A few important concepts have gone out the window as the debate in Ireland about the referendum on the Fiscal Compact has descended into political games. Perhaps the first victim was cause-and-effect, with the mere correlation of banking debts and government deficits being translated by many into iron-cast causation.
A close second in the casualty list was the concept of opportunity cost: in other words, it’s not how bad or economically illiterate the Fiscal Compact is in and of itself, it’s about how attractive it is relative to the other options. As of now, the most important attribute of the Fiscal Compact is its ability to get Ireland the funding that it otherwise would not be able to get, to allow the country to gradually close the deficit. By 2020, that may be completely unimportant and we may want to ditch the Compact. But we are voting in 2012, not 2020.
With all that in mind, I decided to develop a flow-chart that aims to illustrate the point that this is not about absolutes, it’s about options. If you click on the image, it should open up in a larger and more legible size. Hopefully you find it useful – if so, feel free to share it. If you’ve any suggested changes, pass them on and I’ll work them in.
For more text on why the IMF will not be a panacea, Karl Whelan has an excellent blog post here.