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Making the fiskalpakt Ireland-proof

The EU is doing everything it can to ensure that the Irish referendum is stitched up before a vote is cast.

Bruno Waterfield

Topics World

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Announced last week, Ireland’s referendum on the ‘Treaty for stability, coordination and governance in the economic and monetary union’ is expected to take place in May or June this year. This treaty or ‘fiskalpakt’ – which aims to enshrine Eurozone fiscal rules in national constitutions policed by the European courts – is signed by 25 of 27 EU countries and is a European Union treaty in all by name.

It has been little noted, but the treaty text contains an innovation, described by European diplomats as ‘a very unusual step’. As opposed to all other EU treaties, the fiskalpakt will enter into force when only 12 out the 17 Eurozone member state signatories have ratified it.

This new ratification threshold overthrows the principle, which has held for all previous EU treaties, that all parties must ratify an agreement before it can enter into force. In 2001 and 2008, Irish voters rejected the Nice and Lisbon EU treaties, respectively. Rerun referendums followed, but until Ireland voted ‘yes’ the new treaties were prevented from entering into force. In 2005, after the French and Dutch voted against the new EU constitution, matters went further: the proposed constitution was abandoned. No such national or democratic safeguard will apply with the fiskalpakt. If Ireland, or up to four other Eurozone countries vote ‘no’, the new treaty will enter into force. ‘It is Ireland-proof’, a senior European diplomat told me.

Once upon a time, the EU operated on the principle that its rules must be agreed by all its members, through democratic ratifications held according to national principles. Today, individual nations and popular votes cannot be allowed to stand in the way of the EU, which is emerging as the instrument by which elites pit their statecraft and institutions against changing European societies.

Over the past 20 years, the EU has evolved as the principal means by which our rulers can avoid that most uncomfortable form of political arithmetic: that is, the numbers that make up majorities and the need in democratic politics to take people with you, whether it is on treaties or economic policy. The self-evident failure of elites to have secured majorities for their policies is one of the most unpalatable social facts faced by Europe’s political and state elites. Even the bleached, lifeless routines of centrist politics pose a threat to an EU and Euro order that is ever more estranged from living European societies.

Even the previously euro-friendly François Hollande, the grey French Socialist leader, has become too much for the EU establishment. There have been reports of murky (and completely backfiring) pacts to sabotage his bid to win the French presidency. His crime is that he wants to renegotiate the same treaty that Ireland is voting on. France, one of the most powerful EU countries, is creating more ‘nervousness’ than Ireland, senior EU officials have told me. ‘If he wants to significantly renegotiate the pact on debt brakes or sanctions then that will stop the process of ratification in a number of countries. The French elections are a big worry for Germany’, said the senior European source.

The nightmare for the EU elite is the precedent that would be set by a national electorate deciding to reject the economic mismanagement and high-handed diktat that has characterised the Eurozone’s handling of the economic crisis. Besides, the horrible prospect of a nation being able to choose its fiscal and economic policies through democratic debate and the ballot box is what the fiskalpakt is designed to prevent in the first place. The ‘Treaty for stability, coordination and governance’ enshrines and enforces ‘debt brakes’ and ‘golden rules’ aimed at securing the EU’s current economic policy in perpetuity.

The Euro’s rules, drafted over 20 years ago and currently broken by almost all EU countries, are deemed sacred by Eurocrats. And why are they deemed sacred? Because they are written into the Treaty of Maastricht that created the EU’s institutions. But behind this bureaucratic jargon and gobbledygook of ‘golden rules’ is the exercise of power. And right now, that involves economic measures dominated by mindless austerity and ‘internal devaluation’, a policy that has resulted in cuts to the living standards that most Europeans have come to expect for themselves and their children.

Mario Draghi, the unelected president of the European Central Bank (ECB), a man who can issue €1 trillion of risky, cheap three-year liquidity loans to shore up Europe’s banks without recourse to either parliaments or voters, put it clearly. ‘The European social model has already gone’, he told the Wall Street Journal. Despite splurging hundreds of billions to ease a looming credit crunch for financial institutions, Draghi warned European people there will be ‘no escape’ from tough austerity measures. Draghi has abolished the European social model, launched a massive ‘LTRO’ plan for banks and condemned tens of millions of people to a poorer life without a single vote taking place.

The majority of Europeans would accept that our economies need reform. But under the current EU order, Europeans have no say as to the nature of those reforms. Instead, the EU simply imposes policies top down on to societies, deploying fantasy maths to justify policies that frequently fly in the face of reality.

On 23 February, the European Commission (EC) published economic forecasts, updating the last set of projections which were issued last November. The figures pointed to a recession across the whole of Europe, a slowdown that was not predicted in November. This development is not surprising. The working out of social processes and economic life, especially in a crisis, throws up new facts and figures all the time.

But expected or not, the contrast between November and February forecasts, severely exposed the holes and the lack of rationale for a second Greek bailout, thrashed out overnight in Brussels on 20 February. That €130 billion package, combined with savage austerity and a €100 billion debt writedown for banks, depends on the accuracy of November’s eight-year forecast, a crystal ball-gazing exercise that includes the prediction that growth will return to Greece in 2014.

February’s revised forecast really does confuse matters. The EC now admits that its November forecast for the Greek economy in 2012 had been substantially wrong. ‘In 2012, real output is expected to shrink further, by 4.3 per cent – markedly lower than forecast in the autumn and with substantial downside risks’, said the EC. In other words, the second Greek bailout and austerity programme is based on dodgy economic arithmetic that had a shelf life of a few months rather than eight years.

The sums and the forecasts, underpinning and justifying the austerity medicine being poured down the necks of the Greek people, are literally fantastic. Real lived experience gives us a different picture. Based on GDP measures, the Greek economy is expected to contract by 17 per cent in the period 2009 to 2013. Why should this miraculously change in 2014? Merely because the EU says it will?

The fact that the Greek economy has collapsed while it has been under EU tutelage show us that the policies should change. But the EU tells us that There Is No Alternative and invents fanciful figures. The EU’s arithmetic for the Greek bailout is not a measure of reality, of unfolding social facts or processes, but an alibi or a justification for policies that denies social and economic reality. The EU has recreated the 2+2=5 world of Stalinist maths, where figures and statistics are twisted to meet bureaucratic targets. This anti-maths, anti-economic, anti-social thinking has consequences and they are destructive.

The economic reality of Greece and the actual living conditions of the Greek people are not being allowed to challenge the top-down austerity policies. Real measures, such as GDP, show that during the EU’s near two-year administration of Greece, ‘economic activity was much weaker than anticipated’, with ‘real GDP [falling] by 6.8 per cent’ in 2011. A ‘strictly confidential’ EU-IMF report discussed on 20 February – secret despite being of huge public importance – went further to criticise the strategy of so-called ‘internal devaluation’ being imposed on Greece, a bureaucratic euphemism for austerity measures that aim to reduce Greek living standards by about a third. The report said: ‘There is a fundamental tension between the programme objectives of reducing debt and improving competitiveness. The internal devaluation needed to restore Greece’s competitiveness will inevitably lead to a higher debt ratio.’

In other words, the stated objective of the EU’s policy – to reduce Greek debt – is denied by its observed and measured consequences. The EU is making decisions in defiance of the economic reality of Greece because it is defending its institutions, such as the ECB, and its undemocratic order at all costs. The EU’s austerity programme for Greece does not, strictly speaking, have any economically rational basis. Its purpose is to ensure that European social and political questions are defined by the EU method and not the political sphere in which arguments – and maths – can be tested.

Greece is to be ravaged because, from the governments of France to Germany, upholding the established political order of the EU and the Euro is paramount. On 15 February, Wolfgang Schäuble, the German finance minister, took to the airwaves to bemoan democratic politics in Greece: ‘When you look at the situation in domestic Greek politics… the question is: who is going to guarantee that what we decide now will also be valid after the elections?’ he complained.

On 1 March, the fiskalpakt was signed at an EU summit. Before the ink was even dry, however, Spain announced that it would have to breach EU fiscal targets because its economy was performing far worse than forecast. The EU and the EC has yet to decide if Spain’s decision, declared as a ‘sovereign’ one, will be tolerated.

Democracy is important not just because it is morally imperative for people to live as they see fit or that societies are better for public participation. Democracy is also the moment when the changing social facts and conditions of life, manifest in clashing political alternatives, can overthrow administrations and bring political orders tumbling down. Just as it makes up figures that fly in face of reality or fiddles the ratification counts that underpin its own international law, the EU cannot allow democratic life to contradict or overthrow the order it is seeking to impose on societies.

Bruno Waterfield is Brussels correspondent for the Daily Telegraph and author of E-Who? Politics Behind Closed Doors published by the Manifesto Club

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