Ken’s Stability Treaty Post

Ken writes:

Ireland votes tomorrow on whether to change the constitution to allow the Government to ratify the European Stability Treaty. The no-side argue that the treaty gives the wrong economic prescription and that ratifying it would effectively make austerity permanent for Ireland and the EU as a whole. The Yes side argue that only by ratifying the treaty will Ireland be entitled to draw down a second bailout if the need arises (as seems very likely).

I’m very glad that as an Irish resident not a citizen I don’t have a vote, because it’s very hard to know what the right way to vote is. People seem to have to bear show much in mind. There is the text of the treaty itself, and then there is what the likely consequences of Ireland signing it are, and there’s the message signing it or not signing it sends to the rest of Europe, the rest of the World, the markets, potential investors and so on. What are you supposed to bear in mind when you vote on something like this? Everything?, as much as you can?, or just the strict wording of the question posed on the ballot paper? It’s a cliche that referendums always answer a different question from the one asked, but I don’t see how you can sensibly restrict your consideration to the strict question while ignoring the likely consequences of different answers. (although I agree that it is a wasted vote to use a referendum to box the ears of the incumbent government).

Some of the posters have really been awful.

“Yes for a working Ireland” (Umm. Yes for jobs. Isn’t that almost the same slogan used for Yes for Lisbon? And how did that work out? Why would voting yes lead to more jobs?)

“No to home and water charges. No to the Banking Treaty” (With posters like this, it’s no wonder people don’t vote on the referendum question)

In the end, I think I would support a yes vote, even though according to yes-camp economists, even if the budgetary constraints that the treaty would bring into law had been in place before the financial crisis, it wouldn’t have saved Ireland. Ireland apparently was already following the budgetary principles the treaty puts in place, it’s just that it suffered a banking system collapse and was forced by the ECB to payout/cover private sector bank debt.

I’m finally swayed by the argument that what holds for households holds for countries and that countries must not regularly spend more than they earn. The no camp say that borrowing now would only be temporary. They argue that stimulus not austerity should be the order of the day, so that the economy can grow and with more people paying taxes and fewer out of work, the government won’t be spending more that it takes in for long. But I am suspicious of this for a number of reasons. First, the stimulus measures always definitely involve spending and further debt, but they only potentially lead to economic growth and higher tax revenue. A badly planned stimulus programme could heap more woe upon the country.

Second, people always advocate more stimulus in good times and bad. The strategy of counter-cyclical measures is supposed to go with fiscal restraint during the good times when the economy can look after itself, except that it never does. During the good times people always find things to spend money on (‘distributing the fruits of the boom’). And what’s more, when the country can afford it and the books are in balance, it is surely a good thing to provide e.g. free education and healthcare etc.

Thirdly, I have reservations about the very idea of constant growth itself. The alternative to austerity relies on the economy growing and solving future problems by growing more. But how can economies keep growing indefinitely? Genuine question: does growth in the economy of one country require a contraction in the economy of another? If so, growth is clearly not a straightforwardly positive thing. If every country can grow simultaneously in real terms, what is the environmental cost of that? I suspect that the ideal of everlasting economic growth is unsustainable and bad for the planet and future generations. People hoping to grow their way out of the current crisis don’t necessarily subscribe the the ideal of everlasting growth, just growth now, but people will always say that and so it won’t differ from the ideal of everlasting growth in any real way.

So, if the difference between voting yes and voting no comes down to the choice between facing up to things now or postponing the financial day of reckoning further, I think it would be better to choose the austerity now.

Just my 2 cents.

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3 thoughts on “Ken’s Stability Treaty Post

  1. Helen Conrad-O'Briain

    A. I’m not sure the ECB forced the government to bail out the banks.
    B. A working plan for a steady state economy would probably be a better discovery than cold fusion.

    1. kenanddot

      Apologies, by the ‘bail out’ I meant not the initial decision to guarantee the debts of Anglo-Irish bank, but the no bond-holder left behind policy that kept extending the guarantee and kept repaying even the unguaranteed bonds as they fell due. After the election, Brian Lenihan said that that policy was insisted upon by the ECB as a condition for making liquidity available to the Irish banking system.

      I don’t remember saying anything about planning for a steady state economy, but I don’t see why it should need special planning. What’s so hard about it? Do you mean a completely self-sufficient economy?

      1. Helen Conrad-O'Briain

        There was an implication at the end that we need to discover an economic model that does not rely on constant growth. I suspect it would be very difficult to achieve without a radical change in human attitudes. I agree that we ought to try, however.

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