A handy stick to beat us with

The Government has been carefully reticent about signing up to an amendment to an EU treaty last month - one that is potentially very threatening to Ireland's interests. By Vincent Browne.

Just over four weeks ago, on 2 February, the Government signed a modification to an EU treaty that, according to Government ministers, contains a provision potentially very menacing to Irish interests.

No announcement was made of the signing of this modified treaty, no press release was issued (certainly none posted on the Department of Finance website) and no formal Dáil statement was made about this development, even though it had very considerable potential consequences for this country.

In answer to a Dáil question on 1 February and again on 14 February, Michael Noonan did acknowledge that the treaty in question was to be signed within a matter of days.

On the first occasion, he made reference to the provision that now threatens Ireland. But he did not then point out the menace.

The careful reticence of the Government on this is illustrated by the silence of the media on the matter. There is no reference to this modified treaty on the Irish Times website, nor on the Irish Independent website, nor the RTÉ website. The only reference I have come across to this in any of the newspapers is a brief piece by Pat Leahy, the political editor of the Sunday Business Post, on 5 February.

The sequence of events that led to this menacing modification to an EU treaty is as follows:

The financial crisis that erupted in Europe in 2008 threatened the solvency of a number of EU member states, and mechanisms were devised to rescue them, if needed. These mechanisms were the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). The EFSF was financed by members of the Eurozone, while the EFSM relied on funding raised on the financial markets and was guaranteed by the European Commission. Through these mechanisms, Greece, Ireland and Portugal were given financial assistance.

All this caused apprehension in Germany, which feared that fiscally reckless member states would have to be rescued by German public funds under these loose, ad hoc arrangements. Germany wanted a formal change to EU treaties to enshrine such arrangements in the EU institutional architecture. But other states were apprehensive about how long this might take, given what happened with the Lisbon Treaty.

So, on 16 December, 2010, the European Council "agreed" an amendment/addition to Article 136 of the Treaty on the Functioning of the European Union (this is an amalgam of some of the EU treaties, all ratified in Ireland by way of referendum).

The amendment simply added a clause stating: "The member states whose currency is the euro may establish a stability mechanism to be activated, if indispensable, to safeguard the stability of the eurozone as a whole. The granting of financial assistance under the mechanism will be made subject to strict conditionality."

How this could be legal in Ireland is difficult to understand. Any change to an EU treaty is, for us, a constitutional issue, requiring ratification by the people in a referendum. But that is a separate - although crucial - issue.

Under this suspect amendment to EU treaties, a new institution was devised: the European Stability Mechanism (ESM), which is to take over from the EFSF and EFSM. A treaty establishing this was finalised and signed by all EU member states last July. But then the Greek crisis worsened, and there were anxieties that the contagion could affect other member states.

Again, there was alarm in Germany, and this led to yet another treaty, the fiscal treaty, on which there will be a referendum here in the coming months.

But then it was decided that the ESM treaty would have to be opened up all over again, primarily to include in it the menacing provision that no funding would be given to any Eurozone state that refused to ratify the fiscal treaty.

This modification to the ESM treaty was not quite done in secret, but it was certainly not conducted in conditions of full transparency, especially as far as Ireland was concerned.

Over the last several months, there has been persistent speculation in the media and among economists that Ireland would require a second bailout.

There was also widespread comment on the unavoidability of a referendum here on the fiscal treaty and the prospect of it being defeated.

In those circumstances, those negotiating the modifications to the ESM treaty must have realised the special menace of the new section, decreeing that any state that refused to endorse the fiscal treaty would be denied rescue funding by the ESM.

It is at least a possibility that the fiscal treaty will be defeated in a referendum here, and it is at least a possibility that Ireland will need further rescue funding, this time from the ESM.

Nevertheless, according to a Government spokesman, the Irish negotiators made no objection to the insertion of this new clause in the ESM treaty. In the last few days, several Government ministers have pointed to this very clause in the ESM treaty as the primary reason for voting on the fiscal treaty.

In other words, they took part in devising the stick that is to beat us, if we do not comply with the requirements of our EU masters.

Some will see this as a betrayal.

Image top: NeonMan.