JOINT COMMITTEE ON EUROPEAN UNION AFFAIRS debate -
Thursday, 23 Feb 2012

Treaty on Stability, Coordination and Governance in the Economic and Monetary Union: Discussion

Chairman

The next item on our agenda is the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union. This debate forms part of our ongoing consideration of the international agreement on reinforced economic union. Previously, we invited a cross-section of economists. For today's meeting, we have invited three well known figures in the world of economics. They are Mr. Paul Sweeney, chief economist at the Irish Congress of Trade Unions, ICTU, Mr. Seamus Coffey, a lecturer in economics at UCC, and Dr. Karen Devine, a lecturer in international relations at DCU specialising in EU politics.

Before we begin, I ask everyone around the table and in the Visitors' Gallery to switch off all telephones, as they interfere with the recording equipment. Putting them on silent is not sufficient. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

Witnesses who appear before the committee are protected by absolute privilege. If they are directed by the committee to cease giving evidence on a particular topic and they continue to do so, only qualified privilege will be available to them. It is not something we often must do, but I wanted to warn the witnesses in advance. I invite Mr. Sweeney to give the committee his thoughts on the fiscal compact.

Mr. Paul Sweeney

ICTU, to which I am an economic adviser, has not yet taken a position on the treaty, but it will have a special meeting shortly. Therefore, I will be giving my own views. However, the European Trade Union Congress, ETUC, to which we are affiliated is opposed to it.

As many have stated, there is no doubt that we need laws and rules when we have an economic union. The eurozone in particular needs them. However, the rules imposed by this compact are too late and restrictive. Credible fiscal rules are required for fiscal federalism but, without a countervailing social protocol, enhanced European automatic stabilisers and other supports, the treaty is not credible. A lack of credibility means it is bad law, which people do not respect. As members know, people are becoming more sceptical about Europe. I am pro-Europe. Within congress there is a mixed view, but we generally support Europe.

The treaty is an attempt to outlaw Keynesian economics and stop any fiscal stimulus as a counter to recession. The Union will be outlawing interventionist economics. This will not work because austerity is failing throughout Europe, particularly in Ireland. It is pro-cyclical, in that the more austerity is heaped on, the more things work the wrong way.

When we joined the eurozone, we gave up our monetary economic instruments. The treaty will remove another part of our fiscal instrumentation. It would be a bad move. Although we need rules, we also need mitigating measures, for example, a social protocol. The timing is terrible, as 23 of the member states are in excessive deficit. Had the treaty been introduced when Mr. Charlie McCreevy was the Minister for Finance in 2004, we would have been able to manage it. Indeed, it would have stopped some of the lunatic measures he introduced.

The left, which I am firmly on, is portrayed as those who tax and spend, but this is not true. It is a caricature. Generally, the Nordic countries are good in terms of fiscal probity. In Ireland, it was a radical conservative, Mr. McCreevy, who all but destroyed the Irish economy with his tax cutting, tax shifting, property tax breaks, privatisation and a cult of no regulation. This cult was predominant throughout the State service and we dealt with it often. These are the factors that brought this good country down.

Some have claimed that we can ignore the treaty. I do not accept that, as it will be EU law. Maybe we will not need to worry about it during the next year or two because the situation will be so bad, but we will certainly need to worry about it later. François Hollande in France has stated that he will try to change the treaty. France will see an election this year, followed by elections in Germany and Italy. If progressives enter into government in Europe, we could amend the treaty.

I will make an important point, in that it would be better for Ireland were there no referendum. As much as I oppose the treaty, were it inserted into the Constitution, undoing it would be more difficult.

The Lex column in the Financial Times calls the fiscal compact “a blueprint for economic stagnation” and that it “makes it more likely that indebted countries will need more emergency funding”. This includes Ireland. Many leaders around the world have questioned austerity-centred policy, including the IMF, which has been particularly critical of austerity and so on, and Italy’s technocrat economist Prime Minister, who has been more than sceptical.

The treaty aims to force eurozone countries with high debt levels to bring their budget deficits down to 0.5% of their economic output. Some have referred to this as an Herculean task. It is frankly impossible. Europe needs a treaty with a strong social dimension for a number of reasons. Without sustainable investment in growth - the Government has claimed it is interested in growth, but it is too obsessed with measures on the supply side rather than the demand side - the treaty will boost unemployment. The synchronised retrenchment in Europe is bad and is one reason for unemployment levels being 16 million and 24 million in the eurozone and Europe, respectively.

We need fair taxation policies and a financial transaction tax and to combat tax fraud, tax competition - this is not a popular issue in Ireland - and tax evasion. We also need a partial pooling of the debt, adequate intervention by the ECB and strong control over the financial sector. The ETUC believes that the treaty's passing mention of social partners will undermine social dialogue. The need for economic governance is being used as a means of restricting negotiating mechanisms, attacking industrial relations systems, putting downward pressure on collectively agreed wage levels, weakening social protection and the right to strike and, as we have seen today, facilitating the privatisation of public services. The ETUC makes a good point when it argues that the treaty will dismantle a unique social model.

It is important that Ireland should avoid cementing the treaty into our Constitution via a referendum. A social progress protocol should be attached to the treaty to guarantee fundamental social rights. The ECB's objectives should be reformed, away from their narrow focus on inflation and bank stability, the latter of which is costing us dearly. It should look towards full employment and convergence of member states' finances. We need to pool debt through eurobonds and there must be a wage safeguard clause guaranteeing the autonomy of the social partners to bargain collectively. It should also contain provisions to safeguard growth. This means that public investments that support potential growth should be excluded from the balanced budget rule and Government revenue should be safeguarded from tax competition - it is a waste of time saying this because Ireland is a leader in this area - fraud and evasion and there should be a structural role for European social dialogue.

Europe needs a sea change in its overall economic policy direction. We are not going to get this the way things are in Europe. Things are only going to get worse. This treaty will contribute substantially to making things worse because it is essentially a coup by the right wing economic conservatives to impose fiscal austerity on us forever. This is a bad move.

Chairman

I thank Mr. Sweeney for his presentation.

Mr. Seamus Coffey

I thank the joint committee for the invitation to speak at today's session. I agree with some things Mr. Sweeney had to say and disagree with others. Looking at the treaty as a whole, the claim that it outlaws Keynesianism is technically not true. It may be true in practice - the old rules strongly oppose Keynesianism - but the rules, in their design, do not set out to do this. Once deficit limits are set, countries tend to use them as targets, which the deficits approach. In good times, people increase expenditure and get close to a target and in a downturn must reduce expenditure in order to satisfy it. This is where the procyclicality comes from and is the conundrum in which we currently find ourselves, with 23 countries in the EU under excessive deficit procedures to cut their deficits at a time when economic growth is zero or, in some cases, negative. The rules do not outlaw running sufficiently large surpluses in the good times but set a limit to how low one can go. However, if sufficiently good surpluses are run in the good times, then Keynesianism has an active role to play. The issue is how to ensure this. I do not believe the rules can achieve this.

There has been much debate about the structural deficit rule in terms of how restrictive it is in setting deficits at 0.5% of GDP and the limited variability in that regard. There are countries which ran sufficiently large surpluses in the good times who are sticking within the limits. However, only four of 27 countries are doing so, which suggests there is an issue with the rule. The other area of the fiscal compact which has received much attention is the debt brake rule and the impact of this. This will, perhaps, limit counter-cyclicality in fiscal policy. However it must be acknowledged that it is not just the treaty that will impact on countries. An important change during the past couple of months has been the adoption of the six pack, which has not received sufficient attention. Had the fiscal compact been in place since 1999, it could not and would not have prevented the crisis in Ireland because we would have satisfied the structural deficit and debt brake rule during the last five or six years prior to the crisis. As such, it would not have helped us in terms of avoiding the crisis.

Some elements of the six pack are important and may have to some extent alleviated the crisis in which we now find ourselves. Mr. Sweeney mentioned the policies we adopted during the past couple of years prior to the crisis. A key issue is the huge growth in public expenditure which took place between 2001 and 2007, which could to a large degree be justified given the rate at which the Irish economy expanded. These increases in expenditure were in a sense funded by tax revenue. However, we now know that tax revenue turned out to be transitory and the expenditure is permanent. As such we are now trying to fund expenditure that is a legacy of times when money was available. The six pack contains an expenditure rule that limits the rate of increase in Government expenditure to a long run growth rate of the economy. It is linked to ten years rather than to a particular year. Had this rule been applied in Ireland during that period it would have curtailed some of the increases in Government revenue. In 2001, in particular, Government revenue increased by 20%. Had the rule been applied Government revenue could have increased by 8%, a substantial increase, which would have allowed Government revenue to grow but, perhaps, at a more controlled rate. Had that rule been in place ten years ago it would have, perhaps, alleviated some of the difficulty in which we now find ourselves. It gives freedom to countries to increase expenditure beyond the rule but to do so taxes must be raised. We went through a period of cutting taxes and raising expenditure. Had we wanted to grow Government expenditure by 20% we could have done so but this would have had to be matched by relevant tax increases. That is one area of the current proposals that warrants attention. This will not affect us going forward because we will not be considering increasing expenditure at anything like the allowed rates. However, in retrospect it might have had an impact.

A second proposal that we might consider is looking outside the fiscal sphere. Part of the six pack is a macro-economic imbalance procedure. For example, while our public finances were performing in a strong manner throughout the last seven or eight years prior to the crisis, the economy as a whole may not have been in balance. There is a proposal to introduce a macro-economic imbalance procedure to look beyond deficits and debt to see what is happening in the economy. This may trigger action by the Commission. It may instruct countries to adopt this thus addressing imbalances. There are ten imbalances in the so-called macro-economic score card, some of which relate to external relations, prices, exchange rates, balance of payments and others which relate to internal imbalances. It is noteworthy, from an Irish perspective, that three of the five are house prices, growth in private sector credit and stock of private sector credit. This procedure is only now coming into force. Had it been in place six or seven years prior to the bursting of our bubble there would have been warning lights alerting us to do something about it. While people were saying that there were imbalances in the economy there was no requirement on us to do anything about them. The macro-economic imbalance procedure is much like an excessive deficit procedure in that it forces countries to do something about the problem. While we are in the position of having to reduce our deficit to 3% of GDP by 2015, this new proposal, had it been in place, would have tried to get countries to curtail some of the imbalances that existed. It would have sent out warnings about house prices, private sector credit and the stock of private sector credit, which fuelled the property boom which came crashing down following the huge banking crisis.

The fiscal compact would not have prevented the Irish crisis. While there are issues about the flexibility it offers, the so-called six pack and the further measures in place would have, if applied retrospectively, had an impact. Going forward, we find ourselves in a completely different situation. As regards whether these rules will have an impact on Ireland in the short term, given the difficulties in which we now find ourselves we would likely be implementing many of the changes promoted by these treaties. We have a huge deficit that must be brought under control. Getting to 0.5% of GDP deficit is not something that will happen in Ireland between now and 2017 or 2018. It will be a slow gradual process. Even when the current process ends in 2015, we will need to continue to try to reduce our deficit through growth or additional measures. An element worthy of consideration is when we will be required to meet these requirements. Once a country leaves the excessive deficit procedure, which we hope to do in 2015, it then enters a three-year transition phase whereby it has to move towards compliance. It does not apply straight away but must move towards it. So, in terms of reducing its debt and keeping the deficit down to a low level, it will be 2018 before it applies in Ireland. While we will be moving towards it, it will be a long time before we explicitly have to satisfy those requirements.

Clearly, the broad issues would not have helped us but some of the more detailed issues outside of the fiscal compact might have had an impact in previous years.

Chairman

I thank Mr. Coffey for his presentation.

Sitting suspended at 12.10 p.m. and resumed at 12.20 p.m.

Chairman

I will be taking questions from the floor after Dr. Devine's presentation, with Deputy Durkan as the first speaker.

Deputy Bernard J. Durkan

I will agree to that in due course.

Dr. Karen Devine

I thank the committee for the invitation and for the strenuous efforts to get our technological problems sorted out so I can use my PowerPoint presentation. I deeply appreciate that. I am from Dublin City University; I am not an economist but I lecture in international relations. As scholars we have different theoretical positions and mine is that of a social constructivist. I tell the committee this because we tend to focus on issues that are subjugated and silenced; we tend to focus on normative issues such as democracy and issues below the level of the State, such as public opinion. That is what will inform the presentation today and I will focus on issues raised by this new treaty with regard to the process of creation of the treaty, quality of democracy and implications for citizens, as well as the previous referendum on the Lisbon treaty in reference to these points. There is also the exercise in limitations in sovereignty raised in terms of new decision making and changes to economic and fiscal powers. Finally, I will raise some legal issues and questions of legitimacy in terms of the treaty's implications. This goes to points made about any potential future referendum held on the treaty in Ireland, the legitimacy of the EU and European democracy overall.

I will start with a statement from Icelandic President Grimsson, who when asked about the Irish situation and how he might respond said that in the Icelandic case the decision was taken by the Icelandic Government and Parliament and it had full control over the decision making mechanism but fundamentally, it was not just about financial crisis but a test of democratic systems. That is a very important point to remember because the quality of our democracy and the exercise of sovereignty in the national interest is necessary for optimal decision making by elites with regard to the economic crisis to the benefit of the citizens of the State and economic recovery.

Levels of sovereignty enjoyed by Ireland and Iceland were different and that made their responses to the crisis different, which is an important variable to consider when we discuss possibly giving away more sovereignty in this new treaty. Normative issues arise from the failure of democracy and rule of law not just at the level of the EU but at the level of the nation state. This failure could have consequences that are not just normative but also economic and fiscal. I will speak about some of those normative issues briefly by considering the first Lisbon treaty referendum, which led to a rejection of the treaty in June 2008.

As reported by a particular newspaper, the Government's strategy at the time was to focus the campaign on benefits of the EU rather than the treaty itself, which is problematic from the perspective of normative democratic theory as a referendum must be held on the contents of the treaty under question. The treaty itself was largely incomprehensible to the lay reader and most people would not have had the time to study it. It seemed that the campaign came through with regard to why the treaty was rejected and research indicated that the biggest reason for people voting "No" was a lack of objective knowledge of the treaty. In some ways that was a failure of our democratic process and a report was done by Democracy International which evaluated the fairness of the referendum as a process. It indicated that half of the practices considered were fair and half were unfair and it did not augur well when the Government stated, in response to the failure to ratify the treaty, that the first thing to learn about referendums was how to avoid them. In a way, that implied that the Government is interested in bypassing the sovereign of the State, which under Article 6 of our Constitution is the people.

There was a second referendum and figures can back up the claims of the Democracy International report regarding fairness. The "Yes" camp in the first referendum had twice as much money to spend as the "No" camp, which led to an imbalance, but when the second referendum was run the imbalance was ten times the amount in favour of the "Yes" campaign if we include money from the European Commission, Department of Foreign Affairs and the Referendum Commission. That would have amounted to over €10 million versus less than €1 million on the "No" side. That led to an increase in the imbalance in the democratic processes.

The millions of euro in the "Yes" campaign were spent on posters which included slogans such as "My job depends on Europe", "Yes to jobs, yes to Europe", "Yes to recovery, yes to Europe" and "Ruin or Recovery?" The treaty was approved largely because of this campaign, with post-referendum research showing that the number of people who believed voting "Yes" would help the Irish economy going from 9% in the first referendum to 38% in the second referendum. Nevertheless, the treaty was not about jobs; from 91,666 words, jobs were only mentioned once in a protocol to a declaration, and unemployment continued to rise. The treaty was not about jobs and the content of the treaty was not discussed.

In future our campaign message could be more honest and the facts of our membership could be laid out quite clearly in terms of costs and benefits. As former Taoiseach Bertie Ahern stated in the Dáil, although European Union membership has been of great benefit to us, it has also been of benefit to others and it has costs as well as benefits. We are prone to be somewhat naïve about this; for example, we opened up our markets and had to allow other countries more generous access to our fish stocks than we have ourselves. There are items on both sides of the balance sheet and if we are to be realistic we should not labour under the idea that we have some special debt or obligation to our partners or that we have been the beneficiary of positive discrimination, as we have not.

What is the balance sheet? Considering the figures for European Union Structural Funds, it is expected that Ireland will receive €72 billion between 1973 and 2013 while contributing €31 billion, with the net benefit at €41 billion. That is not the entire story. The "Yes" campaign used this information in its messages during the second referendum campaign, reporting that Angela Merkel had stated that Ireland should vote "Yes" because Ireland has benefited to the tune of €56 billion. The actual balance sheet should take costs into account and between 1975 and 2010, considering data from the International Council for Exploration of the Sea on fisheries, the commercial value of Irish fisheries in the Irish exclusive economic zone was over €200 billion. That is not just the value of the fish caught but also processing and marketing. Ireland's share of that was just under €17 billion, so the EU's net benefit was €184 billion. Taking into account the €41 billion benefit from Ireland's participation in the structural funds programme, the EU nevertheless has benefited to a total of approximately €140 billion, which is an important fact in considering what we should vote on in the next referendum.

There is another point on sovereignty and perhaps an explanation that political scientists would use to understand why there has been such a shift in accepting the nationalisation of our banks and their debt, as well as the bailout in November 2010 on what some people would regard as quite unfair terms. There is a theory of elite socialisation and although I will not go through its details, I will give a layman's version. This suggests that the longer political elites in a country stay in the European Union and become socialised at the elite level, the more likely they are to see their interests as European interests. That is problematic if it means they do not look after the national interests of the people who elected them.

I will illustrate this briefly. Fine Gael is commonly known as "the Blueshirts" and under the theory of elite socialisation the party would turn into the "blue and 12 gold stars shirts" because it has become so aligned with the European interest. The late Brian Lenihan indicated he accepted the bailout in November 2010 because it was in the interest of the euro, rather than in the interest of the Irish people.

My next points relate to sovereignty and legal issues posed under the new treaties. The treaty was necessary and treaty change would not be sufficient to push through these proposals. The new treaties were necessary, as noted by the German Constitutional Court report in June 2009.

It is not that Angela Merkel wants this treaty but that she must have it. This attempt can be seen, in a way, as a group of state leaders attempting to run with new proposed competences in the area of EMU, outside of the Lisbon treaty framework or the entire legal framework of the EU and outside of the community pillar, to which it once belonged, by moving to an intergovernmental pillar. That is anathema to previous democratic principles, decisions and processes and to a large degree can be seen as signalling the triumph of personal political ambition and, potentially, political expediency over the EU's institutional order and legally defined competences.

I draw the committee's attention to other matters which provide food for thought in terms of issues that will arise for the members to consider. Monetary policy is an exclusive competence for the EU, so these new treaties that try to develop monetary policy are essentially illegal. They are not the competence of 25 states but of the European Union. The treaties are incompatible with the current treaties. A fiscal union was never a goal of the EU, and in these treaties we are moving from the goal of ensuring price stability, which is the goal of the euro, to ensuring and safeguarding the stability of the eurozone as a whole. It is an entirely different goal, and we must take cognisance of that. An agency such as the European Stability Mechanism, ESM, and the decision making procedures, such as reverse qualified majority voting and automatic sanctions, were never envisaged in the current treaties. They are definitely incompatible if they are brought into these new treaties, which are then supposed to be brought in under the EU legal framework.

The new agencies arguably create a liability for signatory states because we would be financially liable for debts of eurozone members who are bailed out through the ESM. The ESM is a new intergovernmental body which is functioning as a fiscal transfer union which creates liabilities, for example, in terms of Ireland's contribution of €11 billion to the fund. Finally, the current instruments we have, from which these treaties are supposed to take over, that is, the EFSF €440 billion fund and the ESM, are illegal under the current treaties because there is a no bailout clause that prohibits this type of mechanism. This has been admitted by elites.

The French Minister for European Affairs, in an interview with the Financial Times in May 2010, said that it is an enormous change, which explains some of the reticence as it is expressly forbidden in the treaties by the famous no bailout clause. He said we have, de facto, changed the treaty. He went on to describe this new treaty and bailout mechanism as a mutual defence clause. The €440 billion mechanism, he said, is nothing less than the importation of NATO’s Article 5 mutual defence clause applied to the eurozone, whereby if one member state is under attack the others are obliged to come to its defence. This was backed up by Christine Lagarde, who was quoted by the Wall Street Journal in December 2010 as saying: “We violated all the rules because we wanted to close ranks and really rescue the euro zone. The Treaty of Lisbon was very straight-forward. No bailout”.

Where are the European Union's values of democracy and the rule of law, which are espoused under Article 2 of the Treaty on European Union? When Romano Prodi was President of the European Commission in 2002 he stated: "Europe's approach.....[is that] We want to use the force of ideas and persuasion, not coercion. We have moved a long way from the "reasons of state" and from the realpolitik that we ourselves invented. Our concept of power is the power of rules”. Javier Solana, the High Representative for the Common Foreign and Security Policy said, four years later: “The idealism behind the EU’s foundation is vital to defining who and what we are today ... We have carefully built a zone of peace, democracy and the rule of law of more than 500 million people”.

This contrasts with some of the research carried out in the We the Citizens project. An individual who participated in the project, a member of the public, wrote that Lisbon two broke our soul and delegitimised Europe. This is an excellent contrast to show the strength of public feeling over what has happened over the past few years with the progression of European integration through treaties and through the referendum processes in Ireland. It does contrast with the European Union and its values of democracy and the rule of law.

I started with a quotation from a president and I will finish with another quotation from the current President of the United States of America. He wrote this before he became President. In his book Dreams of my Father, he said:

There was no shame in my confusion. Just as there had been no shame in your father's before you. No shame in the fear, or in the fear of his father before him. There was only shame in the silence fear had produced. It was the silence that betrayed us.

It is important for me to appear before the committee today, as a critical constructivist and as an academic and professor. I am not paid by the European Commission to teach or promote European integration. I come to the subject after 20 years of study because I love the project and am pro-European Union. The European Union has failed in its own normative values and this failure has translated to the Irish nation state level. It needs to be stopped by individuals such as the members of the committee who wish to be democrats and wish to restore the European Union to its real function and its real goals and aims.

Chairman

Thank you, Dr. Devine. The lights are due to come back on. Is Deputy Durkan happy to ask his questions now?

Deputy Bernard J. Durkan

I am. I have been known to speak in the dark previously.

Chairman

You might illuminate us.

Deputy Bernard J. Durkan

Nothing changes.

I thank our guests for appearing before the committee and outlining their opinions. We would agree with some of them, but not with others. The story about advice can be seen in what was said by a former Taoiseach with regard to the economy: "Nobody told me". I am not making a political point; it is just a fact of life.

A number of issues must be addressed. The first is the question of sovereignty, to which Dr. Devine referred at great length. The concept of a union is that one brings a group together. That means one does not go the way of one party but the way the group in general wishes. There is no possibility that Ireland, Germany or any country can become the sole custodian of what Europe should be about. It is a question of opinions coming together. That results in a sharing of sovereignty. I do not agree with the delegitimisation referred to in the ballot paper. I believe somebody decided to come up with that. I do not believe it has any relevance to what we are talking about at present.

The second Lisbon treaty referendum was a call to reality. The people of the country, of one accord, saw that the fat was in the fire and the economy was in serious trouble. I have no doubt that they looked at it from that point of view. In the first referendum on the Lisbon treaty, I supported the treaty and campaigned actively in my constituency. We won the vote in that constituency 54% to 46% and again in the second referendum. However, during the first referendum campaign we were confronted with issues such as abortion and the argument that women in this country would have to have abortions. What that had to do with the treaty I did not know, and I still do not know. The other argument was that children would be taken away from mothers and put into institutions and other such nonsense. There were many extraneous issues raised which had nothing to do with the European treaties. I believe they had an effect and scared people. The second time, however, it was clear from the start that people were saying: "This is a call to reality and we must make up our minds on what we want. Are we going to commit ourselves or draw back?" The situation facing people in this country was not nice, but we had to face it.

I would be regarded by most people as a left wing member of society for many reasons. That does not mean I am totally opposed to austerity; I am not. I have spent most of my life, like every other public representative, advising citizens on how to handle situations when they go over budget. It is a simple household issue that arises every day and every week in every household in the country. It arose in a big way during the 1980s and we had to go again and again to the well, as it were, and advise people in order to protect them. Sometimes people listen and sometimes they do not. There is no doubt that austerity does work, but it must be applied with a human attitude and outlook. It cannot be used to bleed the system, to level society, regardless of the consequences. We have to rejuvenate our thinking, to see what we can do in relation to Europe. We are not entirely helpless. It must be recognised that the measures taken by Government and agreed by the European Union, the ECB and our colleagues in Europe at present, have achieved a saving of €18.4 billion in the past 11 months. That may seem insignificant in the totality of our country's indebtedness at present, yet €18.4 billion is a sizeable amount at the same time. That figure was provided by the Department of Finance just a week ago. That is an alleviation of the debt burden. We are capable of making progress, even in the present economic situation.

I agree with many of the issues raised by Mr. Paul Sweeney. Both he and Mr. Seamus Coffey sought to identify the root of our current problems; it was house prices, without a shadow of doubt. When the bubble burst, IBEC blamed the public sector for all the ills of the country. The fact was that the salaries of both public and private sector workers had to follow the property values. In Germany, in a ten-year period incomes in the public sector increased by 15% and during the same period it was 100% in this country, but the problem is that nobody recognises that in Germany property prices during that same period increased by 35% but in this country, they increased by 350%. We were led astray. Economists were broadcast on radio and television stating that the fundamentals were right. The fundamentals were totally wrong. Nobody shouted "Stop". Nobody wanted to shout "Stop" because everybody was having a great time. Now we have been stopped. This has happened not only in Ireland but in other European countries. If we had not had that property price bulge, wages and salaries would not have had to chase property values. People would have been able to get on the property ladder at a reasonable level, in the way they always did.

An eminent economist came up with a strategy. I want to apologise to economists, who are being blamed for everything in the aftermath. We were advised that we would no longer be required to own our homes, that like people on the Continent, we would lease our homes. I never believed that would work and the reason it would not work is that it never happened here. We removed ourselves from thinking in that way about our homes way back at the end of the 1800s and the beginning of the previous century, during the land wars. Many people thought this war was just about land, but it was about the right to own property. I never agreed with the theory that property would be leased.

What happened was appalling. The property values escalated rapidly and ownership shifted from a group who previously were in control of their own destiny, people in the middle income category and downwards, and was handed over to investors. Much of that property is now under the control of NAMA. This should not have happened. There is no sense in blaming the European Union or outside forces for what happened. We would have suffered from the international downturn, but we have suffered a double whammy as a result of land prices. Whatever we do, if we attempt to resolve our debt by inflation and a return to high property prices, it will not work. It will make matters worse.

I am not an economist, and my remarks illustrate that, but I read the works of Keynes and Galbraith. I was very fond of Galbraith, who had a human way of addressing issues. He did not back away from austerity, but believed in the utilisation of all of one's strengths. That is what we must do. We are on that road. It may seem odd that we are doing relatively well in some sectors and I believe we will pull ourselves out of the trough, but we must have the conviction to stick with it.

If any one European country thinks that the show should be run in accordance with its wishes, and nobody else's, that cannot and will not work. Last week we met a delegation from Iceland and they were asked whether they followed the views of the electorate who rejected one way of dealing with the economic downturn. Their bad news is that they have to pay back everything. We should not pretend there is an easy way to deal with the crisis. If one is looking for a better deal, one should not come from the position of saying that one will not pay back what one borrowed last year, because one should not have borrowed it. If one goes into a financial institution with that attitude, how will it respond to the simple question of whether one is a good risk? I believe we are a good risk, and I think we have the ability to repay our debts and will repay them, but we must be positive.

Deputy Pádraig Mac Lochlainn

I will address my initial questions on the economic impact of this proposition to the economists and then I will put them to Dr. Karen Devine. Mr. Paul Sweeney referred to Keynes and taking out Keynesian theory from the armoury of instruments the Government would have, but Mr. Seamus Coffey did not totally agree with him. There were the classic debates of Keynes and Hayek on the role of government in recession and the role of government in macroeconomic policy. It is fascinating that Thatcher and Reagan adopted Hayek's philosophy of small government, of privatisation, deregulation and the rolling back of the welfare state. The Keynesian theory fell out of fashion in recent times, but Hayek's strategy and the approach of Thatcher and Reagan has failed dramatically.

The core of our economic crisis is almost entirely within one sector, namely, the banking sector, which was unregulated and reckless, not just in Europe but globally. We know the implications it has had in America. What I find fascinating is that in spite of the catastrophic failure of that unbridled approach, we are being forced to take on more of it. It is a profound injustice that through austerity one could take billions of euro from small economies such as Ireland, and that we have had to take on board the full brunt of Anglo Irish Bank's exposure and the recklessness of core European and global banking in Ireland. Other states can answer their own case, but I can only speak authoritatively about Ireland. Nobel Prize-winning economists, such as Joseph Stiglitz and Paul Krugman, have clearly stated this policy is insane and this approach has failed. What do we have to say in response to the three elements of this European crisis - the banking crisis, sovereign debt and the investment crisis - and the lack of growth throughout Europe? We have no solution to any of those problems. What we have is more austerity, as if balance sheets and the Government's recklessness were the sole cause of the crisis. It is very interesting that we find people who come from the Goldman Sachs school of philosophy at the head of technocratic governments in Italy and Greece, as well as at the head of the ECB. In America, the people who were responsible in Goldman Sachs were at the height of government in that country as well. They have actually been rewarded, so we live in a bizarre world.

This proposition is before us. From Sinn Féin's perspective, we are profoundly critical of it because there is no solution to the economic crisis. No hope is being given to our people in this. We have an unbelievable situation where 12 Heads of State sent a letter to the European Commissioner mentioning seven elements that they hope can contribute towards growth. How about 27 Heads of State coming together to find a real solution to this crisis and having a real discussion? Perhaps then some confidence might be established internationally.

What are the actual financial implications for Ireland of having to reach this 0.5% deficit ceiling within a defined period of time? We are obviously now within the constraints of the troika and we have to reach the 3% deficit by 2015. What would be the actual financial costs to get to that? How do we have growth within that context? How do we actually start to turn our economy around? Is there a place for Keynesianism? In fairness, Mr. Sweeney's paper outlines his perspective on this. How can we grow the economy in Ireland while taking billions out of it every year, especially from those on low to middle incomes who actually spend in the economy? What are the actual practical implications of having to comply with this treaty and reduce our debt to GDP ratio by 5% per annum to get it down to the 60% level? How do we reach those targets? Do the witnesses think it is good economic policy to have such rigid targets in place? I know they might come back and say that was like the 3% target in the Maastricht treaty, but in the context of Ireland's unjust treatment and the amount of banking debt we have had to saddle, how in the name of God are we supposed to comply with these levels and have growth at the same time?

We are very puzzled by the legal aspect of it. Article 29 of our Constitution gives the Government a degree of carte blanche to continue co-operating within the existing legal framework of the European institutions. However, this is not a European treaty. This is an intergovernmental treaty. How can we apply the European Court of Justice and other European institutions to something like this? How does the Government think this is legally permissible and hope it will be compliant with EU law in five years? How is it compliant with our Constitution and how is it compliant with existing EU law?

The Government proposes to include the European Stability Mechanism treaty in the European Communities (amendment) Bill, which will be going through the House in the near future. Do the witnesses think it would be appropriate for the Government to include the European Stability Mechanism or the fiscal compact in that? If it manages to do that through this Bill, what will be the implications of such a move? We in Sinn Féin fear that this is similar to the preferable constitutional weakening of that text as the drafts moved on. We believe that both elements could conspire to further deny the Irish people a chance to have their say on this matter. Is it legally correct or appropriate that the Government could try to apply this fiscal compact, which is not applicable to EU law, under this amendment Bill?

Senator Fidelma Healy Eames

I apologise but I will have to leave almost immediately. If I could get a quick answer to these questions, I would really appreciate it.

Chairman

It will be on the record if you cannot stay.

Senator Fidelma Healy Eames

I appreciate that. I apologise to Mr. Coffey and Mr. Sweeney for missing their presentations because we had a Seanad vote. None the less, I have a question for them. I enjoyed Dr. Devine's presentation and I have been a fan of social constructivism myself, so I thought it was interesting that she put that up front. Fine Gael has always been a pro-European party. Dr. Devine called us blueshirts. She is mixing up the fact that it was the former Government and Brian Lenihan that brought us to the brink and to our loss of sovereignty. Just because we are in the Government does not mean we would have brought ourselves to that position, and it is very important that we put that on the record.

Dr. Devine states that she is pro-European, but that we have lost our normative values on democracy and the rule of law. Democracy is a serious business, but staying afloat is a serious business too. How do we marry both in emergency situations such as those in which we have found ourselves repeatedly over recent years? Does Dr. Devine believe there is a role for parliamentary democracy, or does she think a referendum is needed every time major decisions have to be made? I have a question for all the witnesses. If there is a referendum and the result is "No", what would the consequences be for Ireland and for Europe? Can we risk that?

Senator Kathryn Reilly

I welcome the speakers and I apologise for missing some of the presentations. I am very sad that in my time in DCU, I never had Dr. Devine. When I was studying international relations, I had a different lecturer altogether.

Previous contributors to this committee described the economics of this treaty as being pretty terrible. Do the witnesses think it is a good idea to have these rules placed on as high a legal level as possible? How do they think future Irish Governments will be constrained by these rules? What flexibility will they have? A previous contributor drew comparisons with the six pack and said that while we could revisit that further down the line because it was not as legally binding, this new treaty will not have that flexibility if some of the measures are violated consistently and it is not working. What flexibility will there be? How are we going to circumvent that? How difficult will it be for future Governments to adopt different policies or to run budgets temporarily outside of the criteria?

The ESM linkage in the treaty was described as the poison pill of the treaty itself. Do the witnesses think that Ireland will be able to get back into the bond markets in 2013? Can they mention the ESM linkage when answering that?

Chairman

Thank you, Senator. Who would like to go first?

Mr. Seamus Coffey

Deputy Durkan stated that nobody told us, that it was not going to happen and that everybody told us everything was sound. The Deputy referred to incomes and house prices. It is my view house prices are always and everywhere a function of bank lending as much as income. We could have constrained income growth but if the banks were going to be as reckless as they were and continued to lend the money, the level of income was largely going to have no impact.

It is not true to claim no one told us. We got official warnings from the highest levels that some of our policies were inappropriate. There was the first official rebuke from the European Commission to the 2001 budget introduced by Charlie McCreevy. We stood up against the Commission and said we would not change our budget. As 2001 progressed, it emerged Germany was going to break the 3% of gross domestic product, GDP, limit while we were running a surplus, but our expenditure was increasing at a dramatic rate. As we know, no sanctions were placed against Germany because, with the voting rules at the time, it could block any sanction. If Germany was not going to be sanctioned for breaking the limit and Ireland was to be sanctioned for running a surplus and spending a bit too much, it was clear the rules were going to have no impact.

Even though high-profile economists were getting much airtime, claiming the fundamentals were sound and that everything was hunky dory, there were some dissenting voices. Even as far back as 2001, John FitzGerald and the ESRI suggested the Government should be taking money out of the economy rather than pumping more in. These counter-commentaries tended, however, to be drowned out. By 2006, they were completely drowned out and the madness reached its peak.

Deputy Mac Lochlainn spoke about the ongoing Keynes versus Hayek debate. It is very much a stylised debate which swings one way or the other. I am not sure either economist would be a fan of the direction their writings have taken. It is hard to know whether Keynes would be in favour of the views held by Keynesians now. It is also difficult to know how Hayek would feel too. He talked about the role of government in cyclical downturns. As his career developed, he saw no role for government in practically every area. Keynes would have been more active in seeing government having a role in the economy but perhaps in different ways from what is envisaged in Keynesianism now.

The Deputy referred to three crises in the eurozone: the banking crisis, the sovereign debt crisis and a lack of investment. These three crises have all fed into the unemployment crisis which has gripped Europe. Solving these three crises may give hope for addressing the unemployment crisis.

What are the financial implications for reaching the 0.5% structural deficit limit? Ireland is not going to get there any time soon. Estimates of our structural deficit are that it is about 8% or 8.5%. The point is we do not know what the structural deficit is. It is very much a theoretical construct. If one asked a group of economists about it, one would get different answers on what it is and how to measure it. The European Commission has a defined way of measuring the structural deficit to which we should give more attention to understand how it is measured and its implications for Ireland.

The European Commission tries to take out the impact of the business cycle and the impact of one-off measures. If one takes out the downturn and the banking crisis, the Irish deficit is estimated at approximately 8%. There is one element of that – what we call the sensitivity of the business cycle – whose impact must be measured on the overall deficit. The European Commission measures that at 0.4% for Ireland. Every time there is a 1% drop in GDP, the Commission estimates it has 0.4% impact on the budget deficit. We have seen in Ireland, however, that the impact is far greater. Our budget deficit has responded far more to the change in the economy. We have lost GDP in real terms of 10% to 11% and in nominal terms close to 14%. We have gone from running budget surpluses to large deficits.

In our case, there is a role for the cyclical element being a bit larger. That is where the flexibility is supposed to come in. If the cyclical element is too small, it does not have a role. If one applies the rules in the fiscal treaty to Ireland, at the depth of the recession in 2009, we would have been allowed to run a deficit of 2.8% of GDP. That is in an economy that contracted by 7.5% in one year. The economy that went through the deepest recession in Europe had a deficit of only 2.8%. The 3% limit is an absolute that very few countries will ever get near, we hope.

Getting to the 0.5% target will be a protracted process. We are aiming to hit the 3% deficit target by 2015. It will require further measures after that. The issue is what the measures for projections will be after that. The hope is that growth will begin to play a stronger role. Deputy Durkan referred to inflation. These are ratios so inflation can have a role in helping. What will happen in 2016 and 2017 is difficult to tell. There will be further austerity after the end of the current programme. Whether it is as a result of this treaty or the state in which we find ourselves, it is hard to balance. We are carrying a huge debt burden that will place a large interest burden on the State every year. That alone will require close to a balanced budget.

As for achieving growth, we have conceded a lot in terms of the overall target we have to reach. Accordingly, this year we are aiming for 8.6%. We do have independence left. If one looks at the budget for this year and the allocation of spending between current and capital, the moneys to be spent on goods and services in running Departments is 94% current and 6% capital. We have swung hugely towards current expenditure. As capital is the so-called low-lying fruit, it has been easier to cut. In fact, it has been cut by in excess of 50% while the current expenditure budget has largely been maintained. Reductions in one area are offset by increases in another. We are spending more on the current side which basically is money flowing around the economy transferring from one pocket to another. Capital expenditure has an output and can lead to improved productive capacity, however.

We must consider whether we are getting the most value for our limited resources. Many of the payments on the current side are universal and can consume large amounts of money. Is there scope within that to rebalance our expenditure and focus more on the capital side? Alternatively, can funds be sourced elsewhere to develop capital projects? We have serious capital needs. While there was large investment in capital over the past ten years, with the baby boom for example, we will have ongoing needs in the education sector. The health care sector and water treatment are other areas requiring capital spend. It is not as if there is nothing to spend money on but we cannot balance it in our budget one way or the other.

It will be 2018 before the debt ratio rule becomes effective for Ireland. We will hope to have the debt ratio brought under control - stopped increasing - then. It is hard to know what it will be when the rule kicks in. It will probably still be over 100%. Reaching this target will require running an overall balanced budget. It will not differ significantly from the structural deficit rule. If a country runs a balanced budget with a debt of 100% of GDP with 2% inflation and 2.5% of real growth, it will hit the targets of the debt ratio automatically. Clearly, we are a long way from a balanced budget now but it would not require debt repayments or to run into surpluses to pay back debt. It would simply require a balanced budget to ensure the ratio came down. As long as GDP is expanding and the debt is not increasing, the ratio will fall.

Whether the targets are rigid or not, it must be noted the targets must be built into the national budget. It is not a requirement that a state achieves them. What is required is a credible budget that sets out that the target will be met at the end of year as planned. There will be unforeseen events as economies are not machines with levers but can change and respond dramatically. If growth is lower than expected or there is an unforeseen expense and a state does not hit the target, then there are no real penalties for that. The penalty is for profligate budgeting in the first place, for having growth projections that are too high. Ireland spent the past couple of years, particularly 2008 and 2009, at the start of the crisis, waiting for some sort of growth fairy to get us out of it. The initial four-year plan-----

Deputy Bernard J. Durkan

Green shoots.

Mr. Seamus Coffey

-----had a 3% deficit by 2014 with half the adjustment we are doing now. We were to get to a 3% deficit by 2014 with €6 billion or €7 billion in overall adjustment because of very high growth rates. What the Commission will do is force Departments to use independent forecasts to try to bring some credibility to budgeting and if something outside of the control of the Government happens, then that is merely the outcome. However, the issue is to aim for the targets in the first place. They are rigid and one must have credible budgeting, but achieving the targets is down to the whims of an economy as to whether it grows or contracts.

Senator Reilly stated that previous contributors to this committee described the economics of the fiscal compact as pretty terrible. If one takes them on their own, if one only read the three or four pages of the fiscal compact, one would say that this is appalling but we must look at the broader spectrum of policies being introduced. The changes to the Stability and Growth Pact, as I mentioned at the outset, are perhaps as important.

The constraints under the rules in the fiscal compact are fairly tight. As I mentioned earlier, we are not quite sure how the structural deficit will be measured and it is an issue we should look at more carefully. From an Irish perspective, what the EU does to measure our structural deficit will indicate what we can do.

Senator Reilly asked what flexibility future Governments will have. We will not have much flexibility between now and 2015 or 2016 anyway, given the large deficit we are running and the large debt we are carrying. Even without these changes, the Government will be trying to bring a sense of stability to the public finances. I suppose one issue we have is the pace of correction. It is an area where we are being supported by our external partners. They get a hard time in terms of this apparent imposing of austerity on us but if we did not have access to these funds, we would be doing austerity in six or nine months rather than in six or nine years.

The Senator asked whether Ireland will be back to bond markets in 2013. I suppose we all can give an opinion. No doubt we will definitely partially be back. Given the increase in confidence in Ireland and perhaps the stability in the economy, we will be able to borrow some funds from 2013. Whether we will be able to borrow sufficient amounts is hard to know. We would have been under pressure in January 2014 with a €12 billion sovereign bond redemption from 2009 due to mature in 2014 but, because of the holdings in the banks of our bonds, we were able to push that back to 2015. When the current programme ends, at least we do not need quite as much money as perhaps we previously would have required if that had not been done.

One issue Senator Reilly mentioned is the ESM provision in the treaty. We were in a programme before this treaty was negotiated and the question is whether one can retrospectively change the rules. At the height of the crisis in July last, there were promises made to programme countries that they would continue to be funded after their programme ended. If we were not back in bond markets in 2013, the promise was made that programme countries at the time, Greece, Portugal and Ireland, would continue to receive funding after 2013. The terminology in the current treaty is that passing the treaty requires access to the ESM but, from an Irish perspective, we could easily argue that the promise was made before the treaty came into play. We will be able to raise some funds in 2013, probably not sufficient to allow us stand on our own two feet, but I do not think we will run out of money in the medium term.

Dr. Karen Devine

I thank the committee for the comments and questions. On what Deputy Durkan raised, part of the problem of our property bubble was that we were flooded with cheap money. It was at a very low interest rate and that was because we were in the eurozone and under the regime of the ECB, which promoted a low interest rate. This was linked to German Bundesbank thinking. The reason I bring this up to remind us is because we need to understand the serious and rational cost-benefit analysis implications for Ireland in order to understand what the implications are for us in the future under the eurozone regime and this new regime as proposed under the fiscal compact treaty and ESM treaty. Denmark managed to have that debate and it followed a different path. We have this historical legacy in Ireland that we have not had any rational and objective debate on some of the fundamentals.

I would agree with my colleague, Mr. Coffey, that the problems that were here in Ireland were known. It goes to my point about being a critical constructivist. We are interested in how discourses are used to silence people and to subjugate truths. It was clear that some economists who were bringing to light in the media some of the problems were told to shut up. They were told they were being unpatriotic. There were many devices used to silence them. This is a theme that we also see all the way through referendum debates, which I alluded to in my presentation.

In terms of the questions, reference was made to the Iceland delegation that had been here. That interview that I showed was significant. In that interview, the president stated that Britain and-----

Deputy Bernard J. Durkan

Holland.

Dr. Karen Devine

-----Holland admitted subsequently that their demands of Iceland were unreasonable. This goes to Senator Healy Eames's point. Iceland did not have to succumb to the pressures of the ECB, as the late Deputy Brian Lenihan and the Fianna Fáil led-Government did. If Senator Healy Eames looks at the record, I stated that it was the late Deputy Brian Lenihan who made that decision. I was illustrating the point that he made the decision in the interests of the euro, which, under the Constitution, he was not allowed to do. At present, one can only make fiscal decisions in the interests of the Irish people. I did not state that Fine Gael instigated this policy, but the reason I brought out elite socialisation is because this theory would predict not only that Fine Gael would have done the exact same, but that it is continuing and developing this policy and it could have detrimental effects on our economy and on the Irish people. The socialisation effects would lead some of the elite in, for example, Fine Gael or other political parties that have become very socialised, as this theory might suggest, to denigrate the national interest. In democracies in the European Union, representatives are there to represent the interests of their citizens and are not supposed to leave them aside when they get to the European Council table.

This brings me to respond to some of the issues Deputy Mac Lochlainn raised. On whether one can allow the European Court of Justice a role in the new treaties, it is not legally possible. The treaties specify the role of the European Court of Justice. It does not allow the European Court of Justice to do the bidding of any international or regional organisations outside of the EU. Its competences, in other words, what it is allowed to do, are solely confined to the European Union and therefore it does not have a role. It should not legally have a role.

The question is, who decides about this problem? Ironically, it would be the European Court of Justice itself that would decide. As it needs cases to be brought to it, the answer to the question of who will bring the case to the European Court of Justice to decide whether the European Court of Justice is acting legally if it does have a role in these new treaties, is that the member states and institutions could bring such a case. However, this is under the European Union legal framework and what is being suggested is outside of the European Union legal framework, and we are back into this conundrum.

The UK stated that it would step back and it would not create problems by trying to bring a court case such as the one I have mentioned, but stated that it would reserve the right to reconsider in a particular issue if it felt it would impinge on its sovereignty or impact negatively in any way. However, they have said they would step back. This means that the European Union as it is supposed to act in terms of its ideals and interests is, in fact, acting contrary to its own legal parameters and framework. The elites are compliant in this as are the member states. This results in a system that has an endogeneity problem in that there is no way for it to regulate itself when those who are supposed to be responsible for this regulation are part of the problem.

I believe Article 16 of the treaty suggested bringing back the legislation in five years. To bring it in through primary legislation, which would be by way of a treaty, it would be necessary to amend the existing treaties. So it would be necessary to have another version of a Lisbon treaty which would amend the Treaty on European Union again or amend the Treaty on the Functioning of the European Union. That is necessary because what is proposed in the new treaties - in the ESM and fiscal compact treaties - is beyond the current competences of the EU. It would be necessary to amend the treaties to give the EU these competences and permissions to get involved in this area. The UK would need to agree to that and perhaps President Sarkozy and Chancellor Merkel believe the UK will come back on board. They may give the UK incentives or put it under sufficient pressure to see what happens. The British tend to be quite rational in their approach to the European Union and that might not come to fruition as some of the elites might imagine.

It might be possible to consider secondary legislation, if it was not possible to amend the treaties in the case that the UK or any other member state decided not to allow it to happen. Other member states might include the Czech Republic or any of the 25 member states participating in the proposed new draft treaties on the fiscal compact and the ESM. It might be possible to bring it in through regulations and directives which create another problem. Legislation is introduced into the European Union by way of the Commission drawing up a proposal - I often show this to my students in lectures - the second or third line of which must refer to a treaty base in order for the legislation to be allowed. For example, it could be called Regulation 110 with reference to Article X, Y or Z in the Treaty on European Union or the Treaty on the Functioning of the European Union. In other words, secondary legislation can come into force only if there is an enabling primary legislation clause in the current treaties, but that is not the case. If the legislative proposal comes from the European Council or from the new 25-member state fiscal compact union, I wonder what the European Commission would do. It needs to have an enabling treaty clause but none exists. Therefore it is not possible as far as I can see.

I was asked about the European Communities amendment Bill. I must admit I have not looked at this because I am in class and am researching. I was not able to cover that. However, I can give an answer coming back to EU competence. Regardless of whether they come from the European Union - let us take it they are European Union proposals - the Government can proceed with policy proposals only to the extent that the European treaties allow them to do so. Any proposals such as those we are discussing would need to fit in with the EU treaties. By the way we phrase the amendments to the Constitution, the Government is limited to acting only within the parameters of the current treaties. The current treaties do not allow what is proposed. I need to keep coming back to this point. I have heard it in the discourse from those associated with the "good European" label and the "Yes" campaigns that these treaties exist because they have to exist - there is no legal way of doing this otherwise. It is not that we can ignore it and it is not just that Chancellor Merkel is being somewhat awkward and just wants it. Germany needs these treaties and the German constitutional court would have advised her of that - any constitutional court would advise that. It is the way it is in law.

I believe I addressed most of Senator Healy-Eames's points in saying that the late Brian Lenihan Jr. brought in the decision to take the €67.5 billion so-called "bailout" loan. She asked about the emergency situation and what we should do under pressure. I refer back to the case of Iceland, which did not have Mr. Jean-Claude Trichet standing in the room informing it what it had to do. The late Brian Lenihan Jr. did it because he believed Mr. Trichet when he said the entire eurozone would collapse unless Ireland guaranteed Anglo Irish Bank and some of the other banks' loans. I believe it was approximately €47 billion in the case of Anglo Irish Bank. We need to stop the scaremongering. Political science would predict this. In order to get one's policy proposal through, one needs to put somebody under pressure and give him or her a deadline so that he or she cannot resist and say "Stop."

In an interview with the late Brian Lenihan Jr. concerning the events leading up to his decision, he made it clear that he felt under extreme pressure. He obviously did not have time to ask his officials to use data and predictive models to consider rationally whether this was a real and important consequence if we did not take on the debts of Anglo Irish Bank and some of the other banks. Iceland had the time but Ireland did not because of the pressures coming from the ECB, which had the backing of the European Commission - Commissioner Olli Rehn also agreed with this. It is all about the political machinations and isolating an individual who is put under such pressure that he or she would make that decision. Iceland was not subject to those pressures. Iceland has returned to the bond market at yields of 5%. Last Friday the ratings agency, Fitch, upgraded Iceland's bonds and it is expected that Standard & Poor's and Moody's will follow.

The way Ireland's elites behave in the context of the history of our membership of the European Economic Community and European Union means that we are in some ways hampered now as the Senator pointed out but may be also hampered further in future if we agree to some of these proposals. I reiterate my plea to have a real rational debate with no verbal abuse, no labelling of people or silencing of people. The Senator talked about being a good European. I believe this is a discursive way of taking away the legitimacy of people who actually want to talk about what is real and what matters. It succeeded as a strategy for a long time. I started studying the European Union more than 20 years ago and started teaching on the European Union at third level in the late 1990s. I am in favour of the European project and yet I see how it has been co-opted by elites in anti-democratic and illegal ways, which pains me. While I want us to be able to talk about it, in Ireland it is nearly impossible because of this consensus that exists at the elite level whereby they co-opt the notion of being good Europeans. I consider myself to be a better European than some of the elites given their behaviour. The European Union is founded on democracy and the rule of law. It needs to follow up on those ideals or else it will lose not just legitimacy but also the support it has always enjoyed in terms of permissive consensus from its citizens.

Mr. Paul Sweeney

I said at the outset that the timing of this treaty is very bad and I mentioned that it would have been right to have had it in the boom years. Mr. Coffey made an interesting statement, in that it probably would not have done a great deal to curb the spending, tax cutting and tax shifting. The treaty will have little impact on a booming economy, as it is designed to hamper a struggling economy. It is not a case of European solidarity helping a struggling economy, although we must admit that Europe is helping us. As Dr. Devine pointed out, the language the eurocrats use in the treaty and the six pack is authoritarian. I took down a few of the words because they tickled me. It is like business language, in that it is masochistic. We will kill our enemies and so on. The words and phrases in question are "fiscal discipline" - discipline is S & M, for goodness' sake - "rules", "governance", "surveillance" and "financial sanctions". The last relates to the 0.2%, which will hit us for €360 million. Other phrases include "rigorous enforcement" and "rules are stricter and more automatic". This is the language of the treaty and the six pack. We should pay attention to it. The treaty is not about European solidarity. It is a jackboot treaty.

Before I discuss the treaty's impact on Ireland, Deputy Durkan stated that no one shouted "Stop". He made a good point, in that the media of the time was full of what we call stockbroker economists. They always got a free ride as if they were independent. We in the trade union movement engaged in heavy arguments with financial editors, but this was to no avail because of the newspapers' property supplements. They were selling the idea that one needed "to get on the property ladder". I was allergic to that expression because it was wrong. The stockbroker economists were selling cheap loans and other products and the media, including the national broadcaster, was conspiring with them. If there is a lesson in this, it is that we must think seriously and debate these issues.

I wrote a great deal on this subject, including one op-ed in The Irish Times in April 2004 prior to the peak. I wrote that we needed to raise taxes. My fellow economists, from those engaged in finance to members of economic departments, called me a fool. Rather wittily, I was depicted as a court jester in one newspaper. I met its editor recently and asked whether the newspaper would apologise for writing that I told people to give up their “aul taxes”, given that I had called for increased taxes to counter the bubble. I was called mad and people asked whether I realised that we were €1 billion in surplus. I told them that I did and pointed out that it was for the rainy day that would inevitably come. Regardless, there is no satisfaction in saying, “I told you so.”

Deputy Mac Lochlainn referred to Anglo Irish Bank's debts strangling us. It is the big imponderable. We all hope the Government can get us a good deal. I would almost pray, but it does not work. We need Europe to cut us a deal. We have been the poster boys and girls of austerity and have been given nothing in return. This is the backdrop to the situation.

I agree with Mr. Coffey's comments on the treaty's financial implications for Ireland. It will not impact on us for a while. My concern is that, once it is in European law, it will remain there.

Members know the answer to the question of whether rigid targets will help to get Ireland out of this crisis. Of course they will not. The treaty is not meant to help us. It is a boot on our neck to keep us down for a while.

Senator Healy Eames asked about the outcome of a referendum for Europe and Ireland. We all know the answer. It does not matter if we vote "No", but the down side would be our inability to access the money. This is a serious problem. If the rejection were sizable, the eurocrats would be slightly worried morally. They would probably carry on, though.

Mr. Coffey answered the question of whether we will return to the bond markets. I just looked at the ten-year yields and they are still over 7%. One can do all kinds of things. The Government is codding itself that Ireland has returned to the bond market. A yield of 7% is too much. While we hope that Ireland will return, we doubt it will do so by 2013.

I will conclude by making two points regarding growth and the question of whether austerity is working. We need a level of austerity, but the trade union's complaint is that we are going too far. This level is not working. Although the Government can claim the figures to be published at the end of March will show weak growth last year, that growth of approximately 0.5% on GNP followed a fall of 13% as well as a decrease in domestic demand of 24.9% in four years. Domestic demand is the best measurement. We can argue about the various components, for example, the reduction in investment, but the major element of domestic demand is personal consumption, which is falling away because people have no confidence.

If I had one remark to make to the Government, I would tell it that it needed to do something serious about jobs. I am not referring to stuff on the supply side, as our problem is a lack of demand. People might point out that we do not have the money, but there is €5.3 billion in the pension fund. Mr. Coffey made a point about capital investment.

The National Competitiveness Council, NCC, of which I am a member, shows that in spite of considerable investment, we have not reached European levels in terms of school buildings and public buildings. Public transport is crappy in this city and non-existent in Galway and other cities. We need more capital expenditure. Key to this is spending money on the best multipliers. Government spokespersons use the word "leakage" and claim the money would leak, but it will not if one spends it wisely. Economists should be employed to consider where money can be spent to get the maximum impact.

The Government must lead. There is plenty of private money that needs to be led. I am an old Keynesian. We cannot wait for the private sector. I spend a great deal of time speaking to the private sector, but it is just waiting. It does not have confidence in the country. Until something gives us a lift, the private sector will not make the necessary level of investment. If the State leads, the private sector will follow and the system will begin to work.

The treaty is a further constraint on the potential for future growth. I am sorry to be pessimistic, but this is the way the real world is.

Chairman

I thank Mr. Sweeney. On behalf of the committee, I thank the panel for its interesting contributions and for engaging with us on this issue. I look forward to seeing members again when we meet on 1 March. Until then, we are adjourned.

The joint committee adjourned at 1.40 p.m. until 11.30 a.m. on Thursday, 1 March 2012.