I am very pleased to attend on behalf of the SDLP. I thank the members of the committee. My party is very glad to have been afforded the opportunity to give evidence about the important question of the European intergovernmental treaty and its ratification by Ireland. Although the treaty will not have a direct effect on Northern Ireland, my party has always taken an all-island perspective, particularly on European economic affairs. We do, therefore, have some views on the treaty and referendum that we are happy to share. I am not a financial or economic expert but would like to share my views nonetheless.
It is convenient for some to try to blame Ireland's economic woes on Europe and the euro, but that would be not only simplistic but also plainly wrong. Let me offer an alternative perspective. It is true that membership of the euro, the single currency, gave Ireland and Irish banks unprecedented access to huge quantities of low-cost funds to borrow, which unprecedented resource could have provided scope for sustainable economic growth. The Union did not tell us how to spend it. It was Irish citizens and Irish banks that lost the run of themselves by investing, unsustainably, in property. While it was unfortunate that the bursting of Ireland's property bubble coincided with the global economic downturn and the subsequent banking and eurozone crises, the bubble would have burst at some point in any case. We had a property sector meltdown that left a mountain of bad debt, at a time when public expenditure had increased rapidly under an Exchequer heavily dependent on stamp duty receipts.
When the banking crash came, the Government, with sky-high debt and an ever-widening deficit in the public finances, had to decide on its strategy quickly. The choice was stark, namely, stand behind Irish bank debt and make it clear that Ireland would not default or, alternatively, simply default. The Government chose the former because it was considered safer despite the fact that it would ultimately lumber Ireland with huge additional debt. The alternative might have cost substantially less in terms of debt but would have had completely unpredictable and potentially catastrophic economic consequences. The current Government continued the broad policy of bailout and financial rectitude and has earned plaudits for the way it has stuck to the task. Although the numbers are still very bad, Ireland is not seen as the same threat to eurozone stability as Greece, Portugal, Italy and, more recently, Spain. It is the overall threat to the eurozone, to the single currency as a project, which has led to the need for visibly tighter fiscal discipline in the form of the intergovernmental treaty. We should, therefore, stay focused on the purpose of the treaty. It is to set tighter rules for member states around lower levels of indebtedness and balanced budgets. Equally important, notwithstanding some questioning of its likely effectiveness, the treaty is aimed at showing the rest of the world, the financial markets in particular, that Europe is getting its act together. The restoration of international confidence in the eurozone is one of the essential requirements if Ireland is going to return to the capital markets and recover some financial sovereignty, a development we all wish to see.
We recognise that even in terms of these basic objectives, the treaty has some undeniable technical shortcomings. The reliance on deficit-GDP and debt-GDP ratios, while relevant, do not necessarily measure the right thing. There is a clear problem with defining and, therefore, measuring what the structural deficit actually is, which makes it difficult to calculate whether a member state is in compliance with the 0.5% of GDP limit. There are also circumstances of negative growth where debt is being managed well and is falling but where the debt-GDP ratio is not improving. The argument has been made that individualised debt targets in absolute numbers might be more effective. Also, the insistence on a strict balanced budget approach appears to deny governments the flexibility to introduce legitimate Keynesian stimulus measures at appropriate times in the economic cycle. This needs to be worked through more.
Ireland must look out for the danger in Europe's quest for further fiscal harmonisation. The Government should make it clear that Ireland's attractive corporation tax level, which has served so well, is not up for negotiation. If Europe insists on corporation tax harmonisation, let the other member states converge around Ireland's rate.
There is also the problem in Ireland's case of timing and compliance. Ireland's budget deficit has been reduced from 20% of GDP four years ago to around 9% at present - no mean feat. However, it is still a long way from 0.5%. Similarly, Ireland's debt-GDP ratio is currently double the proposed treaty target of 60%. It will take a long time for Ireland to converge. Accordingly, it is important the Government addresses these issues and makes it clear to the public that it is addressing them in the context of European negotiations.
The EU strategy for addressing the eurozone crisis, driven by Germany, seems to consist largely of administering strong austerity medicine to the problem countries. There are two dangers with this approach. First, excessive austerity measures could undermine domestic demand and choke off any prospect of economic growth, thereby creating a downward spiral from which it may be impossible to escape. Second, if the public only sees austerity measures and a continued fall in their living standards with no light at the end of the tunnel, then governments in member states may struggle to deliver on their EU commitments. As a general point, there is a strong case for the EU to adopt an approach which puts a greater emphasis on achieving economic growth as opposed to a complete emphasis on belt-tightening. This needs to be thought through more as it implies a more customised central oversight of member states and their budgetary strategies and policies. It also raises the issue of further pooling of economic sovereignty.
For all its technical weaknesses and notwithstanding Ireland's difficulty in achieving compliance, there is none the less an overwhelming case for Ireland to ratify the treaty in the planned referendum. Successive Governments have set out Ireland's recovery strategy based around non-default and a euro bailout. That strategy is understood and progress made under it has been internationally acknowledged positively. Accepting the treaty is consistent with this strategy and helps bring forward the day when Ireland can return independently to the capital markets. Rejecting the treaty would cause confusion about Ireland's intentions and undermine confidence in the Government's recovery strategy.
The treaty envisages that full access to the consolidated financial rescue fund, the European Stability Mechanism, ESM, will only be available to those member states which ratify the treaty. As it is quite likely that Ireland will require further assistance from the EU, it should not exclude itself from this resource. It is likely the treaty will be ratified by a clear majority of member states across the EU and Ireland has no veto. If Ireland were to reject the treaty, it would face the unpalatable choice of either voting again until it ratified the treaty or sitting outside the Europe-wide arrangements for dealing with the crisis. Surely, this would be unacceptable when Ireland's recovery is heavily influenced by those arrangements.
If accepting the treaty in some form is inevitable, then it is better to do so now with good grace and maintain Ireland's positive image in Europe than be dragged reluctantly into co-operation. Ireland can exploit this positive position in negotiating subsequent relaxations or improvements to the current bailout regime. If Ireland rejects the treaty, it moves to the top of the list of member states which could be forced to leave the single currency altogether. This would be dangerous uncharted territory.
Some of the criticism of the treaty is misinformed or disingenuous. It is not meant to be a social charter. It is meant to be an agreement around financial discipline across Europe, aimed at restoring confidence so that member states can get back to delivering on their social and economic priorities in a stable environment. It will not be enough for the Government, and indeed other parties, to sit back and expect voters to do the sensible thing. Previous referenda outcomes indicate the people, rightly, expect their leaders to make the case, explain the proposition and convince the public of its merits. Making the case for supporting the treaty in the referendum should be a business priority for Ministers in particular. It is important that, as a first step in its communications strategy, the Government succeeds in framing the debate. In particular, it must create public understanding that this treaty referendum is not a verdict on the Government's performance, on the single currency or on bankers. It is not an opportunity to let off steam generally and to do without consequences.
The Government must set out positively the clear arguments for supporting the treaty and the downside for Ireland associated with any other outcome. It must try to ensure the debate is kept honest. At the same time, the Government must accept there is public disquiet and frustration around the austerity measures at the heart of Ireland's financial strategy. Much of that frustration relates to the perceived unfairness around these measures where some groups feel they are being asked to shoulder most of the burden while others who have done more to cause the underlying problems are getting away relatively free. The Government needs to bear this concern in mind, even though it is not immediately pertinent to the treaty debate. The SDLP advises that, alongside the debate on the treaty, the Government must demonstrate it is intensifying measures to ensure those who caused much of the problem carry a proportionate share of the burden of correction.
Although we are a northern party and Northern Ireland will not be directly impacted by the treaty, we consider ourselves part of the Irish political mainstream and will be supporting a "Yes" vote in the referendum. We accept that, for now, the United Kingdom will not be a party to this treaty, which is likely to be the position for some time. Although it looks a long way off, we want the UK to sign up for membership of the single currency at the earliest opportunity. We believe this would be beneficial to the UK and would in turn strengthen the European Union. It would also be beneficial to social and economic progress in Ireland, removing major anomalies between North and South and facilitating further economic and political integration on the island.
There are those who say that talk about Irish unity is irrelevant in the midst of the surrounding economic crisis. They are right to argue that it is not the top priority today, tomorrow or next week. The SDLP is proud to say, however, that it remains our overriding medium and long-term constitutional goal. Progress on that goal can be made, even in this difficult time. There is, for example, still tremendous scope for finding savings and efficiencies from North-South co-operation that is wider and deeper than heretofore. North-South co-operation has slowed down instead of accelerating and there is a tangible economic return that is being lost to both jurisdictions as a result.
There is the common assertion that now that the Celtic tiger economic era is over, the South could not afford to take on the burden of the North. That is why the SDLP has called for a 25 or 30 year financial compact with the Treasury, signed off between Belfast and London, which would manage down the Northern Ireland subvention gradually over a long period. The attraction of this proposition is that it would continue in force, regardless of any constitutional change, such as Irish unity, that might occur during that time. That is something to which people in the South should give some consideration, even in the current difficult economic times. We will return to that presently.
The SDLP advises that the referendum to ratify the intergovernmental treaty deserves to be supported. We are grateful to the Chairman and his colleagues for the opportunity to set out our views, and we wish the committee well in its future deliberations.
