The Fiscal Compact Treaty, In Ireland’s best interest?

The Fiscal Compact Treaty,

In Ireland's best interest?

Would the ESM and Fiscal Compact have prevented the recession?

Not according to the Economist; The pact’s rigidity would make recessions
worse, and the new fiscal rule would not have kept Ireland or Spain out of

Not according to the Davy Report (Bloomberg: Conall Mac Coille, Chief
economist); The fiscal compact would have had no bearing on the collapse
in Ireland's public finances had it been adopted at the inception of the

Would it improve the situation now?

Not according to the Economist; If private investors aren't taking
losses, then other governments are stepping in to make good on obligations.
That, in turn, will worsen their fiscal outlook.

Not according to Paul De Grauwe (Centre for European Policy Studies
Brussels); The ESM will apply a relatively high interest rate, countries
that apply for financing will be subjected to a tough budgetary austerity
program. Thus, with each recession, countries will be forced to reduce
spending and to increase taxes. Investors who anticipate this will raise
the interest rate on government bonds, thereby making the recession worse.

Not according to Constantin Gurdgiev Economist; There is nothing
within the Pact that would facilitate either Portuguese or Irish economic
stabilization and recovery. When it comes to dealing with the current
crisis, the new Pact contains no tools for achieving structural reforms
required to arrive at sustainable public finances. No country has been
successful in restoring fiscal and external balances after a decade of twin

And what about the future, will it solve the crisis?

Not according to the Davy Report (Bloomberg: Conall Mac Coille, Chief
economist); Markets are unlikely to be reassured by a target that cannot
be independently verified or agreed upon by official institutions. 

Not according to Paul De Grauwe (Centre for European Policy Studies
Brussels); Will the establishment of the ESM shield the Eurozone from
future crises? My answer is unambiguous. It will not. In fact it is worse
than that. Some of the features that have been introduced in the
functioning of the ESM will make it more difficult for a number of
countries, in particular Ireland, to attract funds in private markets.
These features will have the effect of increasing rather than reducing
volatility in the financial markets.

Not according to Constantin **Gurdgiev Economist; In medical analogy
terms, this week’s Fiscal Pact signed by the 25 EU Member States, is
equivalent to a misdiagnosed patient (the euro area economy) receiving a
potent cocktail of misprescribed medicines.

In other words, the Fiscal Pact is neither a necessary, nor a sufficient
solution to the ongoing crisis of the euro area insolvency. Moreover, it
saddles the euro area with a choice of only two equally unpalatable
alternatives. The first choice is compliance with the Pact that will lead
to a situation whereby a one-policy-fits-all monetary framework will be
coupled with an equally mismatched one-policy-fits-all fiscal framework.
The second choice is business as usual, with continued reckless borrowing,
internal and external imbalances and ever deepening links between the
sovereign finances, the ECB and the banking sector balancesheets. In other
words, there is a choice of either pushing Euro area down the deflationary,
stagnation-inducing deleveraging spiral, or leaving it in the current modus
operandi of reckless borrowing. Crucially, the idea of the Fiscal Pact as a
tool for resolving the structural crisis faced by the Euro area is
equivalent to doing more of the same and expecting a different outcome.
Both alternatives are internecine for Ireland, and both increase the
probability of an eventual collapse of the euro over the next 5-10 years.

What about the people? will the most vulnerable be protected?

Not according to Paul De Grauwe (Centre for European Policy Studies
Brussels); The new financing mechanism that is being set up in the
Eurozone will rob countries of their capacity to protect those hit by the
recession. This is a major setback that will reduce the social and
political basis that is needed to keep the Eurozone alive.

Not according to the Economist; If it grows at a depressed pace or
declines, ask who is taking the big real losses. Governments are trying to
force losses onto households in order to avoid a financial blow-up.
Will it benefit Ireland economically?

Not according to the Economist; Countries now targeted by markets to
reduce government spending and raise taxes have been thrown into recession
and are falling short of targeted deficit reduction. The 'Fiscal Compact'
treaty would penalise this deficiet to the tune of 1%of GDP, causing
further economic pain.

Not according to Constantin Gurdgiev Economist; Ireland will be one
of the worst impacted economies in the group. In 2012, Ireland is forecast
to post a structural deficit in excess of 5.5% of potential GDP. To cut our
structural deficit to 0.5% will require reducing annual aggregate demand in
the economy by some  €7-8 billion in today’s terms. Debt reductions over the
period envisioned within the pact will take an additional €12 billion
annually. For an economy with huge private sector debt overhang, paying
some 12% of its GDP annually to adhere to the Fiscal Pact is a hefty bill
on top of the already massive interest bill on public debt.

The Department of Finance estimates that in 2015, Ireland will have a
strucutral deficit of 3.7%. Bringing that down to 0.5% would mean €5.7
billion worth of extra cuts.

Constantin Gurdgiev Economist; In short, the Pact our Government so
eagerly subscribed to is at the very best a continuation of the status quo.
At its worst, Ireland and other member states of the Euro are now
participants to a fiscal suicide pact, having previously signed up to a
monetary straightjacket as well.

People's Association Watchdog (PAW),

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