Contribution to the Sub-Committee on the Referendum on the EU Treaty

Contribution to the Sub-Committee on the Referendum on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union
19 April 2012

It is clear that voices all across Europe and beyond, and from all across the political spectrum, are opposed to this treaty.  Many are urging the Irish people to reject it and, if given the chance, would be campaigning for its rejection by referendum in their own countries.

Writing in Monday’s New York Times (and reprinted in yesterday’s Irish Times), Nobel Prize-winning economist Paul Krugman commented on the crisis in Spain in particular, and in the Eurozone in general, as follows:

“When the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause. Nonetheless, the prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity. This is, not to mince words, just insane. …… Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy – and their society – off a cliff. And the whole world will pay the price.”

Krugman goes on to criticise the fiscal treaty as locking in “fiscal austerity as the response to any and all problems”.  Another Nobel Prize winner for economics, Joseph Stiglitz, has described the European response to the crisis as a “mutual suicide pact”. Their comments are echoed by yet another world renowned economist, Nouriel Roubini, who correctly forecast the current crash:

“[T]hanks to the fiscal compact, even the eurozone’s core will be forced into front-loaded recessionary austerity….  The trouble is that the eurozone has an austerity strategy but no growth strategy. And, without that, all it has is a recession strategy that makes austerity and reform self-defeating, because, if output continues to contract, deficit and debt ratios will continue to rise to unsustainable levels. Moreover, the social and political backlash eventually will become overwhelming.”

Krugman, Stiglitz and Roubini reflect a widespread view that the EU has misdiagnosed the economic crisis.  The proposed new treaty seeks to assign that misdiagnosis the status of constitutional law.  It is akin to a doctor prescribing an inappropriate treatment to a patient, and then legally debarring the patient from exploring any alternative treatments. This is why opposition to the treaty is growing across the whole Eurozone, and it is those voices of opposition that I principally wish to draw to the committee’s attention today, not least because the voices from the rest of Europe that the committee has so far heard from have all been in support of the treaty.   

  • Francois Hollande, frontrunner in the race for the French presidency, wants to renegotiate the treaty if he wins the election.
  • Doctor Herta Daubler-Gmelin, a former Minister for Justice in the German government, is pursuing a constitutional case for a referendum on the treaty, saying that “I am all for Europe, just not one determined by political elites”.
  • Dr. H.J. Witteveen, a former Minister for Finance in the Netherlands and a former director of the IMF, calls the treaty “unreasonable and dangerous”.
  • The Social Democratic Party in Sweden has argued that “Sweden should not transfer power to decide on financial policy from Riksdagen [the national parliament], nor give the European Court of Justice the possibility to decide on sanctions on the basis of the Fiscal Compact”. Also in Sweden, the EU legal expert of the national trade union confederation has said that “Budget policy and financial policy is being dragged out of legitimate democratic institutions in favour of a supranational technocracy. Democracy at the national level is being hollowed out, and it’s not replaced by a new supranational democracy.”  This view is shared by the head of the Danish central bank, who told the Danish parliament: “I think that what we're seeing at the European level is the bureaucratisation of economic policy” (though in his case that is something he approves of!). 
  • The stance of the Swedish trade unions is in line with that of the European Trade Union Confederation, which has supported every previous EU treaty but is opposed to this treaty: “The new Treaty is only stipulating more of the same: austerity and budgetary discipline.  It will force member states to pursue damaging pro-cyclical fiscal policies, giving absolute priority to rigid economic rules at a time when most economies are still weak and unemployment intolerably high.  It will bring downwards pressure on wages and working conditions…”
  • The Portuguese campaign for an audit of their national debt, representing a broad swathe of Portuguese civil society, is similarly opposed to the treaty: “Sooner or later, this treaty will be revoked because countries will be unable to comply with its conditions. Until then, it will make austerity harder and more aggressive. It is not a treaty on stability, coordination or governance but a treaty on austerity, inequality and destruction”.
  • Heikki Patomäki, Professor of World Politics at the University of Helsinki, Finland, slates the treaty’s anti-democratic nature: “The exceptional provisions allowed for under the terms of the Fiscal Compact are hostile to the basic principles of democracy, as is the fact that the Compact gives rise to legal norms which override EU member states’ own constitutions, and which cannot be changed by democratic means. In a democracy no rule or principle can ever be set in stone, but must always be adapted to the possibilities and constraints at hand. From this perspective, Merkel’s idea of unending budgetary discipline is anti-democratic”.
  • Yiorgos Vassalos of the highly respected Corporate Europe Observatory organization, a long time monitor of how big business influences the EU policy agenda, notes that “The fiscal treaty mirrors the proposals of big business lobby groups to strengthen the Commission’s capacity to determine the economic policies of EU member states. The Fiscal Compact would transfer excessive new powers to the European Commission, an unelected body with strong links to corporate lobbies. National parliaments would lose control, while no democratic control mechanism is foreseen at the EU level. Thus the Fiscal Compact spells out an authoritarian form of economic governance at EU level.”

It is clear that voices all across Europe and beyond, and from all across the political spectrum, are opposed to this treaty.  Many are urging the Irish people to reject it and, if given the chance, would be campaigning for its rejection by referendum in their own countries.

Of all the issues highlighted by all the voices set out above, the most fundamental is democracy.  After the agreement of the treaty’s wording, Chancellor Merkel said that “The debt brakes will be binding forever.  Never will you be able to change them through a parliamentary majority”.  She has elsewhere spoken of the new fiscal rules as having “eternal validity” and of how “Europe would not function any more if it changed course after every election”. This language calls to mind the creation of a vampire, which is an apt metaphor because the Treaty is a would-be immortal creature that aims to permanently enshrine a particular set of economic policies across the Eurozone.  The treaty, remarkably, contains no provision for its own amendment or termination. 

Regardless of one’s view of the efficacy of the policies set out in the treaty (my own view is that they are regressive and will deepen and lengthen recession) putting the treaty in place would be profoundly debilitating for democratic deliberation and practice. Even if one favours these policies, is it appropriate to set them in legal stone?  To grant the European Court of Justice (but not the European Parliament) a role in supervising economic policy choices? This committee represents a welcome initiative to subject government policy to democratic oversight; in that sense, it is the polar opposite to a treaty that would take crucial aspects of government policy out of the realm of democratic debate and into the hands of unelected technocrats and judges. 

 Andey Storey is a lecturer in political economy at University College Dublin and chairperson of the NGO Action from Ireland (Afri,