LAST WEEK, THEJOURNAL.IE issued a callout to you, our readers and fellow citizens and voters, on the question of the Fiscal Compact referendum.
We wanted to know what YOU wanted to know about the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (official title).
First, we picked the most commonly-asked questions you submitted on points that you didn’t understand or wanted clarified in the wording of the treaty.
Then we posed those questions to two independent bodies here (the Referendum Commission) and in the EU (the European Policy Centre), as well as to a representative each of the ‘No’ and the ‘Yes’ side.
Click here for answers from all sides.
HERE: The director of Fine Gael’s ‘Yes’ campaign, Minister Simon Coveney, answers your questions:
What is NEW in this treaty for Ireland?
An awful lot of the Treaty isn’t new; we’ve already agreed to much of its contents in existing EU treaties, agreements and laws. But there are some differences. Legally, the parts of the Treaty dealing with debt will be written in national law. This is a positive measure which will encourage good housekeeping across the EU and ensure that Governments spend taxpayers money wisely.
The Treaty will also introduce an automatic mechanism which will introduce correction plans based on common principles for countries if they don’t stick to these budget rules.
Finally, the Treaty means that there will be more effective monitoring across the euro area to ensure countries in difficulty undertake structural reforms to get their economies back on track.
Can Ireland still access the EFSF fund regardless of what way the vote goes?
The EFSF is a temporary fund, which is being replaced by the permanent ESM fund. The only way we can access the ESM is by ratifying the Stability Treaty. This is clearly set out in the Treaty, and has been clarified on a number of occasions by the independent Referendum Commission. We need to borrow about €18 billion in 2014 when our current funding runs out; if we reject the Treaty we will be cut off from the ESM, and the EFSF will no longer exist by then.
A figure of €11 billion has been suggested as Ireland’s maximum input into the ESM. Does the ESM have the power to increase this figure if required?
Ireland is going to contribute €1.27 billion to the ESM over three years. While this is significant, it should be looked at in the context of the amount of money the ESM could potentially provide to Ireland in the future.
The €11 billion figure refers to ‘callable capital’, and it is extremely unlikely that we will ever be called upon to inject this money, for a number of reasons. First of all, the ESM will be able to raise money on the markets to boost its lending capacity. And secondly, Ireland would only have to contribute this much if all of the ESM’s €700 billion was used up, and if all of it was defaulted upon. This is highly unlikely.
If we do require funding can the ESM set additional austerity measures as part of the agreement to provide funding to Ireland?
The terms and conditions of funding from the ESM will be worked out on a case by case basis. But the reality is, as I already mentioned, we need to borrow €18 billion to fund the State in 2014. If we can’t get this on the markets, and we are cut off from the ESM because we rejected the Treaty, we would be facing extremely harsh measures to close this funding gap over night.
If we vote Yes in this referendum, is the treaty being added to our constitution?
No, the Treaty is not being added to the Constitution. If we vote Yes we are simply allowing the Government to ratify and implement the Stability Treaty, no more than that.
If we ratify the treaty and then the wording of the treaty is changed afterwards, will the same amendments apply to us?
The Treaty is not going to change; we know what we are voting on, and this will not change. This was clarified at last week’s EU leaders summit in Brussels. The Treaty was agreed in March, its text is not going to change. In the referendum the Irish people are being asked to give the Government permission to ratify the Stability Treaty.
The Taoiseach Enda Kenny said after the informal summit in Brussels this week that there can still be a growth deal among EU countries, completely separate to the fiscal compact. Is this possible?
Absolutely. The Stability Treaty is just one piece of the jigsaw when it comes to addressing Europe’s difficulties. The Irish Government has been stressing the need to push growth up the European agenda for some time. This has been boosted by the election of President Hollande in France, and it is expected that further progress on growth measures will be made at the June EU summit. This will have no impact on the contents of the Stability Treaty.
What interest rate will the ESM charge? Is it ‘at cost’ as some in the ‘Yes’ campaign have claimed?
The interest rate and other conditions will be agreed on a case by case basis. Ireland has already secured a cut to the interest rate being charged on our current EU/IMF funding. The purpose of the ESM is to ensure stability across the euro area; in my view this would of course be taken into account when interest rates are being agreed. In other words, it would not be in the best interest of the ESM or the countries it lends to if it charged punitive interest rates. It’s important to add that voting Yes is the only way to guarantee access to the ESM.
The treaty refers to “Structural Deficit”, but it doesn’t define the term. Some economists are worried that the term is undefined. Could you please define “structural deficit” and provide a definitive explanation as to how exactly it is measured.
The structural balance is the situation that would exist if ups and downs of the economic cycle are smoothed out. Under the Treaty, countries are required to work towards achieving a structural deficit of 0.5% of GDP; in other words, they are being encouraged to balance their budgets. Ireland is already required, under our current bailout programme, to get our deficit down to 3% by 2015, and we are on track to do this. A time frame will be worked out with the European Commission for us to further reduce our deficit. It will be worked out on a country specific basis, and there are flexibilities built into the Treaty on this. For example, ‘exceptional circumstances’ will be allowed for.
The treaty says: “In the event of significant observed deviations from the medium-term objective or the adjustment path towards it, a correction mechanism shall be triggered automatically. The mechanism shall include the obligation of the Contracting Party concerned to implement measures to correct the deviations over a defined period of time.”
Who defines what a ‘significant deviation’ is; what are the “corrective measures”; who is to define the period of time?
This part of the Treaty relates to the fact that there will be closer monitoring of EU governments, to make sure they are sticking to sensible budget rules. In our own case, this will be carried out by the Fiscal Advisory Council. What constitutes a significant deviation and what corrective action should be taken will be worked out with the European Commission.
Is there provision for any circumstance that any individual or group of countries to opt out of this treaty in the future?
The Treaty will come into effect once it has been ratified by 12 countries. Once a country signs up to the Treaty, its rules are binding. Any country can opt out of a Treaty if desired but it is in Ireland’s interests to sign up to this Treaty so that we have the opportunity to access ESM funds at low interest rates if necessary in the future.
Answers from the Referendum Commission>
Answers from Sinn Féin’s Pearse Doherty for the ‘No’ side>
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