I thank the committee for the invitation to speak at the sub-committee. In the opinion of the Socialist Party and the United Left Alliance, and of the European United Left-Nordic Green Left group in the European Parliament, this is a treaty to impose synchronised, institutionalised austerity across Europe. It will mean billions of euro in further cuts and extra taxes for working class people in Ireland. It will mean tens of billions of euro, or more than €100 billion, in taxes and cuts across Europe, which again will affect ordinary people. The result, economically, will be absolutely disastrous. If implemented to the letter, this will result in a much deepened economic crisis. We currently are where we are because of the austerity programmes that have been implemented. The eurozone economy contracted at the end of 2011 and we are back in recession as a result of this austerity. The treaty goes further in institutionalising those policies. In doing so, it also represents a significant attack on the democratic right of people to elect their governments to decide on economic policies.
The media, or sections thereof, and those on the "Yes" side have accused us on the "No" side of scaremongering by saying this is an austerity treaty. I have produced a long submission for the committee, which includes a detailed textual analysis of how the treaty means austerity. To be honest, I have yet to come across an argument from the "Yes" side that actually engages with the text of the treaty. I will try to say in a shorter form here what I say in the submission and explain why that is the case. Article 3, in my opinion, is the most crucial provision. The structural deficit target is new. For Ireland, the structural deficit target will be 0.5%, as it will be for the vast majority of states signing up. If we do not meet that target, the treaty imposes an automatic correction mechanism. The statement "a correction mechanism shall be triggered automatically" must be read as meaning there is a process in the budgetary mechanism whereby, in the event that the structural deficit target is surpassed, a debt brake automatically kicks in and cuts and austerity are imposed, which means more misery for ordinary people and also worsened economic circumstances.
Ms Harkin spoke about the extreme difficulty of measuring the structural deficit. The idea that we will put an automatic correction mechanism into law is quite incredible. All of the institutions have different methodologies for assessing a country's structural deficit. Davy Stockbrokers produced a report, Ireland and the Fiscal Compact, in which it pointed out that the structural deficit is an abstract economic concept that cannot be observed with certainty, and described some of the vast discrepancies between the different organisations. For example, the IMF said in 2006 that Ireland had a structural deficit of 5.4%, while the Commission said that in the same year Ireland ran a surplus of 2.2%. The Commission also said we ran a surplus of 1.2% in 2004, while the IMF said we had a structural deficit of 4.4% in the same year. One can go through all the years and see similar discrepancies. As I suggested to the Danish ambassador in the first session of the meeting, receiving a positive response, the Commission's method of measurement discriminates against those countries that engage in higher social welfare spending and public spending. It discriminates against the sort of spending that the left is in favour of, and it is an incredibly political mechanism. We are signing up to something whose methodology we still have not seen, but we can assume the Commission will continue to use the same methodology it has used up to now.
Unfortunately, we do not have an estimate for 2015, when this provision will become applicable to Ireland, from the Commission, but we do have an estimate from the Department of Finance that we will have a structural deficit of 3.7% in 2015. If the Commission was to demand - which it could - that we had to meet the structural deficit target in one year, 2015, we would have to implement cuts worth 3.2% of GDP, which would mean an imposition of €5.7 billion in extra cuts and taxes on ordinary people. If the Commission was to say - which is more likely, in my opinion - that we had until 2016 or 2017, but probably not beyond that, we would have an extension of austerity over a period of years. The figure of around €6 billion is a massive underestimate. As we have seen in this country, in Greece and across Europe, when a country imposes austerity, it savages its own economy. The IMF works off an estimate whereby for every billion euro of austerity, an economy loses about €500 million in GDP. This would result in a downward spiral, with significantly more austerity.
Let us consider this from the point of view not just of Ireland, but of the EU as a whole and of all the countries that are signing up to this. It is there that the economic disaster represented by this provision becomes very clear. I have produced a spreadsheet which works off the Commission estimates. The best Commission estimates of structural deficit go to 2013. In that year, the Commission estimates that 18 out of the 25 countries to which the compact will apply will have a deficit greater than either 0.5%, if that is the figure that applies, or 1%. The Taoiseach will be pleased to know that Ireland is top of the class, with a projected structural deficit of 8.1% in 2015, which is miles beyond that of any other country. Other countries are projected to have deficits of 4%, 3%, etc. If the Commission were to state that all countries must meet their targets in 2013 - it will probably say they must meet them by 2014 or 2015, but it means the same thing over a longer period - then there would need to be €65 billion worth of cuts in France, €12.4 billion worth of cuts in Belgium and €6.7 billion worth of cuts in Austria. If every country was to meet the deficit target all at once, there would be €166 billion worth of cuts across the EU. That is absolutely devastating. The whole lot could not be implemented at once - it would be a case of €40 billion of cuts for four years. It is still absolutely devastating. To return to the IMF's figure of €1 billion of cuts resulting in a €500 million reduction in GDP, when the calculation is based on synchronised austerity across different countries that are trading partners, that ratio rises from 1:0.5 to 1:1, that is, with €160 billion of cuts across countries at the same time, GDP would fall by about €160 billion, which would be absolutely devastating. That is not just an opinion from the socialists. Roubini Global Economics last week produced a report that stated:
In our view, the terms of the fiscal compact require a fiscal adjustment by most [eurozone] countries that will significantly undermine their short-term growth prospects. If the treaty is not enforced, it will be positive for [eurozone] growth prospects and therefore for fiscal sustainability.
Similar things were said in the Lex column of the Financial Times, and many other capitalist economists have been extremely critical.
The next important point is about the interaction of Articles 3 and 4 of the treaty. Article 4, which is the debt reduction provision, states that if a country has a debt-to-GDP ratio of more than 60%, it must reduce it at a rate of one-twentieth of the excess per year. Ireland's debt-to-GDP ratio is around 120%, which means a reduction of about 3% per year is required. There are two ways to do this. Economic growth results in debt reduction as a percentage of GDP over time. However, if a country's economy is already being savaged by austerity, which is now being institutionalised by Article 3, that is not going to happen. The only other way for a country to reduce its debt is to pay the bondholders back and to pay the principal back on top of the interest payments. What it will mean for Ireland in 2015 is giving €4.5 billion back to the bondholders in principal repayments on top of the €9 billion in interest we will be paying in that year. Is it any wonder that a recent front-page headline in The Irish Times informed us that bankers are concerned at the prospect of a “No” vote? This is a treaty made for bondholders. On a Europe-wide basis, debts of €115 billion will have to be repaid, on a principal basis, each year for a 20-year period. Without economic growth this will be absolutely devastating in terms of its deflationary impact across Europe.
Imposing a structural deficit target of 0.5% will mean, in the long run, having to maintain debt at a level significantly lower than 60% of GDP. Several economists have predicted it will have to come down to 20% or 25%. One sees the neoliberal vision that is being driven here, with a reduction in public spending and increased privatisation. We have a crisis of unemployment in Ireland and across Europe, with 450,000 on the live register in this State. The only way to extract ourselves from this crisis is to get those people back to work. A significant factor in the crisis is the 70% collapse in private sector investment in this State, amounting to more than €30 billion, since the beginning of the crisis. Yet despite the continuing decline in investment - the only exception being the last quarter of 2011 - we have seen an increase in corporate profits. The private sector will not get us out of this crisis because it will not invest to the extent necessary. This treaty effectively rules out the public investment necessary to get people back to work and to restore the economy.
The treaty is also an attack on democracy in that it restricts the ability of people to elect a Government with a policy other than neoliberalism. It renders the socialist economic policies for which I stand illegal. In fact, it rules out even moderate Keynesian economic policies. As such, it is entirely undemocratic. Moreover, Article 5 should be reconsidered in terms of the transfer of powers. Access to European Stability Mechanism funding is not a reason to vote for this treaty. This blackmail clause was inserted with the complicity of the Government and agreed unanimously by member states. In addition, there will be no vote on the ESM treaty and the amendment to the Treaty on the Functioning of the European Union to allow the ESM to come into being until after the referendum in this State. If we reject the referendum, the pressure will be back on the Government. At that stage it must give us a referendum on the ESM, which we should have had from the start. At the very least it should veto the treaty, which it has the power to do, until the blackmail clause is removed.