Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

The Austerity Games: Ireland’s Fiscal Treaty referendum redux

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.

Ireland's austerity choices

For more text on why the IMF will not be a panacea, Karl Whelan has an excellent blog post here.

  • #EUREF: Real political price of the Treaty is “shift from community to union”… « Slugger O'Toole ,

    […] (H/T Neville), rather starkly, the cost of pulling out of that shift from community to Union’ will extract a hell of a price… Tags: #euref, Euro crisis, Europe, eurozone Topic: Economy, Government, Politics, Society and […]

    • Lorcan ,

      “Being an EU member can give you access to more emergency funding than any other borrowing entity on the planet. Would you like to get this funding?”

      “Yes” or “No” are the obvious options here but it’s not so black and white – gains can be made in negotiation in the grey area. So an alternative, low risk option would be the following:

      Yes, but…

      …not at the cost of prolonged austerity which stifles recovery and ignores unsustainable and unjust debt. If you’re Irish, VOTE AGAINST joining the EU Fiscal Compact thus allowing your government to return to the negotiating table with the “default-on-bank-debt-plus-implement-12/24-month-IMF-backed-Austerity-max” route as its backstop position. Take advantage of growing anti-austerity sentiment in other, larger member states during negotiation.

      Ultimately a No vote is a low risk strategy – you force the ECB/IMF to address the unjust and unsustainable bank debt issue while reserving the right to vote Yes later, if/when Fiscal Compact becomes more attractive with stimulus and/or bank debt relief.

      • Andrew Gallagher ,

        • Laura ,

          Good stuff Ronan, this puts the impact of voluntarily pulling away from eu support very realistically. The problem as I see it is that the economists who promote this think it’s a great idea to savage welfare and public sector pay, but their words are misused by the anti treaty coalitions who still insist that current rates are payable. I think the only viable political answer is to deflate their values, which will be difficult to do.

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