The Fiscal Compact treaty - a sheep in wolf’s clothing?

The debate on the Fiscal Compact treaty in Ireland has been dominated by duel scaremongering arguments; the threat of institutionalised austerity on one side and the threat of discontinued funding on the other. The result has been a complete lack of debate on the actual content of the treaty. The Yes side claim that it will bring stability. The No side claim that it would enshrine austerity into the Irish constitution and allow the EU to dictate our national budget.

But what does the treaty actually say? Article 3(1b) of the Treaty is very clear that the maximum limit of structural deficit will be 0.5% of GDP but it gets much more vague when describing how this measure would be enforced. Article 3(1c) states that in “exceptional circumstances” a contracting party may deviate temporarily from the fiscal objective without repercussions. Article 3(3b) defines such “exceptional circumstances” as “an unusual event outside the control of the Contracting Party concerned which has a major impact on the financial position of the general government or to periods of severe economic downturn”. This could include a wide variety of circumstances and thus is very open to legal interpretation. It would allow Ireland to break the rules provided the country could justify that any outside event had had a major impact on its economy.

Similarly, if economic downturn makes it impossible for Ireland to keep to the fiscal rule, the country would be given a temporary break from working towards this objective.  If Ireland should significantly break the fiscal rule, and cannot use the above mentioned clause as justification, the necessary follow up action, according to the Article 3(1e), is to automatically trigger a “correction mechanism”. But what is this mechanism? According to Article 3(2) the mechanism will be “on the basis of common principles to be proposed by the European Commission”. Therefore it is not yet decided what this budgetary mechanism will be but, as stated later in the same paragraph, the creation of this mechanism “shall fully respect the prerogatives of national Parliaments”.  Therefore the treaty will not condemn Ireland to perpetual austerity regardless of circumstances because periods of severe economic downturn and vaguely defined “exceptional circumstances” permit temporary deviation from the fiscal objective.

The treaty will not hand all national budget making decisions over to outside powers. Rather, if a contracting party significantly breaks the fiscal rule without managing to interpret “exceptional circumstances” as being applicable, they will merely have to implement a “corrective mechanism” that will respect the prerogatives of national parliaments when it is decided upon.

A Yes vote will sign Ireland up to treaty that is not as demonic as some would have us believe. It leaves a lot of room for legal interpretation and national sovereignty, but its lack of clarity creates a murky view of what is to come. The vague nature of the definitions and procedures laid out in the treaty are clearly intended to prevent a complete loss of budgetary sovereignty, while also allowing for a justifiable opt-out clause should a contracting party need to deviate from the fiscal rule for economic reasons. The effect, however, is that it is very difficult to tell how the measures referred to in the treaty will pan out in reality - and this is a point that seriously requires some clarification within the Irish referendum debate. {jathumbnailoff}

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