is not. Sinn Féin is starting to eclipse Fianna Fáil as the voice of Irish nationalism. One poll this week gives them 25 percent against 16 percent for the formerly almighty Fianna Fáil, with Fine Gael on 32 percent and Labour down to 10 percent. The pro-treaty camp will say the choice is between prosperity and suicide; their opponents will call for restored sovereignty against austerity – the pitch that has rocket-fuelled Sinn Féin’s rise …

“The government and its supporters will have to strike a balance: spelling out what isolation would mean for a vibrant but vulnerable economy, without blackmailing citizens who already feel the EU bullied Ireland into a bail-out 15 months ago.

“… If Ireland’s eurozone partners want a Yes vote, they had better take notice. Otherwise they might as well leave the field to Sinn Féin.” (‘Concessions will secure win in Irish vote’, 1 March 2012)

The main argument in their favour held by those who support the treaty is that there is no escape from Ireland’s indebtedness. One way or another, the Irish people are going to have to pay Ireland’s debts, ie, what Michael Burke in the Guardian of 1 March called the “transfer of incomes from labour and the poor to capital and the rich”, despite the fact that “Companies are sitting on cash mountains all across Europe. And the profit share of national income has risen,” while “In … Ireland, the total level of profits is rising, even while household incomes are declining and the slump in business investment actually exceeds the total contraction in GDP.”(‘Ireland’s EU referendum can strike a blow against “austerity”’)

Treaty supporters will tell Irish voters that either they can pay gradually, avoiding bankruptcy, or Ireland can default, leaving the government totally unable to raise any money at all to fund its commitments, as a result of which – suddenly and abruptly – far greater losses of jobs, benefits, etc, would take place than are currently envisaged under the next round of proposed austerity programmes. The fact is that, under the conditions of capitalism, slow strangulation may well be preferable to sudden death.

The opposition line must start by requiring the rich to pay for their crisis. If there is a sovereign default, the state must simply declare that it will no longer seek to milk taxpayers in order to pay debts. The moneylenders will have to bear the losses. The poor must simply say: Can’t pay, won’t pay.

This will lead to the rich bearing a far higher proportion of the burden of the crisis than at present, when the vast majority is being borne by the poor. But so long as capitalism subsists, the poor will still be deprived of the jobs and social benefits that the state was previously providing. If, on the other hand, the capitalist system in Ireland were to be overthrown and the Irish workers were to take charge of the economy and run it for their own benefit, they would surely be able to deliver a high standard of living – and, moreover, one that was always improving.

Of course, history proves that in such a case the reactionary classes would not accept the situation easily, so that an Irish proletarian state would have to face continuous financial and military aggression from reactionary classes at home and abroad. This in turn would prevent the new socialist government from improving the lives of Irish people as much as potentially a socialist planned economy is able to do.

However, this would be a temporary phenomenon, and any difficulties would be made much more bearable by the fact that they were shared equally, while the highest priority of society after defending itself from counter-revolutionary aggression would be working to eliminate hunger, homelessness and unemployment.

The real truth is that, whatever the initial difficulties, by choosing socialism, the working people of Ireland would be choosing life rather than death, as opposed to the choice offered under capitalism of choosing between death that is gradual and death that is sudden.

Time to face it: capitalism must go!

Editorial: The budget

Eurogeddon