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Fiscal Austerity Pact: A new European tyranny

As in previous referenda campaigns the Irish government has portrayed the Fiscal Pact treaty as something other than what it is and predicted dire consequences of what will happen if it is rejected.  So Labour leader Eamonn Gilmore claims that that the referendum is an opportunity to vote for "economic stability and economic recovery" and “to go beyond casino capitalism” while Fine Gael’s Leo Varadkar declares that if the Treaty is not accepted it 'there's a risk that austerity may have to be faster, and quicker and deeper".  To get an accurate understanding of what the Treaty is about we have to examine what it says.  And when we do examine the Fiscal Pact we can see two clear and related elements – the first is a projection of austerity policies into the future, and the second is a further dilution of democratic rights. 

The Fiscal Pact intensifies the policies of austerity by imposing strict rules on state spending.  Under its terms the so called “structural deficits” (the difference between revenue and expenditure after taking into account cyclical and exceptional factors) run by governments will be restricted to a limit of 0.5 per cent of GDP.  When we compare this to the current 3 per cent deficit target contained in the Stability & Growth Pact, which accompanied the introduction of the euro, we get a sense of the budgetary tightening that this represents.  Importantly, this will not just be a target, but a legally enforceable rule. 
The Fiscal Pact also lays down rules on the level of overall debt that states are allowed to carry.  If their overall debt comes to more than 60 per cent of GDP they must cut state spending by 5 per cent a year.   Given that Irish state’s debt is approaching 118 per cent of GDP the imposition of such a rule would demand a lot of cutting.  While it is the case that states under bailout programmes are shielded from these rules when Ireland is due to exit in 2014 it is forecast to have a debt to DDP ratio of over 120 per cent.  In 2015 it is forecast to have a structural deficit of 3.7 per cent.     Even if Ireland is given some leeway in adhering to the fiscal rules (such as extending compliance over a three year period) it would still require €2 billion of extra austerity per year over and above what has been planned.  The clear implication of the terms of the Fiscal Pact is an intensification of austerity. 


The most far reaching aspect of the Fiscal Pact is its proposals to change the political structure of Europe.  It is not the case that the Pact is a response to the current Eurozone crisis.  Rather it is a means to institutionalise polices and structures that will create a single economic programme for Europe.  The provisions set out in the Pact are not time limited but intended to have a “binding force and permanent character”.     Under its terms Governments will have to submit their budget plans to the European Commission for approval and to harmonise polices within its guidelines.   The provisions of the Pact will have a constitutional status within each state.  Independent bodies that have the power to censure any Government that doesn’t adhere to them are to be established within member states.   This power of legal censure will be backed up at a European level through an expansion of the powers of the European Court of Justice (ECJ).   If a state does not comply with the terms of the Pact the ECJ can impose fines of 0.1 per cent of GDP. (In the case of Ireland, a fine would amount to €155 million.)

The Fiscal Pact is an assault on national and democratic rights.  It seeks to tie the hands of current and future governments by locking them into a predetermined political and economic framework.  The power to make policy will be shifted from  national governments to unelected and unaccountable bodies, most likely staffed by lawyers and economists, which will have the legal authority to override the will of the people.   Any party elected to government, even on a Keynesian never mind socialist programme, would find itself effectively subjected to a coup when the mechanisms created by the Fiscal Pact are triggered.  The anti-democratic nature of the Pact was made clear by German Chancellor Angel Merkel in her declaration that its provisions “will be binding and valid forever. Never will you be able to change them through a parliamentary majority.” 

The examples of Greece and Italy, where governments have be replaced by unelected bureaucrats who have imposed ever-fiercer austerity policies, have given us a clear indication of how the Fiscal Pact will operate.  Only in Ireland do workers have the opportunity to say No. That is what they should do despite the threats and lies, and by so doing begin to resist the suspension of democracy and a future of limitless austerity.


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