The Irish Euro referendum

Today the Irish are voting in a referendum on the EU Fiscal Stability Treaty. I’m not voting as I’m currently in the UK, but thought I’d chuck my two cents in.

The purpose of this treaty is to prevent a repeat of recent events by preventing governments from engaging in excessive deficit spending. However while this seems good in principle, the devil is in the detail. For starters, will this pact be obeyed? Consider that a previous such clause existed when the euro was formed and the first country to break it wasn’t Greece, but Germany. Was Germany punished for this? No! So what makes anyone think it will work this time?

Also, there is nothing wrong with deficit spending by a government. It more a matter of making sure that any such spending is only temporary and at a level that can ultimately be paid back. Furthermore Keynesian economic theory says that there are times when a government will inevitably run up a deficit (again the trick is to make sure such deficits are only temporary). The current economic malaise for example, is a classic scenario where governments, far from tightening the purse strings, should be maintaining spending (borrowing to offset falling tax revenue) in order to shore up an economy in crisis. As I’ve pointed out before, a policy of austerity in a time of recession, will make any deficit or sovereign debt problems worse, not better.

So what we need to crack down on is governments, in good economic times, spending like a sailor on shore leave, and make them save for a rainy day. But when that rainy day comes, governments should not be afraid to smash open the piggy bank. Consequently this treaty threatens to tie the hands of EU governments….those that actually obey it anyway! Furthermore this treaty does nothing to address the current problems affecting the euro. It the equivalent of chairing a meeting on tighter board of trade regulations for large ocean going ships on the bridge of the sinking Titanic. This entire treaty is thus, little more than a dangerous distraction.

So all in all, I’d probably vote No on this. Not because, I’m against the EU or Euro, but because I don’t think the arguments behind this treaty stacks up.

However, the problem in Ireland is that the treaty is being portrayed by the media as some sort of an “in or out” referendum on the euro. It is clearly nothing of the sort, already the French president seems to be looking to renegotiate this treaty, I don’t see anyone talking about the French leaving the euro?

Indeed much of the blame for such scaremongering has to be laid at the door of the Irish government, or indeed various voices in the EU who seem intend on bullying the Irish into voting a certain way. While opinion polls suggest they might have their way, such talk will inevitably back fire eventually (possibly in Greece in a few weeks time, where similar rhetoric is being thrown around). Indeed these two points would provide me with yet another reason for not supporting this treaty!

But clearly dangerous game is being played here and its only a matter of time before matters come to a head.

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