JOINT COMMITTEE ON EUROPEAN UNION AFFAIRS (Sub-Committee on the Referendum on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) debate

Realities of What the Treaty Means for Ireland: Understanding the Facts

Chairman

I would like to welcome everyone to the second session of today's proceedings. This morning, Lord Harrison and Ms Sharon Bowles, MEP, talked to us about their views on the stability treaty. In this session, the focus is on what the treaty means for Ireland; this should help us to understand the facts. Addressing the committee this afternoon are Professor Philip Lane, professor of international macroeconomics at Trinity College, Dublin, Mr. Dan O'Brien, the economics editor of The Irish Times, and Mr. Jim Power, chief economist with Friends First. I ask people to switch off their mobiles phones. Even on silent mode, phones will interfere with the broadcasting equipment and we are live on UPC channel 801 so anyone watching at home will be unable to hear.

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, by name or in such a way as to make him or her identifiable.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give to the committee. However, if directed by the committee to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person or an entity, by name or in such a way as to make him, her or it identifiable.

Professor Philip Lane

At this point the committee has probably heard quite a bit about the treaty but I just want to make a few points. I have distributed a short document which elaborates on the points so I will try to summarise.

I have worked on fiscal policy since the mid-1990s so my views have developed over a long time. Even going back to before we joined the euro, it was signalled in advance that countries that joined the euro could no longer devalue the currency so it was very important fiscal policy could be used to manage the cycle. It is important in downturns that the economy can run a deficit because we do not have the other safety mechanisms. The point of the fiscal treaty is that it is only feasible if the framework is sustainable in the long term. What does that mean? The debt level must be low enough that if interest rates go up, there will not be an immediate crisis. It also means that if a Government wants to run deficits during a downturn, it must run sizeable surpluses in the good years. That gives the flexibility to run large deficits in the downturn.

This is especially important for Ireland. Of all the countries in the euro system it is especially relevant because we are a small, open economy. We will get booms and severe recessions in the future; that is the nature of small economies. Hopefully we will not have self-inflicted crises like the housing bubble but there could be a crisis caused by a slow-down in world trade or the US could change its attitude to multinationals. There are many factors that mean the Irish economy could be vulnerable in the future so it is important that fiscal policy allows us to manage that.

The treaty attempts to help individual member states to run a sustainable fiscal policy by having rules to ensure debt is brought down to low and safe levels and provide a mechanism so that surpluses needed in the good years will be run to allow for deficits in the bad years. That is the concept of the structural balance. It does not mean that in any given year the balance would be close to zero. It means that it averages out. If we want to have deficits in the downturns it is not enough to get to 0% in the good years, which is essentially what happened here. In the good years we did run surpluses but they were tiny. They were of the order of plus 1% of GDP. We have examples from around the world of countries that had fiscal rules which ran surpluses in the mid-single digits. Chile got up to close to 10% of GDP. In 2008-09, Chile had a similar swing to us. It had a swing of 14% in the deficit but going from plus 10% to minus 4% does not spook the markets whereas going from 0% or plus 1% to minus 14% did do that. There are examples of that from the recent past. Sweden had a very good crisis in that it went through a banking crisis in the early 1990s following which it had a structural surplus target. The fact that it ran sizeable surpluses in the good years meant it could have a fairly Keynesian response to the downturn without scaring the markets.

The idea of structural balance is important because it will require countries to do more in the good years to allow the deficits in the bad years be feasible. It is important to think about the structural concept in a very broad way. The treaty should be read in conjunction with the Six-Pack. It is not so much a question of whether output is at its normal level but whether credit is growing too quickly, are house prices increasing, is the current account deficit too big, is the share in world trade going down, house inflation and so on.

The treaty has learned the lesson from previous episodes. There are very few numbers in the treaty; it is more of a concept. Structural balance is something that will vary on a country by country basis and over time. It is not something about which we can say, "Here is the magic number". The number will vary according to the condition of the economy and all of these risk factors. Having a country specific target is a good idea, especially for countries like Ireland.

One might say that the measures of structural balance change all the time. The international agencies, looking back, would say they were running a structural deficit in 2007 whereas at the time it was more or less measured as being in balance. I hope that a better job can be done but it will always be the case that the economy is uncertain and every year it will turn out to be the case that last year's estimate of the structural balance was either too gloomy or too optimistic.

I will highlight a very important part of the treaty which is the correction mechanism. If a country's budget balance turned out to be inappropriate in that it thought it was doing okay by running a budget balance of, say, minus 1% whereas new data has come in which indicates it should have been plus 1%, there is a correction mechanism whereby it has to fight the drift. If a country is overly optimistic every year, at some point it has to trigger a correction mechanism whereby it would decide that this has been going on for too long and that it will have a sustained period in which gradually - it does not have to be fixed in one year - it will collect more taxes or cut spending to get the targets back to where they should be.

Anecdotally, my understanding is that Greece had fairly good fiscal rules but they were always about next year. The Greek Government always had to announce a good plan for next year. When a country's plans turn out not to be implemented or to be no longer appropriate, we have to have a correction mechanism, and the treaty has that.

I will make two final points. The fiscal aspect is not the core of the euro crisis but the fiscal compact is a gateway reform. Nationally responsible fiscal policies are a gateway to many other necessary reforms. Already stitched into the treaty is that access to the European Stability Mechanism, ESM, is conditional on the compact but it goes much further than that. In the world of economics there is a strong consensus that if Europe had a European level banking system, this crisis would have been much more gentle. In the same way if banks in Arizona in the United States get into trouble, responsibility for that does not fall entirely on the Arizona state government. It is a federal responsibility.

If we want a federal approach to banking crises, each national government must be fiscally responsible. We know there are many ways in which national governments can persuade their local banks to lend to them but if that happens it will cause banking problems at federal level. We must have limits on national governments if we want to have a federal approach to banking.

The same goes for eurobonds. A common bond issuance could be a good idea but we will only agree to that if we trust the other member governments. Otherwise, it could be very tempting for an irresponsible government to over-borrow. The same applies to fiscal federalism. If we believe that, say, unemployment benefits should be paid out at European level rather than at a national level or that certain types of tax revenue should be shared at a European level, which could be stabilising for Europe, those only work if there are restrictions at national level on fiscal policy, as is the case in the United States. The treaty is a type of gateway to many other reforms. It is a first necessary condition.

At some level the treaty should be viewed as apolitical in the sense that it is silent on the key political questions about the size of government. In terms of those who believe that government should be very large with a very large share of GDP in the economy or those who believe it should be small, both views are consistent with fiscal responsibility. The treaty states that if a country wants to spend a great deal of money, it must have the tax revenue to match it.

Parties can feel free to write manifestos with a very high ratio of spending to GDP. The restriction under the treaty is that they have a matching tax plan. The only restriction is the idea that debt finance spending is a long-term plan. That element is not included. Debt finance spending is more or less confined for the cycle. However, there are exemptions in the Six-Pack for, say, public investment and other categories. This treaty should be welcomed on all sides. It will be very helpful. It could be criticised on particular issues but in general the idea of a fiscal framework is very helpful for the Irish economy.

Mr. Dan O’Brien

I would like to talk briefly about the origins of the crisis and the nature of the two most important rules included in this treaty. It is important to discuss the origins of the crisis in order to understand the possible solutions. The euro crisis is part of a much wider financial crisis that has been going on for five years. There was a massive amount of misallocation of capital and mispricing of risk by the financial system in the developed world. The implications of that were manifold, including the running up of much higher levels of sovereign and private debt levels over a sustained period of time.

In Europe, one of the outcomes of that was that by the time the crisis reached its worst point in 2008 and in the months and years afterwards, more than a dozen European countries ended up requiring the assistance of the IMF. Three of those countries, as members are aware, were in the eurozone but well over half of them were not. It is often said that the euro was the cause of this crisis. That is demonstrably not the case. Many countries outside the eurozone in Europe required IMF support because they had borrowed excessively in many ways, including tapping into international financial markets, something that showed up in the size of their current account imbalances. That led to a very serious crisis. This is not a crisis that is confined solely to the eurozone.

That said, the eurozone has proved to be a perfect transmission mechanism for the crisis among its members and it is clear that there are profound problems with the way the euro was designed and that things will have to change. The fiscal treaty is only a small part of the changes that will be required to make monetary union sustainable in the longer term. I wish to discuss the two major elements in the pact, the debt reduction for those countries in excess, whose gross debt is in excess of 60% of GDP which is the Maastricht criterion for government debt. They would have to reduce debt levels by one twentieth each year to bring debt levels back down to sustainable levels. The second main clause is that the ceiling on structural deficit should be 0.5% of GDP in a given year. It is often said that these rules would not have prevented the crisis but in my view that is only very partly true. In order to demonstrate this I will refer to some of the countries most afflicted by the crisis since the launch of the euro in 1999. All the figures used here are from the International Monetary Fund's World Economic Outlook database and were downloaded today.

I will not discuss Greece because I think everybody agrees that Greece is a special case and there is no real disagreement over the fact that it was a pure fiscal crisis. The four countries which I wish to discuss are Italy, Portugal, Spain and Ireland. The Article 4 clause will require countries to bring debt levels down by one twentieth each year. I will deal first with Spain and Ireland. One of the reasons people sometimes say this treaty would not have prevented the crisis is because - for Article 4 clause - this is true in the case of Ireland and Spain. The gross debt levels of both countries were well below the Maastricht 60% threshold and therefore, it is true that it would not have made a difference for Ireland and Spain. However, the other two countries are different. Since 1992, Italy has had a debt GDP level of above 100% and it has never come down below that point. In 1999, the year the currency was launched, its debt GDP ratio was 114% of GDP, almost double the Maastricht criterion. Over the following ten years, to just before the crisis in 2008, its debt level came down by just 10% and it remained over 100% of GDP. Had the Article 4 clause been in place and been enforced from the time the euro was launched in 1999, debt levels would have been - all other things being equal - down to about 80% of GDP, as opposed to being above 100% of GDP now. This would have placed Italy in a much stronger position than is the case today.

Portugal went into the economic and monetary union with its debt levels below the Maastricht criterion but it rose quickly thereafter. By 2005 it has breached the 60% threshold and before the crisis in 2007 it had risen to 68% of GDP. Again, had the Article 4 clause been in place and been enforced from the time the euro area was launched, it would very likely have prevented Portugal's debt levels from rising to the levels to which they have risen.

Moving on to the Article 3 clause as regards the structural deficits, this is much more controversial because the structural deficits are very difficult to measure. This is a very fair point and it would be wrong to give too much emphasis to this, given the uncertainty in terms of how it can be measured. Looking at the four countries since the launch of EMU, European monetary union, in 1999, and starting with Italy, according to the IMF's estimates, Italy was always well over the 0.5% of GDP and it hit a full 5% - 5.0% - in 2003. Had that clause been in place and enforced, then it is clear Italy would have had to run a much tighter fiscal policy from the very beginning of EMU, European monetary union.

Portugal was missing that target by an even larger amount. By 2005, its structural deficit, as measured by the IMF, was close to 6%. Spain was the partial exception. On every occasion from the launch of the euro in 1999, it exceeded the 0.5%, as measured by the IMF but it was the closest to balance among the four countries in question.

According to the IMF's figures, Ireland in 1999 had a structural deficit of 1.3% above the 0.5%. In our case it rose every single year, with one exception, up to the time of the crisis. By 2007, just as the crisis hit, the structural imbalance was a very large 8.4% of GDP. Again, had this measure been in place it would have made a profound difference to the management of the public finances in this country.

I will conclude by echoing the concluding point made by Professor Lane that I see absolutely nothing in this treaty that in any way affects the right of the people of this country or any other country in the eurozone to elect a government that seeks to either shrink or grow the role of the state radically. There is no provision in this treaty or in any other of the documents and rules in place since the crisis began that would in any way constrain the democratic choice of the peoples of the eurozone.

Mr. Jim Power

I will begin by stating that I have always had serious misgivings about the EMU project. In every European referendum since I was allowed vote, I have either abstained or voted against the proposition. This is my position. I always have had serious misgivings about the economic aspects of the march towards greater European union and I always believed that it was generally a victory for politics over economics and that every step of the way it was a case of political expediency rather than economic logic which drove much of the policy-making. The accession of Greece into the euro was a very strong example of this situation.

For the first decade, the EMU appeared to work reasonably well because it was not tested. The first real test came in 2007 to 2008 when the sub-prime crisis caused a global economic and financial crisis. That crisis exposed the very serious flaws in the EMU architecture. It showed the lack of proper oversight and regulation of the European banking system, the lack of a proper financial and fiscal architecture, including fiscal federalism and the lack of a super-finance ministry with the powers of a body such as the US Treasury, for example. There needs to be a more centralised political structure, a eurozone debt agency and eurobond issuance, proper rules to impose fiscal discipline. There was a clear lack of focus on economic growth rather than just control of inflation. In my view, those were some of the fundamental economic flaws in the creation of the whole EMU architecture and those flaws have been very cruelly exposed over the past three or four years. Over the past year, we have seen the survival of the euro as a construct coming to the top of the European and global political agenda. Quite sensibly, most policy-makers recognise that the cost of the euro falling apart - the second biggest currency bloc in the world - would be chaotic and would far outweigh any cost required to keep the euro together. As a consequence, we have seen an unorthodox and aggressive policy response from policy-makers, particularly over the past six months. It is clear that the European political elite now recognises that whatever price needs to be paid to keep the euro alive is worth paying. In response to the crisis, governments and the European Central Bank in particular, have adopted some unorthodox policy responses and policies which fly in the face of the disciplined approach built into EMU on its establishment, bearing in mind the German focus on austerity, sound fiscal management, control of inflation, etc. There has been a back-tracking on much of this rigidity over the past year or so. In my view, the fiscal compact has been constructed as a political figleaf to allow the political leaders in Germany and France and the Dutch, to go back to their electorates and argue that they are pursuing these unorthodox and some would say, reckless economic policies, but in return, they argue they are getting the members of the eurozone to sign up to future rigid fiscal discipline. In other words, they have misbehaved in the past but we will ensure they will behave in the future.

In many ways, the compact is much ado about nothing, in the sense that it does not change a lot in terms of how countries or their public finances should be managed. The structure we had from 1999 was the Stability and Growth Pact. The fiscal compact is not a big step away from what was in that which, unfortunately, was observed more in the breach than the observance.

At the end of May, we will be asked to vote in a referendum that will allow the legislation to be passed, without the rules being written into the Constitution. That is my interpretation of the treaty and, particularly, of the wording of the referendum published recently. I welcome the fiscal discipline built into the treaty from the Irish perspective and hope that it will never again allow us be subjected to the fiasco of the benchmarking of public sector pay, for example, or of Ministers for Finance standing up in the Dáil proclaiming an ideology that proposes that if we have the money, we will spend it and if we do not have it, we will not spend it. That was not a prudent way to run the public finances as it created a serious fiscal imbalance in the Irish system. I hope that by accepting this treaty this sort of behaviour will be prevented, which is desirable.

The bigger question form the Irish perspective concerns what happens if we reject the treaty. What will happen then? I intend to vote in favour of the treaty as there is no upside to rejecting it because it will go ahead with or without Ireland. Just 12 member states of the eurozone will be sufficient to sign the treaty into law on 1 January 2013. Therefore, even if we reject it, the treaty will proceed without us. The question then is where that will leave Ireland. We will be excluded from the financial assistance available under the European Stability Mechanism. The market view would be that by rejecting the treaty, we reject the desire to manage our public finances in a prudent manner. The implications of that for bond yields or for Ireland's re-entry into bond markets could be significant, at least in the short term. I do not see any upside for Ireland in rejecting the treaty but I see significant potential downsides, some of which I have mentioned.

I fully accept that the treaty is flawed. The whole focus on the structural deficit cannot be definitively addressed by anybody. The academic community globally is seriously divided on the whole concept of a structural deficit and how it should be measured. It is subject to political interpretation. The treaty is flawed but, reflecting what Professor Lane said, it is a necessary step in the right direction towards creating an EMU architecture that will ensure the stability of the single currency into the future.

To summarise, the treaty is part of a process that will lead to closer co-ordination of economic policies. Hopefully, it will help foster greater budgetary discipline than we have seen over the past decade. It is important to recognise the potential downsides for Ireland if we reject it. I find it difficult to see how in the long term Ireland could remain part of the euro if we failed to sign up to rules of the club and perhaps that is a debate in which those who oppose the treaty should engage. Where does Ireland go if it is not prepared to commit itself further to the euro project? There is a significant level of flexibility built into the compact as it does not build in the inflexibility and serious austerity its opponents claim it does. The treaty states that the correction mechanism shall fully respect the prerogative of national parliaments, Article 3.2. This suggests the treaty is a bit of a political cover that will allow the European political leadership put the architecture in place to ensure a stronger and more sustainable EMU construct for the future.

My final question would be to ask what is in store for Ireland if we reject the treaty. We are not going to be able to return and negotiate a better treaty, whatever that would mean, and that goes without saying. We need a proper debate on the future of the EMU, Europe and how it should be managed and the sort of fiscal and political structures that need to be put in place. That debate needs to begin now and Ireland needs to be part of that debate. If we reject the treaty we will be left on the periphery in that regard and will lose considerable influence. Unless somebody can come up with an alternative model for managing the Irish economy outside of the euro, it would be a grave mistake to reject it.

Deputy Pádraig Mac Lochlainn

I thank the Chair for allowing me make my contribution first. Unfortunately, I have to leave as soon as I put my questions because of an unfortunate clash with the Oireachtas Joint Committee on Foreign Affairs and Trade which is scrutinising the economic partnership agreements with the African-Caribbean and Pacific countries. I have to attend that meeting as soon as I have put my questions.

Again I apologise for having to leave early. I will read the transcript and listen to the responses when I get back. I would like to acknowledge your professionalism, Chairman, in dealing with these hearings. My frustration is that we have been through the process and now the Taoiseach has outlined that we go through it again. The unfortunate thing is that these four days of hearings have not been balanced between those opposed and those in favour, but I acknowledge your facilitation of all points of view. It is no slur on your ability to chair these meetings. I just believe that the balance is unfortunate for these four days.

Chairman

Thank you Deputy. If you have got further names, we are meeting over the next few weeks so we would be delighted to come back to you. We are meeting again today at 4 p.m., so if you can make it that would be great.

Deputy Pádraig Mac Lochlainn

I will indeed.

Deputy Joe O’Reilly

I welcome our three guest speakers and thank them for their very lucid presentations. Professor Lane said to us that we can achieve structural balance in a gradual, incremental fashion and that this can be achieved by negotiation. Perhaps he might elucidate a little on how that might be the case. Can he confirm to the committee that it will be possible under the treaty to put a stimulus in place for job creation? While the treaty keeps debt at an appropriate level, there is nothing inherent in it that precludes having a positive stimulus for the economy and getting jobs going. That is very vital and the public will want to know it can still happen. That is in contrast to the kind of stimulus that would result in the buying of imported goods or the kind of stimulus that would contribute to inflation but not necessarily create jobs. I think the opportunity is there and I would like Professor Lane to comment on that.

If I understood him correctly, I think Professor Lane said that by accepting this fiscal compact treaty and by working with it, we bring forward the prospect of issuing eurobonds. That can only be good in the long term. He makes the point that the treaty is silent on the size of government, and that is an important point. It is important that there is still capacity for ideological debate and for normal politics, so this is not a totally prescriptive treaty in that respect.

Can Mr. O'Brien confirm if he said that had the treaty been in place during the boom years, we would all be in a very different place today? I think that is the case and I think it is important people would hear that loud and clear.

I think Mr. Power answered the questions he raised himself in the first part of his presentation. Mr. Power did make the point that the existing rules had been honoured more in the breach than in the observance, that there were sufficient mechanisms and that, had we adhered to the principles on which the euro was based, we could have prevented many of the excesses. However, he proceeded in the latter end of his presentation to say the treaty would enhance the prospect of preventing such excesses in the future. This is a point that was made by Professor Gerry Boyle, who spoke here a few weeks ago. He said that having a treaty and rules of this sort could have a preventative effect; they could prevent excesses by providing a framework, apart from the inherent rules, that acted as a barrier to excess and to ludicrous expenditure.

Mr. Power made two points at the end which are very important. We do have access to the European stability mechanism in the unlikely event that we need a second bailout and, more importantly, if we want collateral to borrow on the open markets and achieve the credibility that entails. I ask him to comment specifically on the issue of inward investment, which is an important point. The entire policy aim of the Government - and of the whole Oireachtas - at the moment is job creation and inward investment, and that is where our collective effort is aimed. How does he see inward investment in the context of a possible rejection of the treaty? Would we become significantly less attractive for inward investment? It is my contention that we would, but Mr. Power is the expert and we are here to listen to him. I would like his comments on how he would see things playing out in the event of a refusal to pass the treaty. When we go to the US and to China and the other BRIC countries to seek inward investment, will we be undermined in that pursuit by our not passing the treaty?

I found the presentations very interesting. I await with interest Mr. Power's response because the future of our country depends on the outcome of this. I do not want to rehash the debate, but the remarks made by Deputy Mac Lochlainn were most unfortunate, because there is no question of our having sought anything, from the outset, other than to present a balanced view.

Senator John Gilroy

I find this part of the debate extremely interesting. I am conscious of how that might sound to ordinary people. I agree with Deputy O'Reilly's comments about the contribution of Deputy Mac Lochlainn. We should assert our positions by the weight of our argument, as opposed to the volume. Let us leave it at that.

I have one or two questions, particularly for Professor Lane. The calculation of the structural deficit seems to be a cause of great concern to many commentators and of much head-scratching among economists. Does Professor Lane believe it is possible to arrive at a mechanism for calculating a structural deficit which would be uncontroversial and agreeable to the majority of people, or is the argument surrounding the impossibility of calculating the structural deficit semi-bogus?

Perhaps Mr. O'Brien could answer my second question. There was a great deal of talk at this committee yesterday and again this morning about the so-called blackmail clause of the austerity treaty. The language itself says a lot. It seems to preclude states that do not ratify the treaty from accessing ESM money. Is there any doubt about this, in his opinion?

Deputy Timmy Dooley

They have to be economists.

Mr. Paul Murphy, MEP

That is not a problem. I will even find economists from the right.

Karl Whelan said that the structural deficit target of 0.5% for a country with a debt-to-GDP ratio of 60% or 1% for a country with a debt-to-GDP ratio of less than 60% would result in a debt-to-GDP ratio significantly of less than 60%. For example, in the event of a country having a deficit of 1% - because it has a debt-to-GDP ratio of less than 60% - and a growth rate of 4%, this would result in a debt-to-GDP ratio of about 25%, which is a lot lower than what is sustainable and manageable and, potentially, what is optimal for an economy. In the professional opinion of the witnesses, is there substance to that argument?

Senator Terry Leyden

I have reached the stage where I have heard so much about this bloody treaty that the arguments seem very clear to me. When one is told that a rejection of the proposal will disqualify us from emergency funding, one tends to be convinced fairly quickly. Nor will Mr. Murphy's salary be paid if the proposal is rejected.

Chairman

We do not have much time left so I will ask each of the delegates in turn to answer as many of the questions as possible.

Deputy Joe O’Reilly

On a point of order, is it in order that Senator Leyden should be allowed to rewrite history?

Senator Terry Leyden

I have the 2007 manifestos urging that the €25 billion be spent, not saved.

Chairman

I thank Senator Leyden. If our guests are of the view that they will not have sufficient time in which to answer the questions that have been put to them, they can always forward any further comments to us and these will form part of the official record. If they could limit their response times now to approximately five minutes each, it would be very much appreciated.

Professor Philip Lane

I thank members for the long list of questions. I am of the view that everyone needs to consider the six-pack in detail. This has already been agreed. The six-pack comprises five regulations and one directive. The latter essentially indicates what our fiscal responsibility Bill should contain when it is published. It would perhaps have been better if hearings on the six-pack had been held last year. The treaty does not go much beyond the six-pack. It is good to hold a referendum because it is important to look beyond the short-term issue of the blackmail clause. The treaty will radically change for ever how we deal, in principle, with fiscal policy in this country. What is envisaged is a really big change and it is already implicit in the six-pack. It is also implicit in the 2010 Oireachtas report in respect of which I carried out a background study. There has been a great deal of momentum behind this idea for a long period.

I wish to highlight a number of matters. There is a big issue with regard to measuring the structural balance and there has been a great deal of criticism of the European Commission. Under the six-pack, member states are allowed to put forward local opinion. Under the two-pack, which as not yet been implemented, a very important issue for Ireland is the fact that monitoring must be carried out independently of the Government. At present, Ireland does not have the analytical capacity to credibly do battle with the Commission. The latter is a large entity and it has a big staff at its disposal. The ESRI carries out this type of monitoring to some extent but it is extremely important that we should come up with the necessary quantitative models. It is not possible to merely state "I believe the structural deficit to be X amount". We must be able to show how we calculate the deficit. The Commission is transparent in its workings. One can argue about the matter because the Commission tells one how it carries out its calculations. We need a modified approach in order that Ireland can put forward its own view on the structural balance.

If it is not a structural balance, then it is the overall balance. At that stage things become incredible because it makes no sense to say that we are going to raise taxes and cut spending this year in order to hit some target. The latter is just fighting the cycle in the wrong way. The issue is secondary because it must be the structural balance which applies. This is due to the fact that the alternative is the overall balance, which is even worse.

Deputy Dooley referred to the expenditure rule. The six-pack indicates that spending should grow no more quickly than GDP unless taxes are increased. A member state can, therefore, have any level of spending it wishes as long as it has a tax plan to match. The six-pack does not, therefore, restrict spending.

A recurrent issue has been from where the growth will come in light of the austerity being imposed. That is a fair point. Deputy Mac Lochlainn and, to some extent, Mr. Paul Murphy, MEP, referred to this matter. They essentially stated that treaty is only about fiscal policy and they inquired as to where is the growth agenda for Europe. When there is a change of political leadership in certain countries, this matter is going to return to the agenda. I am of the view that this is a parallel debate. There is nothing in the treaty to prevent the European Council developing collective plans for European finance investment and so on. What is true, however, is that - just as in the boom times - a strong public sector is important, as are high levels of investment in education, health care, etc. Essentially, the major drags on the economy in the coming years will be investment and household consumption. Only when investors and households are confident that the economy is going to be stable will they relax to some degree in the context of spending levels. I would not over-emphasise the leading role of the Government. It is a necessary role but growth also depends on the private sector. People will differ on that matter, depending on their views with regard to whether the market system works.

Ms Marian Harkin, MEP, referred to sustainability. This is most important for countries such as Ireland. Everyone is asking whether Ireland is going to be able to reduce its debt. They know the Netherlands and Finland will keep their levels of debt low. The questions all relate to the high-debt countries. If we have a national law, then this will give investors a degree more comfort. This is because they will know that not just outside investors, but also the Parliament, through its committees, etc., will be screaming at the Government and asking if it is adhering to its legislative commitments. A big weight is being placed on the national system. This relates back to the Stability and Growth Pact. No one likes Brussels saying, "Here is what you need to do". The point about national laws is that they become the subject of local debate. The first line of defence in this regard is that the Government must adhere to local law. We have not seen the legislation yet but once it is published, the idea will be that the entire budget debate will be framed around whether we are adhering to our legal responsibilities in the context of maintaining a sustainable fiscal position.

The issue in respect of what those in Brussels think is secondary. The main responsibility in this context is going to be local. However, this will mean that a great deal more serious thought will have to be invested in analysing the Irish economy and considering what is or is not unbalanced.

Ms Marian Harkin, MEP

Professor Lane stated earlier that fiscal policy can only be effectively used for macroeconomic stabilisation if the underlying medium-term fiscal position is sustainable. Is that position sustainable in the case of Ireland?

Professor Philip Lane

My point is that if we have a fiscal law, it will act as a map to get us to that medium-term sustainability. Of course, Ireland and some other countries now have very high debt levels. Without the comfort blanket offered by the troika, the markets would be asking: "Why should we lend to you? You are so indebted, are you really going to repay us?" There is a need for a credible plan whereby one can indicate who we are going to move from a debt level of 120% in 2013 to one of 60% in 2035, 2040 or whenever. The markets do not require us to be at a low debt level tomorrow. We could, for example, instigate a 30-year plan. However, there needs to be some form of comfort to the effect that this country will reduce its debt level at an appropriate speed. That is the logic behind the approach.

Mr. Dan O’Brien

In the context of rejecting the treaty, it is very difficult to know what is going to happen. It is that uncertainty which characterises this entire situation. There is a range of issues involved in this regard. One one hand, there could be no effect and it may be that if Ireland needs a second bailout in order to avoid a sovereign default, then money will be found from some source. The net effect may, therefore, be absolutely nothing. On the other hand, there is considerable probability that in the next three to five years the 17 members of the eurozone will not still all be members of the eurozone. If, having rejected two previous treaties, Ireland were to reject this treaty, a view could emerge in some of the core countries that there is a member state, Greece, which is economically problematic and there is another, Ireland, which is not only the slowest mover in the convoy but which simply does not want to move forward at all. In such circumstances, those countries would be obliged to ask whether they were going to allow one country to block, for all time, any movement forward by the other member states. There is a risk that if the core countries decide there is going to be minor surgery in order to remove one country, they may also decide to get it over with and cut out all of the difficult nations at the same time. That is the extreme of the range of issues to which I refer. It could be the case that we will still obtain the requisite money if a second bailout is necessary. Alternatively, it could add to the momentum in the other direction and we could end up being ejected from the eurozone.

In the context of Ireland's position in the European Commission, the latter carried out an interesting study just prior to the commencement of the crisis, namely, Public finances in EMU - 2007. In that publication, the Commission constructed a model to try to evaluate the quality of the management of public finances by the various member states. The country which came out worst of the 17 eurozone member states was Ireland. Not much was made of this and people in the Commission at the time would have stated privately that Ireland was doing very well for a long period and that it did not seem to have many problems. They would also have pointed to some of the new member states which were still transitioning out of the communist era and referred to the problematic southern European states which had very limited resources. The Commission would, therefore, have focused its resources on those countries that were clearly problematic. To be frank, it turned a blind eye to Ireland and did not pay that much attention to it because it seemed to be doing pretty well.

There is another possible factor. In 2001 there was criticism of the budget introduced prior to the 2002 election and the Commission referred to its inflationary nature. In general, the political community here took a very hostile stance towards the Commission in this regard. The Commission is a very weak body and, arguably, its power has been declining for two decades. The then Government stood up very strongly to the Commission and the Tánaiste of the day referred to pulling on the green jersey. As a result, the Commission backed down.

Ms Marian Harkin, MEP, outlined her view in respect of a particular aspect of the European Commission. Did she indicate that there is an economically liberal bias within the Commission?

Ms Marian Harkin, MEP

In terms of anything to do with social policy - this is in recent times and it is more the Council than the Commission - they are literally cutting it out.

Mr. Dan O’Brien

In response to that, I lived in London for ten years and right wing anti-Europeans in London see a socialist behind every desk in Brussels. People who are of a left wing orientation see a neo-liberal behind every desk in Brussels. In my view there are very different types. If one reads the stability treaty, there are various references to highly social democratic ways of doing things. The European Union is pretty mixed - somebody would say it is a fudge - in that sense.

One of the notes I made is that I often find it strange that those people who are most hostile to financiers seem to want to depend on them more than anyone else. Surely one wants to bring one's debt down so that one do not have to depend on, and be at the mercy of the whims of, the bond market. Therefore, one needs to bring debt down and make it safe for everyone.

Chairman

Thank you, Mr. O'Brien. I call Mr. Jim Power.

Mr. Jim Power

Many of the answers have already been given. I will make a few points. First, I cringe when I hear politicians, who are in favour of the treaty, go on media and describe it as a referendum or a treaty for jobs. It has nothing to do with jobs. To me, the simple question that has to be asked of the Irish nation is: does it or does it not want to remain part of the euro long term? If we reject this treaty, I do not believe we will ultimately be able to remain part of the euro. That is the big debate and anything else will shroud it in a lot of negativity. The Lisbon treaty was also described as a treaty for jobs and we now know the truth about that.

Ireland's debt levels and borrowing at present are totally unsustainable. This year we will borrow around €14 billion and last year we borrowed €18 billion. Regardless of what one thinks of the markets, if one is borrowing those amounts of money, one is at the whim of the markets. The only way we can reduce our dependence on the markets is to get borrowing down as quickly as possible and then we will not be as beholden to the markets as we are at present.

There is nothing in the treaty for job creation and this raises the issue of a stimulus to create jobs. For a open economy with a high margin of propensity to import fiscal stimulus, particularly in the current environment, I believe that would have a very limited effect. We need to examine the costs of doing business. I would prefer to see a focus on, for example, local government reform and reducing commercial rates. That would give a much bigger stimulus to employment creation than the Government pumping fiscal stimulus into the economy.

I worry about any quantitative rules-based approach to fiscal management. We had too much focus in this country on the quantity of everything over the last decade, the number of jobs being created, the number of houses being built, the amount of tax being taken in. We need to take a much more qualitative approach. We need to examine where the tax revenues are coming from, where the spending is going and then decide on the appropriateness of a fiscal stance and it would all be overridden with some rules-based approach.

In terms of the impact on foreign direct investment, there are a number of factors which influence the decision of a multinational to invest in a country. The corporation tax rate is obviously important, as are wage rates, but the quality of the labour force is one of the most important factors. However, companies do not want to invest in countries that are seen to be on the brink of bankruptcy continuously. Therefore, a sustainable fiscal situation and the implications that has for the future in terms of corporation and personal tax burden are extremely important. If we reject this treaty, it could send out the message that we want to behave fiscally irresponsibly and that would definitely damage our attractiveness as a location for foreign direct investment.

Within the treaty, there are number of references to exceptional economic circumstances. I do not see this treaty as a straitjacket that will drown the European economy or the Irish economy. There is flexibility in it and if circumstances dictate, that flexibility will be used.

On the comments made by Mr. Seán Kelly, MEP, about Germany, a lot about the German economic model of the past 10 or 12 years appeals to me. The Germans recognised a decade ago that they had a serious competitiveness problem and they competed themselves back into global markets by 2006 or 2007. I am not a critic of Germany. I took this stance when the Commission slapped Ireland's hands back in the early 2000s because of what it regarded as a pro-cyclical fiscal stance. If one is a member of a club, one obeys the rules of the club. If one does not want to obey the rules then one gets out. If one does not like the rules, one leaves, but if one is in the club one obeys the rules. Obviously, one tries to influence the rules in the long term. If we reject the treaty, our level of influence will be seriously diminished. I do not think it would be in the best interests of the Irish economy.

Chairman

I thank Mr. Power. We will have one final point of information or clarification from Deputy Durkan and then we will finish.

Deputy Bernard Durkan

Does Mr. Power regard the fiscal compact as a means of restoring the balance in terms of the economic fundamentals? When we raised questions from the Opposition benches as to whether the economic fundamentals were in place - the kind of thing we are talking about now - we were told during the boom years from 2000 onwards that they were, but we have now found out that was not true.

Chairman

We will resume the meeting. We are now in public session. I remind guests, members and those in the Visitors Gallery that their mobile telephones need to be switched off as they can interfere with the broadcasting system. These proceedings are being televised live. We do not want to inconvenience any of our many viewers at home. If people can switch off their telephones, that would be appreciated.

I would like to welcome everybody to the third session of today's proceedings of the sub-committee that is looking at the forthcoming referendum on the treaty. In this session, the focus is on the realities of what the treaty means for Ireland and on the question of understanding the facts. The sub-committee will be addressed by Dr. Gavin Barrett of the UCD school of law; Dr. John O'Brennan, who works in the department of sociology at NUI Maynooth; and Mr. Declan Walsh, who is a lecturer in European Union law at UCC.

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 inside or outside the Houses by name or in a manner that means the person can be identified. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they give the committee. However, if they are directed by the committee to cease giving particular evidence on a specific matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of that evidence. They are directed that only evidence connected with the subject matter of today’s proceedings is to be given. They are asked to respect the parliamentary practice to the effect that, where possible, they should not name or criticise any person inside or outside this House by name or in a manner that would make them easily identifiable.

We are looking forward to the witnesses' presentations. I invite Dr. Barrett to address the sub-committee.

Dr. Gavin Barrett

I have been asked to speak on the realities of what the treaty means for Ireland and on the question of understanding the facts. I thought it would be useful to make four or five points about the treaty. They are in no particular order. I hope they will shed some light on what it means for Ireland. The first point I wish to make is that in terms of its intrinsic impact, this is probably the most limited European treaty that Ireland has ever had a referendum on. There are two senses in which that is the case. First, its scope is far narrower than previous treaties on which we voted. The Single European Act introduced the Single Market, in effect. The Maastricht treaty introduced the single currency. The Lisbon treaty introduced a range of reforms. Each of them operated on a far broader plane than this treaty, which is a much narrower legal instrument. It is a single piece of the jigsaw puzzle of responses to the crises that have engulfed the eurozone for some time.

This treaty is narrow in another sense as well. In terms of the substantive economic rules it imposes, it represents a very narrow departure from the status quo and an even narrower departure from existing rules, rules that are in the course of being made and rules that are being planned - what Yeats might have called laws that are “past, or passing, or to come”.

Perhaps I can elaborate on that. There are two key rules in the fiscal treaty. The first is the debt rule in Article 4 which provides that when the ratio of a contracting party's debt to GDP exceeds 60%, that contracting party shall reduce it at a rate of one twentieth of the excess per year. However, that rule is already in place under Article 2 of a 1997 regulation which was amended last December. The other key rule is the deficit rule, the so-called balanced budget rule - inaccurately called a balanced budget rule - in Article 3 of the fiscal treaty which requires that a state's annual structural balance be at its country's specific medium-term objective or at least that contracting parties ensure rapid convergence towards their respective medium-term objective. That rule is a tightening, although a fairly marginal one, of a rule already found in Article 2(a) of another 1997 regulation, amended last December, which stipulates a defined range between -1% of GDP and balance in cyclically adjusted terms. What we have in the fiscal treaty is precisely the same debt reduction rule that applies to Ireland now and a deficit target altered from -1% to 0.5%, which is a shift, but not a big one.

I wish to make three further observations on the deficit rules. The deficit rules significance is also reduced by the fact that it will not apply to us while we are in the EU-IMF programme under Recital 20 of the preamble to the treaty. The relevance of the new deficit rule is further reduced by the need to comply with the debt rule. In the absence of strong economic growth, compliance with the debt reduction rule will require us to run budgetary surpluses. Running surpluses, by definition, means one will not be affected by a rule that limits the size of the deficits. One will not be allowed to run deficits under the debt reduction rule. The deficit rules significance is also reduced by the fact that, if one reads the fiscal treaty properly, we are not bound by a structural deficit limit of 0.5%, instead we are bound by a country's specific medium-term objective in that regard and, at least initially, all we have to do is ensure rapid convergence towards that. In other words, we do not have to hit 0.5%. The 0.5% structural deficit rule only applies when the debt to GDP ratio is 60% or more. Once it is significantly below that level, the current structural deficit limit of 1% applies. Overall, there is no change in the debt reduction rules and a deficit limitation rule will have only a limited effect, if any, in the Irish context. That is the first basic point. It is not only the basic economic rules that build on European law. That is already in place. There are other provisions under the so-called six-pack, the two-pack and laws that will be adopted which reflect what is in the fiscal treaty. Therefore, the divergence from existing law and law in the course of being made is not as great as many have made it out to be.

That raises questions as to why we have ended up with a treaty. There are two reasons, one of which is to provide reassurance to the German public, in particular, that whatever financial solidarity they express with other eurozone states will not be dissipated. On the one hand, such guarantees are arguably legally unnecessary. Just because something is not legally necessary does not mean it is not politically necessary. We all know that from the Irish guarantees legally completely unnecessary in respect of the Lisbon treaty but politically very important in Ireland. The second reason for a treaty, as Mr. Philip Lane, who I understand appeared before the committee today, said, is subsidiarity in action. In other words, it is the idea of making the monitoring of fiscal policy primarily a domestic responsibility rather than something applied in Brussels alone, that is, the internalisation of discipline.

All of that leads to my second point which is the consequences of voting "Yes" or "No" to the referendum on this treaty. It follows from what I have said that voting "Yes" will not make a tremendous amount of difference to our economic obligations. As noted, to the extent that we run structural surpluses, it will not make any difference and we will be covered by precisely the same debt reduction obligation. As regards voting "No", I make three observations. We will still be bound by the debt reduction and deficit target obligations under the six-pack, more specifically under the revised Stability and Growth Pact. To that extent, a "No" vote will not make much difference. Neither will it stop the treaty from entering into force. We are all aware of that, given that it requires only 12 of the 17 member states to sign up to it. Where it will make a difference is under Recital 25 of the fiscal treaty and Recital 5 of the European Stability Mechanism treaty. The stated intention of the contracting parties is that non-ratification should bar us from access to new programmes under the ESM from 1 March 2013. That is immensely significant.

The current bailout lasts until the end of 2013 and has to be followed either by re-entry to the markets or access to new bailout forms. If this is not the case, Ireland will default. To deprive ourselves of access to bailout funds is hugely significant. Many economists have expressed the view that we may well need another bailout, including Colm McCarthy, Willem Buiter, Peter Brown, Donal Donovan, John McHale and Dan O'Brien. Therefore, we are not beyond the possibility of needing another bailout. A "No" vote might help push Ireland into default because who would want to buy Irish sovereign debt if there is no possibility of a bailout in the event of getting into difficulties. Of course, the other member states may choose to bail us out. They are not barred from doing that but there would be no guarantees in that regard.

The third point is that the vote on the fiscal treaty does not appear to make us choose between Keynesianism and Hayek's economic doctrines or even to choose a rule-based approach to debts or not. As regards Keynesianism, the treaty does not outlaw high spending. Mr. Philip Lane referred to this issue. Under the treaty, one can be a high tax, high spend, or low tax, low spend state but not a low tax and high spend state. That is the catch. In one way, the treaty may actually facilitate more financial solidarity because, by setting German fears at rest, it may contribute to more transfers from the centre, not less, and in fact it has already done so, given that preliminary political agreement that we would have a fiscal compact led to the European Central Bank pumping a trillion euro into the banks through the recent long-term refinancing operation.

In regard to Keynesianism in Ireland, as Professor John McHale as pointed out, we are so crippled by debt that nobody will lend to us to finance counter-cyclical policies. We are already with the lender of last resort. It is not that significant as regards Keynesianism and non-Keynesianism. Also, it does not mark a big change in terms of introducing a rule-based approach. There is no great innovation here. We have always had a rule-based approach to debt and deficits in the EU since the entry into force of the Maastricht treaty in 1993. Under Article 126 of the Treaty on the Functioning of the European Union, TFEU, member states were required to avoid excessive government deficits. There was also the protocol on the excessive deficit procedure. Those rules were supplemented by the Stability and Growth Pact in 1997. Therefore, we have always had a rule-based approach. The problem was that the rules were not enforced. Sanctions were provided for under the Stability and Growth Pact but they required a qualified majority vote in favour and the former French President Chirac and the former German Chancellor Schröder vetoed it. In other words, they used their blocking minority. Under Article 7 of the fiscal treaty, they will no longer be able to do that. Therefore, the rules should apply to big and small states alike.

Four errors have crept into the debate. The first is the idea that Ireland will gain something by vetoing the European Stability Mechanism treaty. The European Stability Mechanism, which is at €700 billion, will be our main insurance policy against default when it comes into force. It is vital we have access to it for its own sake because we may need it and to reassure sovereign debt markets. An astoundingly good reason is needed to veto the ESM treaty and I have not seen one. A veto would hurt us and fellow member states. It is interesting to note that Recital 5 of the ESM treaty, which is the one to which people object, the conditional access clause to the ESM, is effectively the same as Recital 25 of the fiscal treaty which we cannot veto because we do not have a veto over it. I am not sure what we would gain by vetoing the ESM treaty.

Second, the idea that we are enshrining the fiscal treaty in the Constitution is not correct. All we are seeking to put in the Constitution is an authorisation and immunity clause. In other words, we are seeking to insert an authorisation to ratify the fiscal treaty and to immunise laws, Acts or measures necessitated by the State under that treaty. It is similar to the authorisation and immunity clause in respect of EU treaties under Article 29.4. I assume the implementation of the fiscal treaty will be carried out through a fiscal responsibility Act or an ordinary Act of the Oireachtas. Therefore, the idea that we are committing some kind of irreversible act by putting an immunity and authorisation clause into the Constitution is incorrect. In fact, because decisions relating to the six-pack are decided by qualified majority vote, it will be harder to get out of the six-pack obligations than the fiscal treaty obligations. If we wanted to get out of those, we could denounce the treaty in the same way as we could denounce any other treaty. However, I do not expect we will want to do that.

A third mistake relates to the idea that the fiscal treaty consists only of the fiscal compact. This may be a technical correction on my part, but there is more to it than that. It includes provisions on economic policy co-ordination and governance and also governance of the euro area. This includes Article 13 of the fiscal treaty, which envisages a role for national parliaments. Building budgetary policies and other issues in the fiscal treaty are to be discussed by a conference of parliamentary representatives, and I assume this role will be taken on by COSAC.

A fourth correction I would like to make concerns the idea that this treaty is irrelevant to Ireland because we would not normally have violated its terms. Other states, as committee members may have heard earlier this afternoon, did so and because we are so economically interdependent, violation by these other states affects us and has a negative impact on us. I could make some further points, but I will leave it for now as I want to leave time for other speakers.

Dr. John O’Brennan

I thank the Chairman for the invitation to engage with this committee. I intend to focus on two issues, the first of which is opinion polls and the preparedness of the political parties for the campaign, and the second of which is a series of issues connected to legitimacy and the role of this House and committee in respect of the processing of European affairs domestically in Ireland.

I will deal first with opinion polls. The latest polls demonstrate a solid majority in favour of the "Yes" side, 44% to 29% in the case of the Red C poll. Approximately 25.5% of people are undecided at this point. I remind members that we have been in this position before - in 2001, prior to the Nice referendum and in 2008, prior to the Lisbon referendum - and we can track the polls clearly. The Red C February poll in 2008 showed a majority of 46% to 23% in favour of the "Yes" side, with approximately 31% undecided. Therefore, we seem to have a smaller number of "don't knows" now, but a similar, seemingly solid, majority for the "Yes" side. If we track referenda back to an earlier period, we see the majority in favour of the "Yes" side is rather fragile and that it has tended to break down in the course of a campaign. That was the case in 2001 and 2008. Therefore, there should be no complacency at all among those arguing for a "Yes" vote. They need to be involved in a full-scale general election-style effort, going door to door in each constituency to convince people of the merits of approving the fiscal compact.

I am not so sure there are encouraging precedents in this regard. Members of the Oireachtas did not campaign effectively or visibly in 2001 or 2008, or even in 2002 and 2009. Based on my contacts with Members of the House, I am not sure there is a seriousness of purpose now. There are also questions about finance. Where is the money to come from for this? For different reasons, the main political parties have had problems of one sort or another with funding. There has been extreme volatility in respect of both turnout figures and of support for the "Yes" and "No" sides in recent campaigns and we must keep this in mind given the buoyancy attached to the first opinion polls on this treaty.

This leads me to a second point connected to the issue of how we process Europe in Ireland. I call this the "Groundhog Day" syndrome. The only time politicians seem to engage seriously with European affairs is in the course of referendum campaigns. Members may remember that when the Lisbon treaty failed here, there was a stated determination across the spectrum here that we would do things differently from then on. Four years on, I see no evidence there has been any substantive change. The system of European policy-making continues to be dominated by the Government. Indeed, centralisation and control by the Executive has increased in the interim, largely because of the trend towards reinforced intergovernmentalism at EU level, that is, the management of successive crises through the European Council and through what Angela Merkel calls the "Union method" rather than the traditional Community method. There are all sorts of reasons to suggest this is bad for Ireland, not least the marginalisation of the European Commission, which has been a real feature of the management of these crises since 2008.

Engagement by the political parties has been episodic and fitful and the task of communicating Europe has been neglected. The chickens may come home to roost because of that neglect. Members may remember that the previous Government got rid of the National Forum on Europe, but even though limited, it had a function and provided visibility with regard to European affairs. This leads me to wonder how politicians who argue for a "Yes" vote will be received on the doorsteps. We could cite all sorts of intervening variables, such as the intermingling of issues like the household charge and septic tanks, both of which have been very prominent. It is difficult to say how people will attach these issues, if at all, to the larger European question on which we are being asked to vote. I fear also that the referendum will be narrowly framed around the single question of access to ESM funds, with voters effectively being told that a "No" vote will mean that Ireland will face economic catastrophe. That is the easy way out, but it is in a sense logical where there is not a large number of people within the Oireachtas seriously engaged in European affairs.

This brings me to my final point on legitimacy. There is no need for me to point out that currently there is an overwhelming imbalance in power between the Government and the Oireachtas in European affairs. In this regard, we could usefully take note of practices in other jurisdictions, such as Denmark and Sweden which have a mandate system. The Oireachtas should argue for something like that or for something short of that which would result in a more significant input into policy-making and the decision-making process. It has often been alleged that the failure of earlier referenda can be attributed to a democratic deficit. In my view, the democratic deficit is a purely Irish one in that the political representatives to whom we assign the responsibility to hold Executive authority to account and to exercise oversight over the decision-making process seem unable or unwilling to scrutinise governmental action properly. There are also all sorts of other issues, such as resources and the lack of economic and legal expertise available to this committee and others. There was a sense, I thought, in 2008 that some of that might change. It has not. The committee must argue, in the run-up to the constitutional convention - where there is a space for the establishment of significantly enhanced powers - to have the kind of input that other European parliamentarians have.

Mr. Declan Walsh

I thank the Chairman for the invitation to appear before the committee. I want to address three main issues during the presentation. The first is the content of the treaty and how it is perceived by the general public; the second is, more specifically, the role of the European Court of Justice, which is to become pre-eminent in the debate that is to take place in the next seven weeks; and the third is clarification of the issue of the European Stability Mechanism, the amendment to the TFEU, and its position vis-à-vis the amendment that is going before the people at the end of May. One thing that struck everybody on all sides in the Lisbon treaty debates, particularly before the first referendum, was the utter lack of clarity about the content of the treaty. Detailed work was done by Millward Brown subsequent to the first referendum and also the second, and the one over-riding issue that came out was an absolute lack of knowledge among both "Yes" and "No" voters, as well as among those who stayed at home in large numbers. To illustrate this, 45% of people who voted "No" in the first Lisbon referendum listed as their primary reason for voting "No" a lack of comprehension of what was in the treaty. This was not due to confusion based on what was being advocated by the "Yes" and "No" campaigns. We know this because 48% of "No" voters said that the Lisbon treaty would lead to the introduction of conscription to a European army, but nobody from any of the main parties or organisations campaigning for a "No" vote raised that as an issue - and obviously nobody on the "Yes" side raised it. Yet it fermented in the minds of people who voted "No".

There was utter confusion about the content of the Lisbon treaty. The former Commissioner from Ireland said that no sane person would read it. This may have been an inappropriate comment to make in the context of a campaign, but nonetheless it was quite true. It was not the fault of the sane people of Ireland that the document was somewhat incomprehensible. What do we have now? We have a much shorter document which is very easy to read and should not lead to any confusion. There is no way one could read the fiscal treaty and then try to argue that issues to do with abortion or neutrality arise in any way. Of course, as my colleagues have said, issues will come into the campaign that are extraneous to the content of the treaty. It is a political debate on a political issue. However, the content of the treaty is very clear. It is up to those advocating and proposing it to explain its contents.

It is heartening that the Minister for the Environment, Community and Local Government established a Referendum Commission straight away and nominated Mr. Justice Feeney to chair it. The role of the commission is vital. Particularly in the second Lisbon treaty referendum, the Referendum Commission came forward with clear and precise answers to the questions that were being posed by members of the public. It was much more accessible to the public and to the media in particular, as that is where such debates occur. The content is quite focused and should be comprehensible to the vast majority of people who want to engage in the debate.

One area in which there is already some confusion - as we can see in both online and media debate, where there are many diverging views - is the role of the European Court of Justice. Under Article 8 of the treaty, it is the ECJ that will decide whether a member state has violated the conditions of the treaty in terms of deficit targets. People have talked about an unelected body. It would be quite strange if a court of justice, or any court, was made up of elected representatives. In addition, this is the court of justice that, over the years, has given equal status to women in Ireland, which was denied by the State for many years, and ensured there was clean drinking water and safe bathing water in our country. It is true that the public is not very aware of the ECJ in terms of its composition and location, but it has had an important oversight of Irish life since our membership of the Union began in 1973.

The ECJ will have this function, but in reality, this is a function it already has with regard to all existing areas of EU law with which a member state fails to comply. We have regularly heard discussions about the fact that if Ireland does not give effect to a particular EU law - septic tanks have been mentioned - fines will be imposed on the State. That is because the procedures are there, through Articles 258, 259 and 260, for the Commission or a member state to bring another member state to the ECJ and subsequently to return and seek the imposition of monetary penalties. This is a relatively recent occurrence, and it was brought in because member states were not observing existing judgments of the ECJ. To date, across all areas of EU law, only ten fines have been imposed by the ECJ against member states. Ireland has, one could say, skated on thin ice, but no fine has to date been imposed. Greece leads the league table with four decisions against it, while France has three and Italy, Spain and Portugal have one each. It is interesting that apart from France, the member states mentioned are all among those that should be more conscious of rules with regard to fiscal restraint in the future.

The procedure is there, and it is beginning to work. A queue of cases is beginning to build up against Ireland. The public may not yet be aware of the procedure to the same extent as officials in the Attorney General's office or committees such as this, but it is becoming more and more effective. What will be different with regard to the treaty is the fact that historically, the vast majority of actions taken have been by the Commission, while under the treaty it will be one member state bringing another to the court following a recommendation from the Commission. This is quite strange, because we can count on one hand the number of cases that have ever been brought by one state against another in the ECJ. Famously, and perhaps unsurprisingly, it began with France and the UK. They have been primarily political issues. A case is currently before the court involving Hungary and Slovakia with regard to an attempt by the now former Hungarian President to cross into Slovakia to unveil a statue in an ethnic Hungarian area. These are very political issues. There is also an issue with regard to which member state will press the button and bring another member state to the court, because it is not seen as a very communautaire thing to do. In the past, if one was unhappy, one might have whispered or let it be known to the Commission, which would then take action. It is important that the procedures under Article 8 are explained to the public and that they are set out as already being in existence with regard to environmental law and a raft of other areas in which the Union already has competence.

The third area I want to deal with is the ratification of the European Stability Mechanism, or, more important, the proposed amendment to the existing treaties under Article 136. This is a two-line amendment allowing for the establishment of the European stability mechanism. Some commentators in the media have queried why this is not subject to ratification through an amendment to the Constitution, as opposed to being ratified by the Oireachtas. The answer, in a way, is very simple. The decision to amend the treaty was taken under Article 48 of the Treaty on European Union which was inserted under Lisbon. It is a simplified revision procedure. Under that procedure, the member states can amend the treaties only if there is no increase in the competences being conferred on the Union. We know that within the State, following the Crotty decision and a line of authority subsequent to that, the raison d’être for a referendum is the view that new competences have been created - that the competences of the Union have been expanded beyond those imagined. Put simply, there are no new competences under the ESM treaty. We know that because the Union itself, and the member states, would have been acting contrary to the existing treaty if they had adopted the change to the treaty without going through a full convention. It is very important that point is made because there is some confusion as to why the ESM ratification is to occur through the Oireachtas and the fiscal treaty ratification by way of constitutional amendment.

Deputy Bernard Durkan took the Chair.

Deputy Joe O’Reilly

I thank the witnesses. They made things very clear. On Dr. Barrett's presentation, I wish to refer to a couple of points. His point on the stimulus package was interesting. We are already with the lender of last resort and it would be very difficult for us to access funding. It is a point that merits repetition. He also said the treaty does not outlaw high spending. If a government wanted to adopt a high tax, high spend policy at any given time that would be its prerogative. It is right that there would be democratic debate within the country. Dr. Barrett's presentation had great clarity and was very user friendly. I ask him to clarify his point on the ratio of debt to GDP being below 60% and where the 0.5% rule on structural debt can change to 1%. It is Article 3(1)(d). If I understood his point, it would not have any negative impact on Ireland as things stand.

On the points made by Dr. O'Brennan, it was interesting to hear the analysis of the polls. Given that during the last campaign issues like conscription, abortion and other extraneous - some people would argue they were not - issues, does he think the polls are likely to remain consistent in the absence of such material? Has the pattern that has been established in the polls likely to remain and be successful on the day of the vote?

I was interested in his point on the disconnect and can identity with it. As a practising public representative, I know people in constituencies around the country do not relate to the European project in an active sense. Perhaps a democratically elected president would help. I accept that there is a slight disconnect. I have a sense that there is now an understanding that issues like the household charge, etc., however painful they are for individuals at a given time, are distinct issues. This is a simpler treaty, in terms of its bulk and readability.

On Mr. Walsh's presentation, it was good that he clarified the point on the Court of Justice because its record as a reforming institution for this country has been phenomenal. The concept that it is an oppressive body which could be damaging to our interests does not hold up.

I found the contributions interesting. I detected a current running through them. Effectively, Ireland's strategic interests are best served by passing the treaty, given that it will not phenomenally change the reality of our situation across a range of areas.

Deputy Dominic Hannigan resumed the Chair.

Deputy Timmy Dooley

I apologise, I had to take some telephone calls but heard most of the presentations. I thank the witnesses.

I have a point on Article 8 to which Mr. Walsh referred. Mr. William Cash, MP, who is a noted eurosceptic came before the committee yesterday. He is Chairman of the European Scrutiny Committee of the House of Commons. Like a lot of people who disagree with something, he tried to pick holes in the construct in an effort to undermine the overall project. He felt the utilisation of the ECJ as an institution of Europe to act in a judicial capacity over an international, rather than EU, agreement was on shaky ground and probably illegal. I would like Mr. Walsh to comment on that. To some extent, that view supports a section of British politics that likes to believe it exercises a veto. I always understood that if one exercised a veto it meant one blocked something from happening. Perhaps the commentary is wound up in that. If Dr. O'Brennan and Mr. Walsh have a view I would like to hear it.

I was interested to hear the comments made on this treaty versus the others. It is less complex and more readable, but that is not to suggest people will read it. As it is more readable there is less chance of extraneous arguments creeping in. The depth of information contained in the Lisbon treaty allowed general pub chat to filter through to the effect that all sorts of crazy things would happen to sons and daughters, such as conscription. It is unlikely that will happen in this instance. My concern is that people will believe the treaty enshrines austerity as part of the economic model. When people talk about enshrining austerity and making it part of the future, it seems to suggest there is another way to resolve our economic crisis. Can the witnesses discuss that in their responses?

Deputy Bernard J. Durkan

I thank the Chairman and witnesses for their analyses and making their points clearly. A couple of points emerged. Dr. Barrett appeared before the committee on many occasions in the past and has remained consistent in his appraisal of European issues, which is a good thing. In any evaluation of the positive versus the negative aspects of the adoption of the treaty by the Irish people which should the voters weigh heavily in favour of? Having weighed up the pros and cons, what is in our best interest?

Dr. O'Brennan made some interesting points on analyses and opinion polls. All of us in the political arena have been the subject of opinion polls many times in the past. When somebody carries out an opinion poll on how an individual respondent reacted to the question, he or she will normally say he or she did not have enough information and therefore made a safe bet. Unfortunately, this did not change dramatically between the two referenda on the last occasion; it was virtually the same. The same information was available and these were complicated subjects but there had been no change. However, we were all aware that the public reacted and took control of the situation to a far greater extent and they were much more resolute in the way they addressed the issues. They were not being frivolous. I note one change. There had previously been an attitude of, "We will show the Europeans, we do not care about them." This attitude was also detected in some European countries. I do not think this was helpful to Ireland's interests. I refer to a very interesting debate held in NUI Maynooth a few weeks ago which I was unable to attend, unfortunately, because both the House and this committee was sitting. In my constituency of Kildare North the "Yes" vote won convincingly on both occasions. I agree that if it were possible to get this result in one location it should have been possible to replicate that decision in other locations because the same information was available. I can honestly say that on both occasions I personally addressed over 35 meetings both all over my constituency and the same number outside my constituency. I do not know if these meetings made a positive contribution to the debate but generally speaking, more people with a negative disposition were inclined to attend the meetings than otherwise. This may be something we should all take into account and learn from.

As regards the mandating applying in some European countries such as the Nordic countries in particular and some other countries, I am not so certain that this has worked so well. It has caused confusion and has delayed the process. One of the aspects which the current financial crisis has highlighted has been the necessity to respond quickly and Europe did not respond quickly enough. This is the reason Germany and France went off on a tangent of their own because they were fearful that the institutions were not taking the necessary steps to address the emerging issues quickly enough. I was in attendance at one of the meetings when the President of the European Commission and the President of the European Council had worked all weekend and had come to some kind of conclusion but they were offset, as it were, by Germany and France who went ahead of their own accord. This was a particularly famous occasion.

This is a particularly interesting subject and I wish to make a final point, with the indulgence of the Chairman. The information provided by the Referendum Commission was useful on the last occasion but it also created some questions. I refer to one or two occasions when questions were raised which were not resolved with the required degree of clarity. There can be an intervention at a crucial stage in any referendum campaign which can skew the outcome by creating a rumour in the undergrowth which has the effect of scaring the electorate. The points raised by other speakers with regard to abortion, conscription etc. were used very vigorously and groundlessly, under the radar during the first campaign in particular. The matters were raised with a conviction that I had never seen before-----

Chairman

Not so much in the second campaign.

Deputy Bernard J. Durkan

Indeed, not so much in the second campaign. There was a less frivolous attitude in the second campaign. The point I make to all speakers is that this is a simple fiscal measure that requires our approval but it can also go ahead without our approval. However, we need to show everybody, both in this country and outside it, that we are serious in what we plan to do, otherwise, we will still continue as we were before. We can quote Keynes until we are blue in the face - without recognising that he was not always successful in his objectives. I emphasise that it is much better to address the difficult issues in the first instance than to postpone them indefinitely so that future generations will have to deal with them.

Chairman

I will ask for comments from the delegates but I ask speakers to limit their contributions at this stage to five minutes because other Deputies and Senators wish to contribute and we can include all speakers in a further round if we limit this round to five minute responses.

Dr. Gavin Barrett

I refer to Deputy O'Reilly's question about the treaty not outlawing high spending as such and that is correct; high tax, high spend, low tax, low spend, is okay. The Nordic countries, for instance, do not seem to have a problem with this policy, nor does Sweden and it is regarded as a high tax, high spend, country. In my view, a range of approaches can be adopted. It prevents the building up of debts - to which Deputy Durkan referred - which the next generation will face paying back. This will not be allowed.

As regards the relationship between the deficit and the debt rule, I mentioned this will not apply while we are in the EU-IMF programme and also we are bound by an obligation, at least temporarily, to ensure rapid convergence towards the 0.5% objective. We need to bear in mind both of those limitations. However, the other very important limitation is this debt reduction obligation under Article 4 which states that when the rating of a contracting party's general government debt to gross domestic product exceeds 60%, then it shall be reduced at an average rate of one twentieth per year as a benchmark. Ireland's debt will top out at approximately 119% or 120%. The excess of that figure over 60% is 60% so reducing that at a rate of one twentieth a year involves us reducing our debt at the rate of about 3% a year. The only way this can be done, apart from economic growth, which is not happening at the moment, is by running surpluses. This is my point about the relationship between the debt and the deficit rules. Compliance with the debt rules should render the deficit rules - in the absence, at least of economic growth - largely irrelevant for us because we will be running surpluses. This is the intention, I think. Marie Sherlock, if I am not mistaken, when she attended this committee, mentioned the fact that it is the intention to be running surpluses from 2017 onwards. If we are running surpluses then we do not need to worry about the deficit rules. Once the debt is reduced to below 60% then the deficit rule returns to exactly what it is now under the Stability and Growth Pact, which is 1% deficit, structural deficit rule or cyclically adjusted deficit rule which is the same thing.

Deputy Dooley asked me about Article 8 and the role of the European Court of Justice. The role of the European Court of Justice is justified under European Union law by Article 273 of the treaty on the functioning of the European Union. This provides that the Court shall have jurisdiction in any dispute between member states which relates to the subject matter of the treaties if the dispute is submitted to it under a special agreement between the parties, any dispute relating to the subject matter of the treaties. The matter that would be submitted to the European Court of Justice is the balanced budget rule. Strictly speaking, the application of the balanced budget rule is not a matter of European Union law but it overlaps hugely with European Union law. It is an inherent part of economic and monetary union and it also overlaps with the six pack. There is some case law in this regard and I refer to the Rhine River case which was decided by the European Court of Justice in which the European Court of Justice declined jurisdiction in relation to a treaty which had absolutely nothing to do with the European Union. On the other hand, the European Court of Justice, in cases relating to the GATT treaties, which were agreed before the European Union or EEC were ever in force, accepted jurisdiction. The difference between those two cases was that in the latter case, the matter was seen to affect the scope of application of European Union law. So if the question is deemed to affect the scope of application of European law, then the court tends to take a more positive approach to it. I think the court would be favourably disposed in this matter but the matter may well end up before the European Court of Justice at some stage. There has been some debate over the matter but on balance, it would seem to me that it is correct to give jurisdiction to the European Court of Justice under Article 273.

Deputy Durkan asked about the positive versus negative aspects of the treaty. There is not a tremendous amount of difference, to my mind. I do not think this treaty will change our rules significantly. One can argue about the merits and demerits of introducing fiscal discipline rules. There are certainly arguments to be made on either side, as was done earlier by the various economists who appeared before the committee. Some of us have our difficulties with the manner in which the access rule in regard to the European Stability Mechanism was introduced, but that rule is now in place. Deprivation of access to the ESM effectively amounts to cancelling one's insurance against default. That is a momentous step for a country in our precarious financial position to take and is something that must be weighed very carefully in considering the treaty. In my view, it is the strongest argument in favour of the referendum.

It is possible, of course, that our fellow member states might intervene to help us in a situation where we require emergency financial assistance but are outside the ESM, particularly if they regard it as being in their own interest to do so. However, there are degrees of generosity in any such response. Moreover, there is a question mark over whether we would be allowed to default in the first place. A strong debate took place recently in Germany between the Chancellor and the finance Minister as to whether Greece should be allowed to default. The German banks are now in a much stronger position in terms of absorbing the effects of a default by a member state. I would not take member state intervention for granted. Being outside the ESM removes the political guarantee of intervention which is available within it. That is a very serious matter.

Dr. John O’Brennan

I will begin with Deputy Joe O'Reilly's question about the polling data. The polls have tended consistently to overestimate the "Yes" vote, a trend that is apparent as far back as the referendum on the Maastricht treaty. Also evident is a rather high margin of error - up to 17% - in the early polls, which tends to narrow, sometimes quite dramatically, as polling day approaches. The Deputy asked whether the fact that the referendum will be more narrowly framed around economic issues will help to concentrate focus on its provisions and to strip out some of the marginal issues. One might logically assume that will be the case, but the question is to what extent and whether there will be exogenous issues that intervene either at European or global level. There is potential for exogenous economic shocks of one type or another, for example, to feature strongly within the campaign.

I am not sure I agree with Deputy Timmy Dooley that the treaty language is significantly easier for people to understand in comparison with previous treaty texts. I defy anybody to read Article 3(2) or Article 4 and make it intelligible to an educated person. The preamble goes on for more than three pages.

Deputy Timmy Dooley

To clarify, perhaps I should have said it is all relative.

Dr. John O’Brennan

Yes. The preamble continues over three pages, with clause after clause referring to sustainable debt-to-GDP ratios. This is not the language of politics or of the common man. It will be extremely difficult for politicians to make the case for the treaty at the doorstep and at public meetings of the type described by Deputy Bernard Durkan. I am very doubtful that the type of simplification we are talking about here will give a boost to the "Yes" side in the course of the campaign.

Deputy Durkan may be aware of the interesting developments in Germany in the past week whereby the Bundestag has secured far-reaching rights of co-determination on budgetary issues. This effectively means it will be the coequal of the Government in deciding where and how future bailouts will take place. This significant change will place constraints on Chancellor Merkel's Government and has caused all sorts of ructions. There is a long history of the German constitutional court being very proactive in such matters.

It is a matter of regret that our Supreme Court was not asked to undertake a judicial consideration of the relationship between national sovereignty, as set out in Bunreacht na hÉireann, and the commitments in which we have engaged through the supranational arrangements of the fiscal compact and the accumulated body of the treaties. We have not had that type of judgment since 1987. In the intervening decades the European Union has deepened quite dramatically through the provisions of the Maastricht treaty and, in particular, the Lisbon treaty. It has expanded to 27 - soon to be 28 - member states, encompassing 500 million people. Yet we have had nothing like the German judicial determination. This has posed problems and may continue to pose problems in terms of the efficiency of decision making.

I accept Deputy Durkan's point regarding the trade-off that must be made, especially in situations where decisions have to be taken quickly. However, that must be balanced by the question of democratic input. My point about this Parliament is that it has essentially been ignored and does not have a voice. I would like to see the Oireachtas have the type of input the Bundestag has in respect of budgetary and other issues.

Deputy Bernard J. Durkan

However, in the case of Germany, is there not a danger, which the Bundestag will find out in due course, that the process will be slowed down to such an extent that the European Union will become isolated from Germany and vice versa? We have argued this point during referendum campaigns in the past. The Commission was always regarded as an essential component of the Union infrastructure and a friend of smaller countries in particular. If the Commission is sidelined, which it has been to some extent in the debate that took place in the past four years, something else takes over. The danger then - it is a prospect I have strongly opposed at meetings of the committee for many years - is that a member state parliament will seek to dictate the role the European Union should take and the framework within which its activity should be embodied in the future. That would be a serious retrograde step which would effectively mean that a country, whether large or small, could work simultaneously inside and outside the Union for its own benefit. It is a very dangerous prospect.

Dr. John O’Brennan

There might be a case for significantly strengthening the input and power of the European Parliament. On the question of legitimacy, the issues arising in terms of 27 national parliaments potentially slowing down the process must be set against the necessity of having a role for the democratically elected representatives of the European peoples.

Deputy Bernard J. Durkan

However, there is an Opposition in each national parliament and there is effectively an Opposition in the European Parliament itself. When we talk loosely about enhancing the role of the European Parliament we then find that the national parliaments are caught between three stools, namely, Parliament, Commission and Council. How do they relate to their national electorates if they must become part of a wider group and surrender their sovereignty to the European Parliament?

Chairman

Dr. O'Brennan may wish to comment on that when I return to him after the next batch of questions.

Mr. Declan Walsh

In regard to Deputy Timmy Dooley's question, I concur with Dr. Barrett in regard to the jurisdiction of the European Court of Justice. Article 273 is the obvious gate in that regard. Mr. William Cash, MP, Chairman of the European scrutiny committee of the House of Commons, raised this issue at the meeting yesterday. It is being discussed in the House of Commons and was raised at the summit in December. Apparently comments were made in this regard by the British Prime Minister, Mr. Cameron. The British Government subsequently indicated that it is not interested in raising the issue of the role and operation of the institutions in regard to the treaty. To what extent that is a political decision rather than a legal determination is open to question.

I remind the committee that the intention in the treaty is that it will become a fully functioning part of European Union law within five years. However, these things do not happen overnight. It will take the Commission to make a recommendation and it will take a member state to go to the court in order for observations to be heard and a determination reached. These cases take two, three or four years to reach a conclusion. I concur with Dr. Barrett's comments in this regard.

On the question of whether the treaty enshrines austerity, I noted Mr. Dan O'Brien's comments earlier that if one looks at the current shortfall in Exchequer funding in terms of blocks of money, there is indeed a block relating to the banking and financial crisis but the larger amount of money that is at question relates to the ongoing and yearly gap between the income and expenditure of the State. That gap will remain, no matter what the situation, and it must be bridged somehow. There is a mechanism here in this regard. It must be remembered that the treaty relates to the future activities such as in circumstances where member states will try to run deficits and will encounter economic difficulties. The situations which have occurred here and in other member states are being dealt with. This is, in effect, the view of Germany and it dictates that we should respond and put in place procedures down the road. It must also be remembered that this is designed to protect Ireland, as a member state, as well. If we believe that everything is going to be rosy in this country, for ever and from an economic point of view, and that we are going to learn the lessons of the past and never repeat our mistakes, then we will want to be certain that if such mistakes are made again in Greece or Portugal or in any member state where they have not previously been made, we, as those who will be asked to pay the bill, will be protected by the treaty. That is very important.

Deputy Durkan referred to the Referendum Commission. I genuinely believe there was a major difference between the activities of the commission in respect of the first and second referendums on the Lisbon treaty. I thought it was much more up front in respect of the second referendum, with the chairman of the commission taking part in a phone-in on "Morning Ireland" and answering questions from the public and also appearing on television. When referring to the role of the commission in respect of that referendum, The Irish Times stated that it had engaged in “calm and forensic dissection of fact from fiction”. I accept that there were extraneous views and I agree that there was a deal of pub talk in respect of conscription.

There was, however, one real issue which had a major impact. I refer to the loss of the right to nominate a Commissioner. There was a response in respect of this matter and the Millward Brown study shows that Irish people, perhaps rightly, felt that the loss of our Commissioner would be significant and, perhaps wrongly, were of the view that Ireland would not have a voice at the table in Brussels if it did not have a Commissioner. The very simple posters which proclaimed that people should save our Commissioner by voting "No" and which were very prominent proved to be extremely effective. Polling carried out subsequent to the referendum showed this to be the case. Equally, however, the decision by the 27 member states to arrive at a formula whereby each of them would retain the right to nominate a Commissioner was also seen by the public as a response. That was the opposite to an extraneous issue being raised and it led to people voting "No". There was a very genuine and real concern among members of the public in respect of this matter. Regardless of whether it was valid, the concern to which I refer was genuine and, of course, it also arose in respect of a previous treaty. As already stated, this concern was addressed.

Deputy Pádraig Mac Lochlainn

I listened with interest to the comments regarding extraneous issues. In that context, I have with me copies of a number of posters put up by those on the "Yes" side during the second referendum campaign on the Lisbon treaty. One such poster contained the words "Ruin" and "Recovery" - is that not beautiful? - while another proclaimed "Yes to jobs". All of those slogans refer to different types of extraneous issues.

I wish to comment briefly on the first referendum on the Lisbon treaty. One would think that the only people who voted on that treaty and the European constitution were the Irish. Of course, the people of France and Holland rejected the European constitution. One can speculate on lack of information, extraneous issues, etc., particularly because both sides want to win and they go at it with passion and vigour. However, there is something fundamentally wrong when France, Holland and Ireland all rejected the European constitution. It must, of course, be remembered in this regard that said constitution formed 98% of the Lisbon treaty, which Ireland voted against on the first occasion. There is a fundamental disconnect between the people of Europe and their leaders. The current crisis has not helped matters in that regard, which is extremely unfortunate.

I read a number of the pieces by Dr. Barrett which appeared in The Irish Times recently on whether there was going to be a referendum. In fairness, no one seemed to have a definitive view on the matter at that time. As everyone is aware, however, a referendum will soon be taking place because the treaty falls outside the EU architecture. That is because all 27 member states have not signed up to it. Will our guests indicate how the European institutions - such as the Commission and the Court of Justice - be deployed to enforce the treaty if it is not a European Union treaty? How will those institutions be empowered to take action outside of EU law?

Is the amendment to Article 136, which is designed to make the ESM treaty actionable, necessary? Is Article 136 appropriate in this regard or could another mechanism have been chosen in order to implement the treaty? What was the rationale behind choosing this article and are there any legal doubts with regard to whether this is the appropriate route to take? Regardless of whether one refers to it as the austerity treaty, the fiscal compact treaty or the ESM treaty, I am of the view that it is not convergent with our Constitution. Will our guests indicate why they believe it is convergent with the Constitution?

It was Angela Merkel who insisted on the initial wording to the effect that the treaty "shall" be inserted into constitutions or equivalent legislation. Of course, the word "shall" was subsequently and famously changed to "preferably". If the treaty is no big deal and is merely the six pack with a bit more muscle, why would it need to be inserted into constitutional law?

Many economists struggle to give a definition for the structural deficit because the formulae used to calculate it are quite complex. I have heard a certain definition offered in respect of what constitutes a structural deficit. Will our guests outline their understanding of that definition? What is the legal interpretation which derives from that definition? Obviously, that interpretation is key. God forbid it ever happened but if we reached the point where enforcement was necessary, the definition and interpretation of it would be important. I thank our guests for attending and for providing a comprehensive analysis.

Deputy Seán Kyne

Will Dr. Barrett comment on the perception that inserting the treaty into the Constitution effectively represents a form of authorisation or immunity clause? How is this treaty different from previous treaties?

Will Dr. O'Brennan indicate how those in the "Don't know" category might breakdown in the context of eventually voting "Yes" or "No"? How many of these people will vote "No" on the basis of a lack of knowledge or information? How many will reach an informed opinion once the relevant material has been presented to them?

Mr. Walsh referred to the European Court of Justice and its procedures. I presume that what will happen before that court will be similar to what happens in the courts here, namely, that cases will be presented, etc. How much scope will the European courts have in making interpretations in respect of exceptional circumstances or unusual events outside the control of member states?

Deputy Mick Wallace

In his written submission Dr. O'Brennan said the deepening of the commitment of the member states of the eurozone to a set of common rules and binding fiscal provisions should necessarily be accompanied by a social compact that generates the investment and social solidarity required to regenerate the European project and by measures to enhance democratic oversight at a time of increasing technocracy, including review of the overall constitutional implications of Europeanisation, and a significant strengthening of the role of national parliaments across the EU. Do the witnesses really believe that in the case of a "Yes" vote, it would be followed by the development of a social compact?

Chairman

I thank Deputy Wallace. I have a number of questions.

Senator Terry Leyden

I had indicated.

Chairman

I am sorry. I did not notice Senator Leyden. My apologies. I invite him to speak.

Senator Terry Leyden

I thank the witnesses, Dr. Barrett, Dr. O'Brennan and Mr. Walsh. We have had a balanced debate. I hope the commission will take note of the contributions.

I fully agree that in the first and second referenda on the Lisbon treaty there was a major difference in the presentation of the facts. We changed the decision because of the far better presentation. It is important that the commission would give a balanced view. I know it will because it is its responsibility. I know it will also study the committee debates because we are getting a crash course on the fiscal treaty. We are fortunate to hear lectures by prominent lecturers and economists. We have an advantage in that regard.

I said I was voting "Yes".

Deputy Bernard J. Durkan

Senator Leyden should be strong.

Chairman

I thank Senator Leyden for his comments and apologise for missing his signal earlier.

Chairman

It becomes a redundant clause.

Dr. Gavin Barrett

It becomes redundant. That is all that happens in that regard.

Senator Leyden raised the issue of extraneous issues coming into referendums. That is true. I would have some reservations about having this treaty on two grounds. First, it is unusual material to put forward for a referendum. A referendum on country specific, medium term objectives in regard to a structural deficit of 0.5% is interesting. I am not even convinced that the treaty intrinsically takes us that great a distance away from the law we already have, in other words, that it is so significant. As lawyers, we must ask ourselves why we are having a referendum on this and I believe it has much to do with what is arguably the needless stringency of the test of sovereignty that was laid down in the Crotty case. There is a question for self-examination in that respect.

The Chairman asked a question about Article 8. If we do not comply-----

Chairman

To clarify, if we enact the fiscal compact, transpose it into international law and then break one of the rules, the debt break or the deficit, will a European Union country be able to take us to court? On the issue of being taken to court by another European Union country, is it safe to say that would be in respect of us not transposing this treaty into international law as opposed to subsequent breaks of the rules?

Dr. Gavin Barrett

We are expected, under Article 3.2, to have laws in effect through provisions of binding force and permanent character guaranteed to be fully respected and adhered to throughout the national budgetary processes. If those laws are not being adhered to by the relevant state that raises the question of whether it has complied with Article 3.2. The country is supposed to adopt the laws and maintain them in place. They are supposed to be laws that are guaranteed to ensure such adherence. While a state cannot be brought to court for breach of the relevant limits, it can be brought to court for not having in place laws that guarantee it will adhere to those limits. Does that answer the Chairman's question?

Chairman

It does, although I may revert to this point.

Dr. Gavin Barrett

Okay. That would be my answer.

On whether voting "No" would hold up the implementation of the European stability mechanism, ESM, my key point in this regard would be to ask why would we do anything to impede the adoption of the European stability mechanism. However, I agree it is possible to put forward a case that the European stability mechanism could go ahead without the Article 136 amendment. However, to be sure, the Article 136 amendment should go ahead in that regard. As I stated earlier, why would Ireland of all countries stop that from happening?

Chairman

Excellent. I thank Dr. Barrett.

Deputy Pádraig Mac Lochlainn

I would not stop it. To clarify, I accept the ESM will be necessary. However, an issue arises in respect of the conditionality. The Government has confirmed it does not intend to introduce the legislation pertaining to the ESM to the Oireachtas until after the referendum vote. Were the people to reject the treaty - one shall see how that pans out - the implication would be that an onus would be placed on the Government to examine this conditionality clause. Were the people to reject the treaty, why would the Government introduce legislation that would deny us access to the ESM? There is a debate around this point.

Chairman

The Deputy is not suggesting we would blackmail them.

Deputy Pádraig Mac Lochlainn

I am suggesting the Government is elected to represent the Irish people and to act in their best interests. Were the latter to consider the merits and demerits of this treaty and to make a decision, the Government would have a responsibility to engage and seek some assurance in this regard.

Dr. John O’Brennan

I am waiting to be asked to explain non-linear endogenous growth theory in the course of the campaign.

Senator Terry Leyden

I wish Dr. O'Brennan well in that.

Dr. John O’Brennan

I assure members I will be found miserably wanting. First, in response to Deputy Kyne's question about the "Don't knows", they are lining up in quite an interesting fashion. The Sunday Independent-Millward Brown poll published approximately one month ago threw up some interesting findings. A total of 37% of respondents stated they would vote in favour and 26% against. However, 36% stated either they did not know or, more intriguingly, their support was conditional. The interesting point about this group is that when asked this question unprompted, the breakdown indicates that 21% of respondents stated their support depends, while 15% stated they genuinely did not know. Consequently, this finding contains the suggestion that further developments during the course of the campaign might shift people from the “Don’t know” category into the “Yes” camp. Obviously, I am referring to the Anglo Irish Bank promissory notes in this regard. If a deal is done, that could be a significant factor depending on how it is solved and so on.

As for Senator Leyden's point, I agree there is an important role for Senators and for the Seanad. However, the reason I introduced the point about the Oireachtas and its engagement with European affairs is very simple, namely, the weight of responsibility in the campaign will rest with Deputies and Senators, who will be at the front line of the effort to make the case for this treaty. The political parties and the Houses of the Oireachtas could do worse than to arrange a three or four-day intensive course on the functioning of the European institutions. Many of the 166 Members of the Dáil have nothing like the level of engagement demonstrated by members of the Joint Committee on European Affairs in respect of the briefing papers and everything that goes with them. It might be a good idea to do something like that if people are being sent out into battle.

Senator Terry Leyden

While the front line is very good, I note the front line in World War Two was not a very pleasant place to be.

Dr. John O’Brennan

My experience, through the National Forum on Europe and all sorts of other public meetings, is there was an extraordinary degree of misinformation and mischaracterisation. Moreover, it existed on both sides and certainly was not simply a phenomenon attributable to the "No" side in recent referendums. I also thought there was a profound lack of understanding amongst Deputies and Senators, including Cabinet Ministers who went on the radio airwaves without appearing to know the basic mechanics of the European Union institutions.

Deputy Pádraig Mac Lochlainn

I can think of a European Commissioner as an example.

Deputy Bernard J. Durkan

It was terrible.

Chairman

A session was held at the beginning of the term of this Dáil to inform Members on how things work and I understand Deputy Mac Lochlainn may have been the sole attendee. Is that correct? We could make inquiries.

Deputy Pádraig Mac Lochlainn

I am not saying.

Deputy Timmy Dooley

Dr. O'Brennan is correct. The lack of interest among the vast majority of the Members of the Oireachtas is quite breathtaking and sadly, it is based on one's capacity to be re-elected. Whatever Oireachtas Members have attended this meeting will get absolutely no credit from anyone anywhere. In fact, they will be questioned as to the reason they are not in their constituencies. As far as the wider view is concerned, they typically are on holidays and consequently, there is a huge burden of responsibility. While I am not among those who have a cut at the media, in general they tend to lead public opinion in many ways, including in respect of the workings of these Houses. There are metrics by which Members get criticised, such as the number of votes in which they participated, the number of committee hearings they attended and the number of days on which they were swiped in. Members have allowed themselves to follow a path of no return in respect of the value of the work they do. Consequently, when one is present in the Parliament during a week when the Dáil is not sitting, there is little reaction from or coverage by the media and many people concentrate on getting re-elected.

Chairman

Moreover, one's constituency colleagues are at home, gaining votes.

Deputy Timmy Dooley

They are. While I take a different view in this regard, many people do not and at times it is hard to blame them when there is no return for such work. Dr. Barrett participated in previous discussions relating to the work of the sub-committee on the Lisbon treaty. At the time, the difficulty in disseminating to the public what is discussed in Leinster House and its importance was made evident in great detail. This finding formed part of the sub-committee's report on trying to inculcate the European project into the work or business of the Dáil. I acknowledge there has been some movement in this regard, such as the making of statements in advance of European Council meetings. Some Ministers are good in that they will appear before the respective committees to discuss in advance the meetings they will have or whatever individual Council meetings are taking place. By and large, however, such discussions received very little coverage. I can understand this, as the media also have a responsibility to try to give to their audience what they think it wants. However, it is not going to happen in the absence of a better capacity to push that message.

Dr. John O’Brennan

We will be meeting at 11.30 a.m. tomorrow for a full day's sitting. We will have members of the business community in attendance as well as the Irish National Organisation of the Unemployed, the Alliance Party of Northern Ireland, the Green Party and Libertas. If members can all be here at 11.30 a.m. tomorrow we will commence then. Thank you very much for your attendance today.

The sub-committee adjourned at 5.55 p.m. until 11.30 a.m. on Thursday, 5 April 2012.

JOINT COMMITTEE ON EUROPEAN UNION AFFAIRS (Sub-Committee on the Referendum on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) debate - Wednesday, 4 Apr 2012

Realities of What the Treaty Means for Ireland: Understanding the Facts

Professor Philip Lane

Mr. Dan O’Brien

Mr. Jim Power

Mr. Paul Murphy, MEP

Mr. Paul Murphy, MEP

Mr. Paul Murphy, MEP

Mr. Paul Murphy, MEP

Ms Marian Harkin, MEP

Mr. Paul Murphy, MEP

Mr. Seán Kelly, MEP

Professor Philip Lane

Ms Marian Harkin, MEP

Professor Philip Lane

Mr. Dan O’Brien

Ms Marian Harkin, MEP

Mr. Dan O’Brien

Mr. Seán Kelly, MEP

Mr. Paul Murphy, MEP

Mr. Dan O’Brien

Mr. Paul Murphy, MEP

Mr. Dan O’Brien

Mr. Paul Murphy, MEP

Mr. Seán Kelly

Mr. Dan O’Brien

Mr. Jim Power

Mr. Jim Power

Mr. Jim Power

Dr. Gavin Barrett

Dr. John O’Brennan

Mr. Declan Walsh

Dr. Gavin Barrett

Dr. John O’Brennan

Dr. John O’Brennan

Dr. John O’Brennan

Mr. Declan Walsh

Dr. Gavin Barrett

Dr. Gavin Barrett

Dr. Gavin Barrett

Dr. Gavin Barrett

Dr. Gavin Barrett

Dr. Gavin Barrett

Dr. Gavin Barrett

JOINT COMMITTEE ON EUROPEAN UNION AFFAIRS (Sub-Committee on the Referendum on the Intergovernmental Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) debate -
Wednesday, 4 Apr 2012