I thank the Acting Chairman for his kind welcome and thank the sub-committee for the invitation. My name is Jonas Sjöstedt and as mentioned, I am chair of the Swedish Left Party. I was a Member of the European Parliament for 11 years and now I am in the Swedish Parliament.
I congratulate the Parliament for holding this referendum. It is a democratic example in Europe that the Parliament lets people decide and has an open democratic debate on a vital issue such as this one.
I was very active in the referendum on the euro in Sweden in 2003 in which, as the sub-committee may be aware, Sweden voted "No". We did not join the euro which gives us a slightly different position in this situation. We have been able to use our interest rate and our exchange rate in order to protect our economy from the crisis. It made our situation, if not good, at least better than it would have been in the eurozone. We also are able to borrow money from the market at a lower cost and to do that, we have our own central bank, the Riksbanken.
Sweden went through a deep economic crisis in the 1990s. We had banks that went bankrupt and experienced a large fall in exports. We got through the crisis partly because we were quite tough on our banks. We did not pay their debts. We nationalised the banks that did not make it and sold them later at a price higher than that at which we bought them. That is a vital lesson. One of the reasons Sweden is doing better and that we do not have these big losses in the banking system is that we were quite tough on them last time and they learned from that.
We also have stability in the public finances. We have a debt level of 30% at present, and it is decreasing. There is a kind of political consensus that we should keep public finances in strict order.
On the treaty and the European crisis, to be able to see what cure one needs for an illness, one needs first to know what caused the illness. The main causes of the euro crisis vary from country to country and one must be open to that, but one cannot deny that the losses in the banking sector, and the big risk-taking in financial speculation, is one of the major causes, and Ireland knows all about that.
A second matter that plays a vital role, especially in the southern European countries, is the loss of competitiveness, and that they can no longer compete on the global market and they import far more than they export. Both of these problems are connected to the euro because the low interest rate with the euro boosted the lending and the risk-taking of the banking system and being stuck in the euro has been one major explanation for the bad competitiveness position in the countries.
In most countries, the deficits and the economic problems with the national budgets come from the crisis. It is not the reason for the crisis but it is an effect of the crisis. If one wants to cure the illness, one must address more problems than the lack of balance in budgets and public deficits. That is vital. If one does not do that, one risks going even deeper into crisis and not being able to cure the reasons for it. That is where Europe stands now.
Europe is on the brink of a very serious recession, which is already there in southern Europe but also in countries such as the Netherlands. There is a risk that too much austerity will deepen the recession in many countries, will make the economic problems more severe and will make it more difficult for countries to recover. That is why it might be a mistake to have very rigid systems for national budgets in a situation where the economy needs not only balance, but also investment.
If I look back on the crisis in the Swedish economy in the 1990s, for a couple of years we ran deficits which were far larger than those that are allowed in this package but we came back because we also invested our way out of the crisis. That would not have been possible with this treaty. It is hard to predict the development in Europe and it is hard to say that one size fits all when it comes to the budget policy for the foreseeable future. This treaty is dominated by a rigid way of thinking.
The present euro policy has two main aims: to save the euro as a currency, and to save the financial system and the banking system. The price is paid by those in the member states who suffer under cuts, and also the countries are obliged to enforce privatisations. One can see this clear priority in the European Central Bank that gives enormous loans to the banking system with an interest rate of 1% but is not helping the countries in a similar way. If one reverses that, the situation would be quite different in Europe. Perhaps arrangements like that should play a larger role in seeking to resolve the difficulties than adopting pacts like this one.
If we wish to cure the causes of the crisis, we must look deeply into issues of financial regulation with a view to making it impossible for the banks to make the same mistakes ever again. The problem is that if one pays all the debts of the banks and does not hold their owners responsible, they will most likely learn the lesson that there is no risk for them in any circumstance and will engage in the same activities once again. That is why it is vital bankers are forced to take full responsibility for the mistakes they make in their business transactions. It is also obvious that at least in the case of Greece and Portugal there will be a need sooner or later to write down the debt. There is no way around that when one considers how the situation is evolving. The difficulty is when one transfers the debt from private to public, one is, with open eyes, transferring to the public the cost of mistakes that are partly due to private investors.
The fiscal compact or euro compact, whatever one calls it, is in a very unclear situation. It is not obvious it will become reality. Looking at the situation in France, for example, the probable new President, Mr. Hollande, has stated his desire for the compact to be renegotiated. We have a situation in the Netherlands, with an election to take place, where the ratification of the treaty has been postponed. There may well be a new parliamentary majority in that country following the election which is far more critical of the treaty than the current majority. The future is not as certain as it might look in many countries.
Sweden, even though we are not in the eurozone, has a right-wing Government which has said it will sign up to the pact. The main argument for my country ratifying the treaty is that we are not obliged to follow the rules in it. This seems to me a peculiar argument for signing up to anything. The Swedish Government and the Social Democratic Workers Party have both expressed the view that if we were obliged to follow the content of the pact, we would not sign it because we do not need it and do not see the point in it. The decision to ratify is, in my view, more a sign of loyalty to the European Union system than anything to do with the economy.
What will the consequences be if the pact goes through and the European Union is able to enforce it in member states? First, and it is the greatest risk attached to the treaty, it will deepen the recession. If one has a very severe austerity policy in a situation where the economy is already going down, one risks making what is bad worse, with a shrinking economy and an increase in the volume of debt in regard to GDP. Second, it will not be possible for member states to adapt national economic policy to their particular situation. This runs the risk of strengthening existing negative trends in an economy by requiring greater reductions in expenditure. There might be a little room to manoeuvre when the economy is doing better and there is a surplus. However, that is probably the wrong way to do it and one should do it the other way around if one wants a more stable economic policy. The pact has severe consequences for member states' ability to formulate their own national economic policy. The third aspect to consider is that the treaty has implications for democracy in that it transfers massive powers to the European Commission and the European Court of Justice and gives a strong mandate in respect of supranational economic policy to representatives who are not democratically elected and cannot be unseated in a democratic election. That is a principal factor in itself. It also makes it much more difficult for the Irish people or any other people to choose a different direction in the future if they so wish, as is the right of representative parliaments in any democracy to do.
My last argument for why the treaty is not a very good one is that it simply will not work. It is obvious that many member states will not implement it and that it will probably break down quite soon. In short, it will not function but it might well do some harm on the way to that point. We will probably see more packages like it in the future but as they cannot not solve the causes of the crisis, I cannot see how this or any similar pact will function.
Deputy Dominic Hannigan took the Chair.
