Open Letter to UCD Economist Colm McCarthy

national | eu | opinion/analysis Monday April 30, 2012 20:02 by O.O'C. - National Platform EU Research & Information Centre 24 Crawford Avenue Dublin 9 01-8305792

By Anthony Coughlan, Trinity College

TO:
Professor Colm McCarthy
Department of Economics
UCD
Dublin 4

Sunday 29 April 2012

Dear Colm,

I am writing to you to make some points arising from your comments on the so-called Fiscal Treaty and the referendum on it on RTE’s Morning Ireland last Tuesday morning.

You made a small error, if I may say so, when you said on the radio on Tuesday that the Fiscal Treaty can come into force when 12 of its 25 signatory States have ratified it. In fact it requires ratification by 12 of the 17 Eurozone States for it to come into force. Ratification by the eight signatory non-Eurozone States does not count for that purpose (See Art. 14 of the Treaty on Stability, Coordination and Governance in the EMU).

Minister Leo Varadkar, who should have known better, made the same mistake on Vincent Browne ‘s TV3 programme last Wednesday, and Prime Time made it similarly last Thursday.

I do not know if you are aware that this issue of the Fiscal Treaty and, more importantly, the ESM Treaty being able to be ratified without unanimity amongst all 17 Eurozone countries is arguably in breach of EU law and the existing EU Treaties. This issue of a unanimity requirement for these two Eurozone Treaties is at the heart of current constitutional challenges to the ESM Treaty in Germany, Estonia and – as announced in the Dail last week – here in Ireland.

This ESM Treaty requires us to stump up €11 billion in different forms of callable capital to the proposed ESM loan fund, €1.6 billion up front "irrevocably and unconditionally" - a figure that may be raised thereafter without limi(Art. 8 ESM Treaty) . And there is much more in the ESM Treaty that should make people worried. I wonder have you thought through the implications of this?

Both the Fiscal Treaty and the ESM Treaty are not EU treaties, as you know, but formally speaking are ”intergovernmental” treaties for the 17 Eurozone countries. They can only come into being however – because they affect monetary policy in the Monetary Union, that being an “exclusive competence” of the EU – on the basis of an authorization or license which requires an amendment to the EU Treaties. All 27 EU States, including Ireland, must agree to that authorizing amendment, and that authorisation has not yet been constitutionally approved here.

This authorization is given in a two-sentence amendment to Article 136 of one of the two primary EU Treaties, the Treaty on the Functioning, of the European Union, which reads: “The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under this mechanism will be made subject to strict conditionality.”

You will note that the authorization says “THE Member States , not “Member States” or “SOME” Member States , but rather all of them. Yet the Fiscal Treaty as it stands provides that it can come into force when 12 Eurozone States have ratified it, and the ESM Treaty provides that it comes into force and the Stability Mechanism which it proposes may be established once States contributing 90% of the capital to the ESM fund have ratified that.

A simple calculation based on the contributions set out in the Annex to the ESM Treaty shows that the eight largest Eurozone countries would contribute 90% of this capital so that, as the ESM Treaty stands, a minority of the 17 Eurozone States could bring the ESM into being. How then can the Stability Mechanism which it purports to establish be “for the euro area as a whole”, as required by the Art.136 amendment which authorises it?

More fundamentally, how can the ESM Treaty for the 17 Eurozone States be enabled to put the EMU which Ireland acceded to under Maastricht and Lisbon on an entirely new economic and legal basis when monetary policy for the euro area is an “exclusive EU competence” – and not a matter just for the Eurozone countries . . . and when the rules for EMU, including the Art.125 ban on Government bailouts and the 3% and 60% of GDP excessive deficit rules plus their enforcement mechanisms, are clearly set out in the existing EU Treaties and override all other laws and treaties for Member States of the Union?

If those original rules of the EMU had been enforced, the Eurozone countries would not now be in the mess they are in. Ireland complied with the excessive deficit rules of the EMU in the early 2000s, but when Germany and France broke them in 2003 and 2004 they were set aside, as you know, and the enforcement provisions in the Treaties – including heavy fines – were not applied. If they had been there would have been no need of bailouts and the Article 125 ban on bailouts would make perfect sense, for it would never have come into contention.

Now Germany, France and others want to get round the existing EU Treaty rules, and especially the Article 125 ban on bailouts, by means of the ESM Treaty for the Eurozone. The “Stability Mechanism” which this treaty envisages - and one can imagine all sorts of other Stability Mechanisms that would conform to EU law - is essentially a Bank or fund which would lend directly to Eurozone Governments that might be in trouble as the European Central Bank is forbidden from doing this by Article 125 TFEU.

But the EU is supposed to be a creature of law, and the Irish Constitution is obliged to uphold EU law. If the Eurozone States, having got themselves into their current mess, want to set up a structure for the EMU based on quite different rules which would effectively permit direct bailouts for Governments and the setting aside of the “no-bailout” article in the Treaties, they have to amend the EU Treaties with the agreement of all 27 Member States, and not just by means of a special treaty amendment for the 17 which flouts the express terms of the Article 136 TFEU authorization on which the ESM Treaty depends. To attempt to do that latter would effectively be to run a legal coach-and-horses through EU law and the existing EU Treaties in the Franco-German political interest.

You spoke on the radio yesterday and unfortunately gave the impression to those listening as if the ESM were a pot of gold which we would be excluded from getting access to if we were so foolish as to vote No to the Fiscal Treaty. Your comments were repeated on the evening TV news and I have no doubt they will be quoted repeatedly by Yes-side propagandists during the Fiscal Treaty referendum campaign if the Government does not have the good sense to put this referendum off until we can hold it alongside a referendum on the ESM Treaty and the Art.136 amendment to the EU Treaties which authorizes the ESM Treaty.

Such a referendum will almost certainly have to be held anyway, whether as a result of the Attorney-General’s advice in due course or as a result of the constitutional challenge to the ESM Treaty which Donegal Independent TD Thomas Pringle is taking in order to defend the Irish Constitution and EU law which it upholds and which should come up in the High Court during May when the Government has responded to his Statement of Claim, which I understand has been sent to the Solicitor-General.

I ask you would it not be foolish of Irish voters to change their Constitution so as to impose a maximum public deficit rule of 0.5% and a permanent balanced budget rule on Irish Governments for the indefinite future in order to obtain access to a proposed Eurozone loan fund, when this fund does not yet exist, when the ESM Treaty which would establish it has not yet been ratified and may well never be ratified, and when the ratification of that treaty will almost certainly require a separate referendum to be held on it in Ireland anyway?

That is why I would like to suggest to you that if one takes account of the Fiscal Treaty’s “complementary” treaty, the ESM Treaty - which, incidentally, the Government has promised the other Eurozone States it will have ratified by July! - the most rational course for people to take in relation to the Fiscal Treaty is really to vote No to it and to call for a referendum on the ESM Treaty and its Art.136 authorising amendment to be taken together with a possible second referendum on the Fiscal Treaty, when the full implications of the whole interconnected caboodle have been properly considered by the Irish public and media.

In my opinion, if the Government looked at the matter rationally it would welcome such a development as being in the country’s best interests. For if people vote No to the Fiscal Treaty referendum on 31 May that referendum can easily be run again - as long as it is done alongside a referendum on the ESM Treaty and the Art. 136 amendment to the primary EU Treaties authorizing that – for Ireland has a veto on the latter.

My reason for suggesting this is that if a referendum were required in this State on the ESM Treaty and its authorizing Art.136 amendment, the Eurozone could not establish the permanent ESM loan fund which they want to set up unless they have Ireland’s agreement. We need to use that veto, not ignore it.

This is how Ireland could get access to real money, real relief on our public debts and a fundamental transformation in the State’s financial position. The alternative is to look for relief to Taoiseach Enda Kenny’s wholly mythical pot of ESM gold, which does not yet exist and may well never do so in its present mooted form because of the illegality under EU law of its mode of establishment and its unconstitutionality under the Irish Constitution. A No vote on 31 May opens for us a way to real money; a Yes vote makes us look like fools.

The course of action outlined here would put Ireland in a powerful bargaining position - as nothing else can do - to get massive write-downs on our State debt, a cancellation of those draconic promissory notes and all the rest. It could even put us in a position to give a lead across Europe in urging an expansive, growth-oriented policy on the Eurozone instead of the current austerity that is clearly not working.

This would of course require the Government to show some gumption vis-a-vis the Eurozone authorities instead of bowing to them spinelessly out of misplaced and outdated Europhilia. If Ministers fear offending Germany and France by deciding independently to hold a referendum on the ESM Treaty and Art.136 TFEU, they should be praying instead that Thomas Pringle TD’s constitutional challenge will succeed.

Forgive me for going on at such length. But if there is a real possibility of such a position being attained by holding these referendums on the ESM Treaty, would it not be utter folly for us not to take it? Germany, France and the rest would have no alternative but to oblige us if they wanted Irish voters to say Yes in such an ESM Treaty referendum, for their €700 billion loan fund would depend on it.

That is why in my opinion genuine Eurofederalists who oppose the Franco-German takeover-bid for the EMU which is currently occurring through these two Eurozone Treaties, as well as longstanding Eurocritics like myself and my colleagues who are opposed to further surrender of what is left of Irish sovereignty, have an objective interest in uniting to defend the integrity of the EU Treaties as they stand against this Franco-German scheme to make the Eurozone their captive.

For what Germany and France are planning in their takeover-bid for the Eurozone and their proposals to change radically the EMU which Irish voters voted for under Maastricht and Lisbon, would radically alter the EU for the worse and push it in a profoundly undemocratic and anti-social direction.

Europhiles as well as Eurocritics could thus validly be urged to vote No to the Fiscal Treaty in order to hold the EU together!

Maybe you would consider these points and whether you think they have any merit. If you cared to meet to have a chat about these treaties and related matters for lunch or over a drink any day, I should be glad to meet you at any time or place that suited you.

With best regards
Yours sincerely

Anthony Coughlan
Associate Professor Emeritus in Social Policy, Trinity College Dublin

PS. Because of the public interest character of this matter, I hope you do not mind too much if I circulate copies of this as an "Open Letter" to the media for their information.