Disaster looms for Ireland

Ireland faces the loss of its right to choose its own economic and budgetary policy. By Vincent Browne.

We are on the verge of one of the following – an economic catastrophe – made all the more likely by the Brussels European Council meeting last Thursday and Friday; a constitutional crisis in the EU, which may collapse the union; or a surrender of sovereignty, which will nullify a lot of what remains of Ireland’s independence as a state.

The last option would also help institutionalise into the sinews of our society a philosophy that will ordain a growing inequality, with riches for some and misery for the mass of our people. These may seem far-fetched claims, so let me explain.

First the imminence of an economic catastrophe. It seems evident that when Italy goes to the bond markets in January attempting to raise some tens of billions to pay maturing loans, it will be unable to raise the required finance on terms that are economically feasible.

In other words, Italy will be in the same position as Greece, Ireland and Portugal were but requiring a bailout from the EU that will simply be unaffordable.

Since, by then, no firewall will have been constructed to cope with an emergency as grave as that, there will be a financial crisis which could collapse the whole euro system, propelling a financial crisis of enormous magnitude.

Everyone seems to acknowledge this possibility and yet, because of conflicting interests within the EU, it has proved impossible to agree on a strategy that is politically acceptable.

As a consequence, further action has been deferred until after a deadline which everyone acknowledges is looming in January. Maybe some initiative will emerge in the next few weeks that will defuse this crisis but without that, there is probably catastrophe.

The possibility of a constitutional crisis arises from a decision taken by the heads of government early on Saturday morning, following the British rejection of plans for a new EU treaty, to construct a parallel institution of all member states, bar Britain. The problem with this is that the 26 states seem to think this non-EU institution could have any discretion over EU functions and access to EU institutions.

Were a first-year King’s Inns student to suggest such an arrangement in a paper on European law, he or she would fail the exam – or rather should fail.

This cannot be done without creating a constitutional crisis within the EU or without far-reaching amendments to the EU treaties and presumably the British would veto those too.

The proposal is so madcap that one presumes all sides will back off this in a few weeks; some formula will be devised to get the British back on board and we will be back to the idea of a new EU treaty, with which there are further very substantial problems.

If a new treaty were to provide for strengthening provisions in existing treaties on parameters for fiscal policies – a ceiling of 3% on budget deficits and a ceiling of 60% on overall state borrowing – it would be hard to disagree. Provided of course that there were sensible exceptions to do with economic downturns when it would make sense to breach those ceilings.

What is alarming is the degree of intrusion that it is envisaged EU institutions would have on the formation of our budgets and on economic policy generally. This was not spelled out in the statement by the euro area heads of government at the conclusion of the meeting and we will have to await the full text of the proposed treaty, which will emerge in the next few weeks.

But it is clear from other documents that emerged in connection with the meeting that such intrusion is envisaged, notably the joint letter from Angela Merkel and Nicolas Sarkozy to the president of the European Council, Herman Van Rompuy, a few days before the summit.

This speaks of greater competitiveness, convergence of economic policies, labour markets, convergence and harmonisation of the corporate tax base and the creation of a financial transaction tax. It also refers to “ex-ante examination of draft budgets” by EU institutions, which means national budgets would have to be approved in advance by the EU.

What this amounts to is an arrangement whereby the EU would oversee not just budgets but economic policies, and do so to an agenda that gives priority to competitiveness, which means lower labour costs and less social protection.

The response of the Irish negotiators to all of this is predictable. They will fight on the proposal on “convergence and harmonisation of [the] corporate tax base” and if they win on that, it will be hailed as a victory, while sovereignty over budgetary and economic policy is conceded.

And that concession will impose on Ireland an ongoing neoliberal agenda, which, inevitably, will deepen inequality. (By neoliberal I accept the description of the geographer David Harvey, the idea that human wellbeing can best be advanced by liberating individual entrepreneurial freedoms and skills, within an institutional framework characterised by strong private property rights, free markets and free trade.)

Unless the people of Ireland are mobilised to stop this, it will surely happen, unless, in the meantime, the whole edifice collapses.

 Image top: European Parliament.