'EUROPE NEEDS A NEW DEAL'
18 May 2012
EUROPEAN MOVEMENT DEBATE ON THE FISCAL TREATY
MAY 17, 2012
Remarks by David Begg, General Secretary, Irish Congress of Trade Unions
The European Union is under unprecedented stress. The flagship projects of integration - Schengen and EMU - are both in serious difficulty. Uncertainty about the future makes for a problematic choice in this referendum.
Since the onset of the financial crisis Congress has warned of the possibility of causing a prolonged slump through excessive austerity. Our view was and remains that fiscal consolidation should be achieved over a longer timeframe, that our debt burden is unsustainable and that investment (using private pension funds) should be used to stimulate growth. Absent these measures austerity begets austerity and becomes self-defeating.
The Fiscal Treaty is wholly at variance with this analysis. Moreover, the European Trade Union Confederation is opposed to it. For these reasons Congress felt it could not support the Treaty but equally it recognised that being a programme country leaves us in a potentially vulnerable situation if we reject it. Consequently it was not possible to take a position beyond briefing trade union members on the complexity of the issues. Individual affiliated unions have, however, taken positions.
President Hollande's economic advisor, Professor Philippe Agion, wrote in the Financial Times on Tuesday last that the President's role model is Jacques Delors. This is interesting because it suggests fidelity to the type of pro-European French socialism that dominated the politics of European integration in the 1980s and 1990s. Delors was the architect of the single market, financial liberalisation and social Europe. With his passing from the scene social Europe lost a champion and we are left only with a narrow market liberalism. After all it is just few weeks ago that Mario Dragi opined in The Wall Street Journal that:
"Europe's vaunted social model - which places a premium on job security and generous safety nets - is already dead".
But the tectonic plates have shifted again with Hollande's election. There is now the prospect of restoring a more balanced relationship at the heart of Europe:
- Between Germany and France
- Between Right and Left
- Between Austerity and Growth
Under Sarkozy, France underplayed its hand. The willingness to toe the German line has not helped France and it has not helped Europe. Indeed what started out as a project to create a European Germany is heading towards a German Europe....until now at least. It may be that the French and Greek elections, together with the fall of the Dutch Government and the result in North Rhine Westphalia have weakened the Berlin consensus. And not before time because much economic and social damage has been done and Ms Merkle has, in effect, sacrificed the mainstream of politics in a number of European countries to the extremes
As Keynes wrote in 1923 "The abolitionists of contract are the real parents of revolution". One of the lessons of history is that sovereign debts must be managed in ways that do not destroy either the economy or the political centre ground.
Proponents of the Treaty have, I think, been struggling to identify its essential merit. It would not have made any difference here or in Spain if it had existed. Moreover, it does not represent an attempt at a complete solution because it does not deal with mutualisation of debt (Eurobonds) or the ECB acting as a lender of last resort.
What it does contain, however, is a poison pill making access to the European Stability Mechanism (ESM) conditional on acceptance of the Treaty. In my view opponents of the Treaty have failed to offer a persuasive narrative about how this can be circumvented.
The decision to call a new election in Greece and the possibility that the country may be forced out of the Euro - although it is not clear how that is legally possible - raises another problem. If there is a contagion effect it could manifest itself in a panic of bank depositors and large scale withdrawals. Depending on the scale of such a development it could again require massive liquidity support from the ECB.
It may be argued that this support would be available regardless. However, it is worth recalling that in 1992 Ireland tried to hold its position in the ERM in the expectation of Bundesbank support. It never materialised and we had to devalue the Punt by 10 per cent. Yet support was given to Denmark which was seen at that time as being strategically important to Germany. Despite being the poster child of austerity it is slightly delusional to believe that we are considered to be of any strategic importance. Ms Merkel's real deep concerns are focussed on Italy and Spain.
It makes sense for us to exploit the new political dynamic in Europe and to do what we can to back Hollande and others calling for a change in direction. What we don't need is to undermine their position by allowing the referendum result to be construed as endorsement of austerity. It is for that reason that I suggested last week that the Government should hold off ratification until we have to at the end of the year. This would be fully consistent with the question being posed, which is one enabling the Government to sign the Treaty.
The bottom line though is that we can't afford to be left without a seat when the music stops.
If the Euro ultimately survives it will be in circumstances of deeper integration. It will mean completing the institutional architecture of economic and monetary union. Quite what this will mean for Ireland in terms of foreign policy, fiscal policy, industrial policy and incomes policy has not featured in public discourse to date.
To take one example; this week the Taoiseach spoke of the UK being our closest ally in Europe. This week also Ed Balls mused about the possibility of a referendum on Britain's future in Europe. The Tory Party, as we know, is congenitally Eurosceptic. The question is whether it is sustainable in the longer term to attach our wagon to an increasingly sceptical Britain in circumstances of deeper EU integration? Would it not make more sense to align ourselves with some of the smaller open economies of Northern Europe?
As to the Treaty it may not turn out as expected. Events may supersede it. My hope is that the penny will eventually drop that Europe's economic position is so fraught - growth in the Eurozone stagnate in the first quarter of 2012 - that eventually efforts will have to be made on a dramatic scale to reflate and rebalance it. In other words a European 'New Deal'.
If you think about it, Ms Merkel has given as her reason for wanting the Treaty that people did not observe the Stability & Growth Pact. Leaving aside that Germany and France were the first to break it, is the Fiscal Compact Treaty any more likely to be effective? Consider the evidence:
- The Netherlands has fallen from its perch as paragon of fiscal rectitude;
- 20 of 27 countries in Europe are not with Maastricht rules;
- There is no accepted methodology for measuring a structural deficit.
Although I am sceptic about the Fiscal Compact Treat I believe that European integration is a noble aspiration that transcends the ebb and flow of ideological politics. It was intended to prevent war, to embody the values of the enlightenment and to protect people from the worst excesses of globalisation.