The debt crisis and the fiscal treaty referendum in Ireland

01 June 2012
Article

The fiscal treaty was voted on in a referendum in Ireland on 31st May and was approved by a margin of 60% to 40% (with a turnout of barely 50% of eligible voters). To understand the significance of the treaty and the referendum result, it is necessary to understand the origins of the Irish and European debt crises.

The Irish debt catastrophe arose from a massive increase in borrowing during the 2000s on the part of Irish banks: the 6 main Irish banks borrowed €15 billion from abroad in 2003 but this figure had risen to €100 billion by 2007. Exposed to a property price bubble, Irish banks found themselves in a parlous position. The Irish government responded to the plight of the banks in an extraordinary manner: on 30th September 2008 all depositors and senior bondholders (creditors to the Irish banks) were guaranteed by the state. The cost to date of bailing out the Irish banks is €68 billion – and rising. The European Central Bank (ECB) has been to the fore in insisting on this course of action in order to protect the interests of those European financial institutions which lent to their Irish counterparts. This is the most fundamental fact of the Irish crisis, and it is one common to the whole of Europe – with the partial exception of Greece, the debt crisis was caused by the lending practices of private financial agents, not by the tax and spend policies of governments.

a ‘yes’ vote might be presented by some as Irish resignation to the status quo

So how did the EU choose to respond to the crisis? By a fiscal treaty that seeks to control governments’ taxation and expenditure policies, while taking no meaningful action to better regulate the private financial sector or to make it pay even a share of the cost of the crisis. My colleague Ben Tonra, who was critical of the treaty but who urged an Irish ‘yes’ vote, has written of the “visceral anger… that Irish citizens continue to be sacrificed by the ECB in the name of euro zone banking stability” and warned of the danger that “a ‘yes’ vote might be presented by some as Irish resignation to the status quo. It will be the job of government to ensure that this is not the case and to press – quickly, forcibly and publicly – for a resolution to the bank and sovereign debt crisis.” Would that it were so, but the record shows that the Irish government will now take this vote to their European masters and cravenly hope for ‘favours’ in return for being such good boys and girls – and will get the usual scorn and yet further abuse in return. As has been argued by others, a ‘no’ vote might have sent a message that the Irish people were more willing to be disruptive and uncooperative, which in turn might have increased the chances of progress towards a fairer settlement of the debt issue.

Indeed the tactics used by the ‘yes’ side in Ireland positively worked against the cause of debt justice. In particular, the argument used by various ‘yes’ campaigners (including the Minister for Finance) that had the treaty been in place in the 2000s then the debt crisis could have been averted, elides the aforementioned fundamental fact – that the crisis was caused not (in the first instance) by reckless fiscal policy but by the accumulation of private (subsequently socialized) debt. Thus, the real narrative of the crisis – Irish citizens taking on responsibility for the gambling debts of speculators – was challenged by a bogus narrative in which we were alleged to have behaved irresponsibly and now had to accept the disciplines of the treaty in order to prevent any reoccurrence of such claimed fecklessness.

The outcome of the referendum is also attributable to the ‘yes’ side’s focus on Ireland’s access to the new European Stability Mechanism (ESM) – the fund to which Ireland would be expected to apply should it require a second loan from non-market sources (a first such loan – from EU, IMF and other sources – was contracted in 2010 after Ireland’s borrowing costs on commercial markets became unfeasibly high). The argument was endlessly repeated that a ‘no’ vote would deny Ireland the ability to apply to the ESM, and many people were doubtless convinced that this could be a risky proposition (though of course we would not need money from the ESM or any other such source if we were not carrying the burden of illegitimate debt). Thus, the ‘yes’ vote is explained to some extent not by any widespread endorsement of the content of the treaty itself, but rather by an explicit campaign of blackmail waged against potential ‘no’ voters. As Paul Murphy, Socialist Party Member of the European Parliament put it, a ‘yes’ vote is “no endorsement of what’s in this treaty and it’s no endorsement of austerity. People are scared out there.”

Things, however, will not get better or less scary for most Irish people any time soon. In fact, they will likely get worse. A ‘breaking news’ headline in one of the country’s national newspapers on the morning of the referendum count read: “Bad news back on agenda now vote is over”, referring to the fact that issues such as the introduction of new taxes, discussion of which was cynically deferred during the referendum campaign, will come roaring back with a vengeance. Further swingeing austerity is to be imposed for years to come, copper fastened in place by the treaty’s rules. Those who have borne the brunt of the cutbacks to date already understand this – working class communities tended to vote ‘no’ to the treaty, while the ‘yes’ vote was highest in middle- and upper-class constituencies; even one government minister conceded that the vote reflected a “class divide”.

almost the entire weight of establishment Ireland could barely manage to persuade 30% of the electorate to back the treaty

There is no disguising that the referendum result is a disappointment. However, the fact that the ‘no’ vote was 40% is, under the circumstances, a very decent showing, especially given that the three largest political parties (only two of which are in government), all major newspapers, business groups and various civil society elites were unanimous in their calls for a ‘yes’ vote. And it is worth bearing in mind that the fear factor discussed above pushed a lot of people into the ‘yes’ camp despite their opposition to the broad thrust of current policy. Nor can those who abstained be counted as having given the current regime a ringing endorsement. In other words, almost the entire weight of establishment Ireland could barely manage to persuade 30% of the electorate to back the treaty, and a good number of those did so only through gritted teeth and at effective gunpoint. The courage of those who voted ‘no, coupled with what will inevitably be the growing anger and sense of betrayal felt by many of those who voted ‘yes’ or who did not vote at all, provides a solid basis for developing a serious alternative agenda to, and mobilization against, the debt and austerity programme in the years to come.