Voting No? Consider Reading this Post

I’m voting Yes to today’s referendum on the Treaty on Stability, Coordination and Governance. I know many people are voting No and I think the outcome is not the forgone conclusion the polls have lead many to believe.

I am concerned that many people are voting No for spurious reasons. If you’re voting No for any of the following ten reasons, perhaps you should reconsider.

1. It Means More Austerity for Ireland: No, really it doesn’t. See this post for an explanation of why the Treaty does not mean more austerity for Ireland than the current Stability and Growth Pact regime, this post for an explanation of the one-twentieth rule, and Seamus Coffey’s post on the idea that Ireland needs to implement €6 billion in new cuts in 2015.

2. Hauled to ECJ if We Miss Fiscal Targets: You’ve probably heard that the treaty means that Ireland can be hauled in front of the European Court of Justice if we miss future fiscal targets laid down by the European Commission. It doesn’t. Open the Treaty, hit Control-F and search for “Justice”. The only new role in this Treaty for the ECJ is to ensure that Ireland passes a fiscal responsibility bill that transposes the fiscal rules in the treaty into national law. Introducing such a bill is already a requirement of Ireland’s EU-IMF programme and a draft bill has been released. There is no question of Ireland being taken to the ECJ as a result of this treaty.

3. We’re Putting Detailed Fiscal Rules into the Constitution: Sounds like a bad idea but, no, we’re not doing that. The referendum merely allows the government to ratify the Treaty (here’s the question). There will be a national fiscal responsibility rule. It can be changed as long as it still meets the guidelines of the treaty and the treaty itself can be changed by mutual agreement with other countries. Unless those changes trigger new sovereignty-related issues, there is no reason they would require another referendum.

4. Reversing Austerity in Europe: This is a big emotional theme of the No campaign, that Ireland can join a Spring tide against austerity lead by Francois Hollande. In truth, Hollande is not planning to change the fiscal rules in the treaty one jot. Hopefully, his desire for pro-growth initiatives will bear some fruit but people who vote No on this ground will find themselves sorely disappointed by this particular Spring tide.

5. The Cost of ESM: You’ve probably heard that ESM is going to cost Ireland €11 billion and you’ve probably heard this compared with budget deficit gaps to be closed. In truth, Ireland will be providing €1.27 billion to ESM as part of its initial €80 billion start-up capital. The plan is for ESM to borrow the rest of its potential €700 billion capital fund from financial markets, so that Ireland will only have to provide €11 billion if ESM lends its full amount funds and they are all defaulted on. Even then, this is a once-off cost and does not compare with budget deficit savings which need to made every year (if our deficit is €15 billion, we need to make €15 billion in savings every year, not just once, to return the deficit to balance).  ESM is likely to have to lend to Ireland. Over the next few years, the net flow of funds will be towards Ireland, so claims ESM is somehow going bleed us dry are very far from the mark.

6. The EU Won’t Let Ireland Default: Really? You haven’t heard of Greece then?

7. A No Strengthens Our Hand in Bank Debt Negotiations: I have followed the whole promissory note\bank debt debate very closely and I really have no idea why anyone thinks this. The EU is not going to bribe Ireland to sign this treaty as it doesn’t need us to sign it and is quite willing to let us default if we thumb our nose at the ESM. The ESM is also likely to provide the best possible source of funds to allow us to refinance the promissory notes over a longer period and at a lower cost.

8. There’s Always the IMF: No, there isn’t. Read this.

9. Wealth Tax\Pot of Gold: Some No campaigners argue that we can close our budget deficit with a wealth tax. Maybe we can, maybe we can’t (actually we can’t). But either way, there’s no reason why we couldn’t do this after a Yes vote. In truth, this argument amounts to “Vote No to avoid having to balance the budget but we’ll balance the budget anyway”.

10. Sure We’re Going to Default Anyway: Maybe so. But there are many different ways to default. A default that maintains access to ESM funds will allow for a smoother post-default adjustment. Simply voting No and announcing a default will lead to massive instant austerity as we have to reduce the budget deficit to zero immediately.

Which brings me to the legitimate argument for voting No. Cormac Lucey and others argue that we should Vote No, refuse access to ESM funds, undergo rapid austerity and leave the euro. There are legitimate arguments for this approach but I don’t believe it is what the majority of the country (or even a majority of No votes) want.