Updated, 17.22
THE EUROPEAN COUNCIL has issued the first draft of the deal struck by 26 of the 27 European Union member states last week – which outlines provisions which could tie Ireland to more years of severe austerity Budgets.
The draft deal – which outlines the terms under which eurozone members will form a ‘reinforced economic union’ – would require countries with their general government to take radical measures chipping away at their huge debt.
Countries with a debt-to-GDP ratio of over 60 per cent would agreed to reduce their debt by 5 per cent each year – a clause which would force Ireland, with a debt-to-GDP ratio of around 90 per cent, to take billions more out of each Budget for the medium-term future.
Ireland’s gross government debt, at the end of November, stood at €144 billion – but with GDP of around €160 billion, Ireland would have to reduce its debt by at least €7 billion each year until the debt falls back to around €100 billion.
This would be expected to rise even further in the coming years, as Ireland’s government debt as the liabilities from the banking bailout begin to materialise.
Sinn Féin finance spokesman Pearse Doherty lambasted the clause, describing it as “completely unworkable”.
“It would just mean huge austerity that would just cripple the economy,” he told TheJournal.ie this evening. “The deal is flawed in that it doesn’t allow for a debt write-down.”
The draft edition of the deal – officially styled as an ‘international agreement’ – clears the way for the government to begin its examination of whether the deal will require a constitutional referendum.
The terms of the deal reinforce the demand that the measures be adopted “at constitutional or equivalent level”, but are not intended to encroach on the powers that the EU already has – a combination of clauses which may allow Ireland to sign up without the need for a public vote.
Drafted with input from all 27 EU member states - including the UK, even though David Cameron refused to sign up to the deal last week – the proposals also formally outline the limits of budget deficits that members will be allowed to adopt.
Member states will only be allowed to incur deficits beyond 0.5 per cent of GDP “to take into account the budgetary impact of the economic cycle”, or, in exceptional circumstances, “in case of exceptional economic circumstances”.
Countries may be permitted to raise these levels, but only where their government’s debt is less than 60 per cent of their GDP – that is, the total value of their economic output.
Countries are required to introduce those limits in “a constitutional or equivalent nature”, with an automatic ‘correction mechanism’ – which each country can define itself – kicking in whenever those limits are breached. Ireland has already committed to introducing such a law in early 2012.
Countries also agree to support whatever measures the European Commission recommends for eurozone countries breaching the 3 per cent rule – though this can be overturned by a ‘qualified majority’ of eurozone members.
Elsewhere, the deal sees countries agree to “take all necessary actions” towards “enhanced convergence and competitiveness” for the eurozone as a whole, and to discuss “all major economic policy reforms” with each other before introduction.
Members are required to take whatever steps are needed to guarantee “the smooth functioning of the euro area, without undermining the internal market” – a clause which could potentially heap new pressure on Ireland’s 12.5 per cent rate of corporation tax.
The eight-page document’s lengthy preamble includes the assertion that participating countries want to “incorporate the provisions of this Agreement as soon as possible into the Treaties”.
This cannot happen, however, unless the UK withdraws its current veto over any amendments to the EU’s treaties.
To embed this post, copy the code below on your site
have your say