Tuesday 29 May 2012

A very reluctant Yes on the Fiscal Stability Referendum

This is the fourth time I've written out this post. Over the last 2 months I've painfully shifted from a pretty definite No to a reluctant Yes on the Irish Fiscal Stability Treaty referendum.

I really don't like this treaty. It's clear that it will neither have prevented the crisis (if preventing excessive borrowing was the problem, the pre-crisis surpluses in Ireland and Spain would have meant those countries wouldn't be in the mess they're in), nor will it do anything to solve it. As I've pointed out before, the Treaty is 90% existing EU law, since the European Parliament has passed the "six-pack" of legislation last year. It's already mostly in force - it has caused political complaints in Belgium, and was part of the reason for the collapse of the Dutch government this year.
For these reasons I originally wanted a No vote as a political message against austerity and to promote a more balanced approach at the European level. I don't oppose some level of collective budget discipline nationally if it leads to a positive reform of the Eurozone: Eurobonds, the ECB becoming the lender of last resort, a banking union so that banking problems will not be localised and made the problem of one or two Member States, etc. But it should come as part of a grand bargain where it's not simply about the core and the periphery, but about building a working Euro-system. Suggestions that ratifying the FST would give Germany enough confidence in the Eurozone to sign up to Eurobonds "sometime in the future" did not comfort me.

So why have I moved towards a Yes? Two main reasons: the European Stability Mechanism (Treaty here: PDF) and the direction of Hollande.

Only Member States who have ratified the FST will have access to the ESM for future bail-outs. Given the extent to which the IMF has lent to Ireland more than it would have already if we hadn't have been part of a European bail-out programme, I have not been convinced by the No side's arguments that we will find another bail-out somewhere. It's argued that we'll get something from the IMF (which I doubt since we've already been lent 15 times our normal share), or that we will still be given access to the ESM despite being excluded from it since Eurozone politicians will not want to risk the stability of the Euro. I'm not convinced by these arguments: they require a political leap of faith, and for such a leap to be worthwhile, there needs to be the plan and the tactics behind it, not to mention the opportunity for it to work.

Hollande's election earlier this month may have raised the prospect that such a strategy might pay off, but it's clear from the news and the outcome of the summit on the 23rd May, that any progress on the Eurozone will be in addition to the FST, rather than going back to the drawing board - and an Irish rejection won't change that. The best we can hope for by rejecting the FST is to be faced with the FST plus some sort of growth treaty (or plus a growth protocol to the original treaty). There's little payoff for risking the uncertainty over Ireland's access to the ESM in my opinion, and I do not want to take the risk of greater austerity by Ireland being unable to access any fund. And on the "No to Austerity" platform of the No side, it doesn't really fit in with the state of existing law and Eurozone rules. The Treaty itself won't add any more to austerity in law, but it will impact on the confidence needed for any further steps in economic union.

I also can't see any Eurozone vision or strategy on the No side that could form the basis of working toward an alternative. It's very much of the "reject, and then let the rest of the Eurozone come up with a better deal to sell us" variety, and it smacks too much of populism for my political taste. So despite the almost equal bankruptcy of political vision on the Yes side, I have to reluctantly support a Yes vote.

Wednesday 9 May 2012

Why isn't there a group for small states?

Yesterday I noted that in Ireland:

"All the political parties involved have trouble articulating a vision on Europe, and on making alliances to achieve their vision."

It annoys me that not only is the EU political universe centred on the Franco-German engine, but that politically, this is simply accepted. The economic crisis has made this alliance - the erstwhile "Merkozy" - even more influential than ever in recent years, and is justifiably a cause for concern in smaller states to see the EU institutions sidelined and the direction of the EU set via summitry. I'm not so well placed to talk about other small states, but in Ireland there seems to be a certain fatalism on the part of both the government and the opposition: the government never seems to think much about forming alliances or advocating at least a general vision for the EU that it wants to see, and the opposition, which often point to the similarities of self-interest between Ireland and the rest of the EU Member States/Irish people and the ordinary people of Europe, never outline a realistic political strategy for building an alliance/coalition around their ideas. (Indeed, it seems that the Governor of the Central Bank in Ireland is the only one advocating a vision of European Union - yesterday he proposed a "Banking Union").

There is an informal grouping of states called the Visegrád group - made up of Poland, Hungary, the Czech Republic and Slovakia. It may not be as visible or as influential as the Franco-German alliance, but it does have some cohesiveness on the EU stage (such as its own Battlegroup). So why, now that there are so many small states, given the number of small states and the increasing political weight of the big states?

A grouping of small states could give them a bigger voice on key issues and help ensure that the institutional balance is fair to states of all sizes. Static groupings of states might only be suitable for certain basic positions such as state equality - it would be hard to maintain coherent political positions between small states such as Finland and Portugal on the way forward in the Eurozone, for instance - but it would be a good step in securing the place of smaller countries in the political life of the Union. While Hollande's comments rejecting the Franco-German duopoly probably indicate a willingness to lead an occasional counter-German alliance rather than a complete break from the alliance, smaller Member States should be making the most of the opening to see how far a new fluidity in the politics of the Council will go.

For Ireland especially this could prove a good starting point: it's time to start thinking not just about what kind of EU we want, but how we need to work with others to achieve it. We need to have a more pro-active approach.

Tuesday 8 May 2012

10 things I've noticed about Brussels

I've been living in Brussels for 2 months now, and I thought I'd just list some of the impressions and things I've found out.

1. It's an incredibly divided city. Not just between the French and Dutch speaking communities, and not just between the European/international community and the locals, but economically and socially. The city has 19 communes of widely varying sizes, and a 15 minute walk can take you through some very different areas (it's not something you need to live here to notice).

2. Shops close early and quickly. Luckily this does seem to be such a problem in my commune, but the shops close very early so you need to plan ahead, and...

3. Food is extremely expensive. But -

4. They have waffle vans! This is a brilliant idea, though you need to be careful not to eat too many. Plus, it's a good way of using ice-cream vans in winter.

5. Tweed elbow patches are in fashion. I have no idea why, but there seems to be a lot of people around not just with these on their suit jackets, but also on jumpers.

6. Double subtitles. You can watch films in their original language in cinemas (there are also Dutch and French language dubs), which are subtitled into both Dutch and French simultaneously.

7. Classical music on the metro. At night on the metro classical music is played to calm people down, and can actually be quite nice to listen to on the way home.

8. Italians. There are a lot of Italians in Brussels - they seem to be heavily over-represented in the EU institutions - so you can easily find someone nearby talking Italian.

9. Crime. There is one topic expats love to talk about in Brussels (apart from complaining about the weather), and it's the high levels of crime.

10. The beer! Ok, this one is not so much noticing, but becoming better acquainted.

Let me know if there's anything else I should have noticed/shouldn't miss out on!

A referendum on political tactics

When the Fiscal Stability Treaty was agreed back in January (PDF), despite being short and to the point, it was hard to assess. First of all, the treaty is already 90% EU law, the European Parliament having passed the “six-pack” Barroso mentioned in his State of the Union speech – you can find the legislation here. The budgetary requirements have also caused a political storm in Belgium and been one of the causes (or the excuse for, on the part of the PVV) the collapse of the Dutch government.

However, though the treaty changes little in legal terms, it’s not something that could simply be voted against to force another renegotiation, as only 12 states need to ratify it before it comes into force. In addition, in the treaty for the European Stability Mechanism (PDF), it stipulates that only countries that have ratified the FST will have access to its funds for a bail-out. Despite the six-pack legislation not being subject to much debate in Ireland, the debate has so far centred around the big question of how Ireland secures its funding. The current bail-out arrangement lasts until 2013 when Ireland is supposed to return to the markets. Though there is widespread acceptance that the current austerity policy (essentially, the last 5 years) is not enough and that there should ideally be an investment and growth policy, the bail out loans cover the budget deficit for the Irish state, and without it Ireland would have to default, leading to harsher, more sudden cuts.

So far the No side has failed to come up with an alternative to the question: where would the money come from if we need a second bail out? It seems perverse, since the government line is that we won’t need one since Ireland is “on track”, but since the No side is based on the fact that the current bail-out programme won’t solve anything, it is not a question that can be ignored. One solution put forward by the No side is that Ireland could veto the ESM treaty – though this would be difficult since it can only be vetoed by states amounting to 10% of the subscriptions, of which Ireland makes up under 2%. All the political parties involved have trouble articulating a vision on Europe, and on making alliances to achieve their vision. This may partially be a result of the referendum process in Ireland and treaty structure of the EU as past referendums could block a treaty and force a renegotiation. This is not the case here, and though the quality of the debate is much higher than before (there have been no strange claims along the lines of abortion or conscription), the lack of an alternative vision is palpable. It means that the Irish government has an unimaginative and poor European policy, but in this case it helps the Yes side since the No campaign cannot rely on the “back to the drawing board” vote in the same way anymore.

But now there’s a Socialist in the Élysée talking about growth and leading the charge against austerity in Europe. The promise of Hollande to renegotiate the FST has already played a part in the campaign so far. For the No side this is the sign that a No vote would really count in the European debate on austerity. So far the messages from Hollande have been quite mixed, and there might not be a renegotiation of the FST per se:

“Hollande says he agrees with all existing provisions in the fiscal treaty, including tight limits on budget deficits and public debts.


Informal contacts have been taking place between Hollande’s camp and the authorities in Berlin, Frankfurt and Dublin, and despite Hollande’s public insistence on renegotiation, all signs suggest the ground is being prepared for a compromise.

Two of Hollande’s senior aides – policy director Michel Sapin and Europe adviser Catherine Trautmann – have indicated to The Irish Times that they may be open to a “growth pact” in the form of a protocol or a separate legal text, a fix that would leave the fiscal treaty as it stands.”

Would a No vote help bury the austerity policy, or would it leave Ireland unnecessarily politically exposed while an extra treaty is put together – or new proposals are made within the EU legislative system? With only a month left before the vote there will be no alternative treaty before the vote, so it will be down to what tactics seem most credible. Ireland will listening closely to what the Élysée says in the next few weeks.

UPDATE: Van Rompuy has called a summit for the 23rd of May, so the outcome could impact on an Irish referendum - especially if any growth pact is tied to the Fiscal Stability Treaty.

Monday 7 May 2012

Hup Hollande Hup!

Sunday was a big election day for Europe. France elected its first Socialist President in 17 years with Francois Hollande, and the Greek electorate looks like it has given the two main parties a huge kicking.

Hollande will add to the pressure for a change in direction in the EU when it comes to austerity, and Hollande has already set himself up to be the leader of counter-austerity Europe. Though he will undoubtedly clash with Merkel, in the end they’re likely to muddle through unless Merkel sticks to an absolutist vision of austerity Europe. With austerity failing in practical terms – S&P used its report on Spain to critique the front-loaded austerity programme and the EU’s general policy – and countries like Italy voicing the need for a better approach to growth (while endorsing austerity in general), the political winds look like they will shift the continent leftwards to a degree (Europe is still dominated by the centre-right EPP political family).

Within Germany there is more debate on Eurobonds, etc, than I think outside commentators give credit for, though there is still a lack of debate. The opposition Social Democrats and Greens are more enthusiastic on Eurobonds and deeper fiscal integration, but the rise of the Pirate Party makes the German political scene more unpredictable. Germany has been caught up in a lot of comment on the rise of Die Piraten: what exactly are they about? Do they have the kind of leadership structure or policy programme that makes them a credible force? If they remain so unstructured – and wedded to “fluid democracy” (crudely put, where policy is crafted online by activists and then represented in parliament by Pirate representatives) – could they ever be capable of coalition with the other parties?

Sunday brought an election in the Northern German Land of Schleswig-Holstein, where the Pirate Party gained 8.3%, and there was little between the Christian Democrats (CDU) and the Social Democrats (SPD), even if the centre-left coalition is ahead - the rival Christian Democrats-Liberal bloc trial the Social Democratic-Green bloc 39% to 43.4%. It now looks like the Social Democrats will lead a coalition with the Greens and the Danish minority party SSW (which is not subject to the same 5% threshold as the other parties), that may have a majority of just 1. The Liberal FDP is unlikely to do as well at the federal level as in Schleswig-Holstein (honestly, after the bad year they’ve had, being kicked out of one state parliament after another, their 8.2% vote in S-H is a huge victory), but it just demonstrates how the sudden rise of the Pirates could splinter the political field further.

Muddling along will likely continue in Europe, except now the hope is that we’ll start to see a direction with more solidarity develop. The biggest shock to the system will be the Greek elections, where it could be very difficult indeed to form the next government. With the far-right getting into parliament and the collapse in the vote for the two main parties, political instability is going to dog Greece and the rest of Europe for a long time to come. France and Germany can’t afford to squabble for too long: Greece will be bursting back on to the agenda before we know it.

And the referendum in Ireland? I don’t know how much Hollande’s election will make a difference until – or if – he makes it clear if he is seeking another treaty to supplement the Fiscal Stability Treaty or a renegotiation. From what he’s said it looks like he wants an extra treaty – it’ll be easier to get this, as it will be easier for Merkel to agree to this without losing face – and Ireland might be in a difficult position if it rejects the treaty to push a joint cause with Hollande... and then have to re-run the referendum in order to get the second treaty too (though it should then be clear that enough’s changed to have a re-run at least). The vote’s not until the end of May, so there’s still some time to read the signals from the Élysée.

Wednesday 2 May 2012

Member States v the Commission: the contradiction behind the EU budget

Member States reacted with shock that the Commission proposed a 6.8% increase for the EU budget, and the Commission argued it is necessary for the EU to be able to meet the commitments it has already made.

Really, it seems there's a contradiction between how the Member States act in the Council, and how they act outside it. In the Council they're open to all sorts of ideas and are trying to secure funding for themselves (the fight to retain structural funds and CAP money will begin in earnest if it hasn't already - Irish MEPs have already started to voice concerns over CAP).

Lately this kind of attitude can be seen in the UK's approach to the proposed EU PNR Directive, which will require the collection of data on all passengers flying into and out of the EU for the purposes of fighting crime and terrorism. The UK Minister for Immigration said to the House of Commons European Scrutiny Committee that they managed to get agreement in the Council for the proposal to permit Member States to collect PNR data for intra-EU flights and for other modes of transport if they wanted. On the question of depersonalising data gathered that has been stored for other 2 years (to limit the data the government holds on people), the Committee reports:

"Whilst UK experience suggests most requests for access to full PNR data will be made within the initial two year period, the Minister recognises that the requirement to mask data (rather than to archive it in accordance with existing practice in the UK) will have operational and cost implications for which the UK may seek EU funding. [Emphasis mine]."

The UK is a major supporter and player behind EU security legislation, and if it feels that it could summit applications for EU funding over these issues, the question has to be: where does the money come from? There are far more Member States which do not have any PNR system in place at all and would have to create their own if this Directive passes - should they get funding as well? This application might not yet have been made, but if Member States are caught in a culture where commitments - and funding applications - are easily made, but little thought is given to how they will be paid for, then perhaps its better to turn to a system of own resources, where the EU raises its own funds, within limits and subject to the consent of the Council and EP.

The more the institutions have responsibility for raising funding as well as spending money - and the more we can hold them directly accountable for it - the more pressure there will be to rationalise what the money will be used for.

Fiscal Stability Treaty Referendum, bailouts and austerity

The referendum campaign on the Fiscal Stability Treaty is underway in Ireland. The main argument on the No side is that the treaty would impose endless austerity that would have to continue even after the bailout has expired, whereas the Yes side claims that if we don't ratify the treaty, we won't have access to the ESM ("Stability Mechanism") and we cannot count on the IMF for funding, meaning that a No vote leaves Ireland's means of funding itself uncertain.

It's accepted that Ireland cannot access the ESM funds if it does not ratify the treaty, but there's confusion over the level of funding the IMF can provide to Ireland. First, despite earlier Yes claims, Ireland will be able to apply to the IMF for funding. However, I'm not sure how much we can expect from the IMF. As pointed out over at Slugger O'Toole, the IMF usually lends around 3 to 5 times quote for borrowing, whereas funding has already reached 15 times of Ireland's quota. Funding has reached this level because of the certainty being part of the Eurozone bailout system has provided Ireland. If Ireland needs another bailout, could it really get the required money from the IMF? I can't see the IMF committing itself on an application that hasn't been made in circumstances that aren't fully known yet, so this uncertainty will likely dog the campaign right through to polling day. The uncertainty will benefit the Yes side if they can get these numbers across: it seems very unlikely that we will be provided with the level of funding we can avail of currently.

Depending on the IMF isn't as toxic to the Left as it might have been before in Ireland, given that the IMF seems to be making noises on the desirability of some stimulus spending, while the EU hasn't budged so far on that front. What's striking is that the Yes side have managed to determine the battleground of the referendum campaign. When it comes down to funding the state, it seems that it is no longer about avoiding bailouts, but trying to find the most advantageous bailout. To me this seems like a big change - a far cry from the general election last year when Sinn Féin was advocating leaving the bailout, spending the pension fund money for the budget and on a stimulus, and then returning to the markets in 6 months. Although I don't know if it will be picked up on much in the campaign, this shift should support the Yes side. Both sides don't have a clear vision of what a functioning Eurozone would look like, but in this case it favours the Yes side as the No side needs to actively portray a realistic alternative. If they accept that bailouts are needed to avoid immediate austerity through default, then it becomes much harder.

One option floated by the No side is that, if Ireland votes No, the government could block the ratification of the ESM Treaty (PDF), to force renegotiation of the terms of the treaty. Article 48 of the Treaty says that it will enter into force when it has been ratified by contracting parties representing 90% of the subscriptions to the ESM. Since Ireland represents less than 2%, it would need to ally with several countries in order to block it (or hope that Hollande's France takes up the tactic too). Without a common platform for an alliance to negotiate on, it's hard to see other countries going out on a limb for Ireland here (the Irish government should take note of this: if we don't have a vision for Europe, we can't complain when we can't drum up the allies to change things...). Will this be a factor in the campaign? Probably not explicitly, but the No side is weakened without a credible alternative strategy other than "vote against austerity policies".

[As an aside, the quality of this campaign so far is much better than the Lisbon campaigns. Nobody can read conscription or abortion into the Fiscal Stability Treaty, and argument have been about the substance (or at least the substance of different political tactics). However the move by the Socialist Party to link water charges with the referendum is shameful as it devalues the idea of referendums - that people are really deciding on an issue - and opens up the charge that at least some No votes are simply anti-government. It's even stranger since a No vote wouldn't affect the water charges issue. (For non-Irish readers: we don't pay for our water in Ireland apart from general taxation, and the government will eventually bring in water meters so people will have to pay water charges. Water charges will be brought in too in Northern Ireland eventually. When I've told people from different countries that we don't pay water charges, it always seems to shock them).]

I haven't yet written a post on my own stance on the Treaty - Yes or No - because I'm still undecided, and I have been considering supporting a No vote.