Economic Impact of the Lisbon Treaty Vote: Survey of Economists

I think I’d have to plead the Mary Robinson Amendment to unqualified acceptance of economists’ views on political, moral and social questions, if I were an economist and I had been asked some of those questions. It is clear from the 90%+ who said a yes vote is best, what their other answers will be to most of the other questions. What in the name of Mary- Robinson’s-scepticism-that-economists-and-money-people-have-anything- more-valuable-to say-about-how-our-society-is-organised-than-the -person-on-the-Clapham-omnibuson do the following questions to do with economics:
“Please indicate your view on the potential impact of a ‘Yes’ vote on
Ireland’s reputation as a committed member of the European Union?”
“Please indicate your view on the potential impact of a ‘Yes’ vote on the
Lisbon Treaty for Ireland’s relationship with other EU Governments and other parties within the EU. A ‘Yes’ vote would:”
“Please indicate your views on the likely impact of the changes in the Lisbon Treaty on the effectiveness of decision-making processes within the EU”
I would have been interested to see how many of the respondents had/have read the Treaty (and indeed the TEU and ToR). It is interesting to see that it’s virtually a 50/50 split between those who don’t believe a yes vote will affect attempts to diversify our exports/imports. Yet most respondents believe a no vote would harm FDI.

Would these be the very economists that failed to predict the housing crash? I think I’ll pass!

Stephen D, FDI has actually increased since the no vote. Industrial output in April-June rose 9.4% (Eurostat figures) compared to a drop of 0.6% in the Eurozone. Irish exports in the year up to April rose 5% compared to a drop of 29% in Germany and a fall of 9% in the UK.

I notice that some clown believes that “…there is … no risk in voting yes”!

In addition to preventing a federal EU with little or no national sovereignty, a No vote will likely bring down the government and stop NAMA.

Two great results for the price of one!

@Future Taoiseach
Thanks.

Ireland has already paid a tribute in voting No last year.
I would not able to quantify it. But it is real.

Numerous investors after the last vote were surprised at the No, concerned and disappointed.
I don’t think any would have dumped Irish government bonds for that reason alone.
The cost of borrowing did not of course jump dramatically on 13 June 2008.
The far bigger cost came paid 3 months later.
It was at that point that the No hurt, in coming on top of a number of other negatives. The banks crisis (and its mishandling) was of course the major culprit for the severe cheapening of Irish bonds. But the spectre of the earlier No hung over investment decisions. I’m sure at the margin the No vote did play a role in helping cheapen Irish debt at that point.

The world, nor the economic outlook, will not fall apart the day after yet another No. Rather if we see another crisis, a No would again – at the margin – make investors less likely to entertain risk on Irish assets.

Now the people who make decisions over such investments have a fairly sophisticated understanding of the circumstances of such a vote on the whole. They would be well aware that a No is driven by many factors, and many of them without much link to Europe.

In the immediate instance, they might see a No as a sign of government weakness. Investors instead appreciate competent and effective leadership from a government, with results. It does no help to go on collecting faux pas, one after another.
Some Irish debt today is still trading cheaper than that of single A Greece. That is a concrete tribute, if needed, to the dim view such investors have of the present government’s mistreatment of taxpayer interests.

Interestingly the survey suggests almost 10%of the economists surveyed were of the view that Ireland’s best interests would be secured by a ‘No’ vote.
Now I could well imagine some of those respondents could see interest in accrued monetary independence for Ireland, if not outright monetary union with sterling. A No would be seen as a step – if a small one – towards such an outcome. (There is a legitimate case here to be argued, but now is certainly not the time for it).

Such niggling fears grate with investors. They probably would not articulate such fears at all. But a No helps them linger on.

Such fears would start rising to the fore in earnest if there were to be another funding crisis.

Interesting read and hard to argue with.

Slightly off topic: the survey claims that ‘Exports account for 89% of Ireland’s GDP’. Is that really correct?

When I think about all the final goods and services produced and consumed by Irish people – even say the health sector alone – the figure seems a bit high. I’ve no idea what range one should expect that number to lie in and maybe I’m wrong about what I think GDP is, but it set off my ‘common sense-o-meter’.

There is an interesting article in the Economist covering both the Lisbon Treaty and the NAMA debate:

http://tiny.cc/economist413

The impression I get from the article is that Ireland’s biggest export at the moment is uncertainty. Perhaps a windfall tax on indecisiveness could be the answer to all our problems..

A bankrupt country with a democracy of many shortcomings, hasn’t got the luxury of engaging Europe, after years of haggling and compromises, in another comma in the Nicene Creed type debate.

Iceland had a lot of sovereignty, when it was forced to go cap-in-hand to Nordic neighbours and the IMF and it now endures a central bank rate of 12%.

The number added to the Live Register since June 2008 is 221,000. That had nothing got to do with the last rejection of the Lisbon Treaty but it’s equivalent to the the level of total employment in Irish industry.

Besides the state of the public finances, what would it serve a small country dependent on the European Central Bank for banking liquidity and huge challenges ahead, to antagonise bigger partners in Europe?

The recent IMF report on Ireland highlighted the decline in FDI in recent years.

The boom to bust story is bad enough without adding fuel to the fire.

http://www.finfacts.ie/irishfinancenews/article_1017812.shtml

@John Cowan

Small economies like Ireland and Singapore, which rely on a high level of foreign investment, generally have high levels of exports and imports relative to GDP.

What is striking about Ireland is that Irish-owned firms account for only about 10% of total exports.

Singapore’ exports/GDP ratio was 186% in 2008; China 33%; Malaysia 90%; Germany 48% and Japan 16%.

Some ways in which i think the survey could have been improved:

1) Ask the economists their private view separtely to economic impact e.g. do you feel that over the medium term Ireland should seek to be come more integrated, less integrated – remain about the same level

2) Knowing the number of respondent and perhaps who responded (besides those quoted perhaps)

3) Perhaps having follow-up questions to the impact ones asking the size of impact – perhaps in a ball park figure way

4) Asking the relative importance of the areas highlighted in deciding the
overall answer This would give an idea of their relative magnitudes

5)Since many of the questions implicitly are based on the idea of the treaty impacting on international businesses perception of us, perhaps a few questions such as: How important is this perception to the eocnomy, how much of an impact will the treaty have on perception and what impact would yes/no have on perception.

6) Having some balancing quotes from those opposed (perhaps one ýes’and óne ‘no’summarising the views of their side? This would avoid the appearance of bias

7) Since. to my mind at least, the major change in the treaty is the change to voting rules – perhaps some questions regarding the importance of this to the economy? In this section they could have asked: Will the changed rules increase/decrease/not effect Irelands voice in Europe. Will it enhance/hinder/not impact Irelands ability to oppose changes which we do not like etc..[I see corporate tax is touched on but surely there are other issues affected?]

Since this seems to be the substantive change (leaving aside perceptions) I think it is given insuficient weight)

[I should say that overall I am opposed to voting ‘yes’ due to what I feel is a lack of clarity/information on the changes being made and more importantly the way in which it is being sold as 1) a chance to repay europe for structural funds and our booms and 2) to preserve the perception of Ireland at the heart of the EU for investment purposes]. If we take the need to be at the heart of europe to the extreme we should never oppose integration for fear of being left behind….

@Karl: indeed! For what it is worth, I did not reply to the survey, since I feel that the issues are more political than economic. I will be voting yes because of the increase in power of the European Parliament envisaged under the Treaty, the increase in transparency in the workings of the Council of Ministers, and in the hope that a more stable European Council Presidency, and a more streamlined foreign affairs operation, will help the EU deal in a more unified way with, for example, Russian oil and gas diplomacy. (And a few more reasons besides.) As such, the fact that I am an economist has almost nothing to do with my vote. (Although I agree with previous commentators that unnecessarily introducing an element of uncertainty, however small, regarding Ireland’s future in the EU, and angering our partners into the bargain, would be a pretty stupid thing to do right now.)

@KOR

I also didn’t reply to the survey, partly because I’ve been very busy but also for essentially the same reasons you expressed. By and large, I don’t see Lisbon as an economics matter. I voted yes before and will do so again but I worry when I see people citing, for example, the ECB’s role in our banking system as a reason to vote yes. Clearly, we will be part of monetary union even if we vote no. I’d prefer to see the Treaty sold as the boring piece of plumbing that it is. But perhaps since the No side is engaged in misleading hyperbole, the Yes side feel the need to do the same. Anyway, enough said. Not really my thing.

@Michael Harvey

Just to clarify, I didn’t say that remarks from economists have no impact. My point was the the sovereign bond market is well aware of Ireland’s underlying fiscal position. So if an economist was to release a highly inaccurate forecast of the deficit, it would just be discounted and, as such, it would not have an effect.

On the general point of the influence economists can have, I think the NAMA debate shows that we can have a siginificant influence provided you are making clear and cogent points to the public.

On that note, I chuckled to myself at this line from Stephen Collins in the IT yesterday: “the scale of the negative public reaction to Nama, fuelled by the Opposition and a number of opinionated economics lecturers, came as a shock to the Green leadership.”

Methinks Mr. Collins prefers his economists to be of the unopinionated variety leaving opinion-offering to “professional” pundits like himself.

@Karl: ‘opinionated’, eh?

Thus far, economists have either been ‘leading’ (when you agree with them), or ‘ivory tower’ (when you don’t). Let’s see if ‘opinionated’ catches on.

PS. I wonder how they think they will be able to construct a world class cutting edge and all the rest of it university sector, whose academics are not opinionated, and instead go along with the conventional wisdom of ‘sensible people’?

School teacher Breda O’Brien says in the Irish Times today: “I think it is a fair point that the EU was prepared to humour us the first time we rejected the treaty, but that their patience will not extend far. Pragmatically, we cannot afford to incite any further EU displeasure, given that it is the European Central Bank which will underwrite a huge chunk of our slow recovery.

So should pragmatism, and settling for what we can get in the way of guarantees win the day? I still don’t know. There are very few advocates on either side helping me to decide.”

http://www.irishtimes.com/newspaper/opinion/2009/0912/1224254377533.html

When the ending of the prospect of war and the enslavement of millions in Eastern Europe, is regarded as a matter of no consequence, I’d love to bring the likes of Breda O’Brien into an SME dependent on export orders and she may find that monthly orders received are closely followed by every employee.

Try a period of unemployment in the money economy, and wonder how important the quibbles about the Lisbon Treaty are.

When you’re a high paid journalist or someone with guaranteed income and pension for life, how easy it is to dance on the head of a pin?

@Veronica

the economic case is by far the most important element in that battle.

I do not disagree. It is a useful addition to the debate. All I am trying to point out is that in the world we live in today, Personalities and so called celebrities probably have as much influence on the average citizen as Economists or Politicians.

I personally am fully wedded to a stronger EU. I am happy to go down the federalists road.

Irish Citizens are capable of making decisions based on sentiment rather that reasoned arguement. How else can we ever hope to explain how DANA got elected.

A good article by Fintan O’Toole advocating a Yes vote will be remembered by undecided voters quicker than a survey of independent economists.

Could you honestly deny the sort of impact that would result if characters like Gerry Ryan or Pat Kenny were advocating a no vote?

The fact that so many business leaders are making their voice heard this time gives me added confidence in the vote being carried.

“the ending of the prospect of war and the enslavement of millions in Eastern Europe,” Hmm. There’s a legitimate question about how far an internal market must impact on political and social structures in order to end all wars. And was even Nice the proverbial final straw?

@ Micheal Harvey

Good point!

Every vote presented to the electorate so far has been auction politics.
Europe has been presented to the people as largese that we can claim, and thank our national politicans for it.

Now, it is plain that they are out of their league, in more that this situation at the moment.
But, it seems the political class europe wide is little different: re: current draft of the EU consitution that we are detouring around, Gestaing is definitely no Lycurgus!!

Personally, I am still undecided on the vote.
Almost embarassed to vote either way witnessing the panto.
Lisbon is a half measure that may delay or abort the european project.
Would prefer to be voting on a proper constitution, a real discipline on power.

Al

“…Declan Ganley has challenged the taoiseach to a public debate on whether the Lisbon treaty is good for the economy,…” This might spice things up. Good on him.

Yes, short term anyway, the economic consequences of a no vote aren’t likely to be positive! However, with all due respect to the economists here, there’s more to life than just “pounds, shillings and pence”! 🙂 (even if they are important and perhaps the strongest argument for this treaty). We have to put bread on the table but if that’s our only consideration it points to a paucity of vision. In my view the advantages versus disadvantages of Lisbon are not clearcut. It’s a complex treaty. I doubt we are going to get a mature and detailed debate on it. We haven’t gotten one yet and there isn’t enough time at this stage. A point against Lisbon is that it is yet another in a long line of treaties further centralizing power in the EU institutions. Lisbon increases efficiency, yes, but at the expense of national parliaments. Perhaps the most significant aspect of Lisbon is the surrender of a veto in most areas and the ability to do so in most others. Is this country too small and economically challenged to really halt or delay this race towards further integration? Almost certainly. We have to face that we’re just not significant enough in the larger European scheme of things. But I wonder what this says about the nature of the more integrated Europe we seem to be hurrying towards and our place in it.

@ Finbarr,

A trip to Zimbabwe might enlighten us all as to what happens to a society when its economy goes south?

Under the Lisbon Treaty there’s an enhanced role for national parliaments in making EU law, not the reverse, as you state above. In practice also, the right of ‘veto’ is rarely used. Business is done by consensus and old-fashioned political horsetrading. So losing the ‘veto’ in a certain number of areas is not the great loss it’s made out to be by some No campaigners. The EU is not the Roman Empire: the only powers it has are those conferred on it by the member states.

As for Ganley and his demand for a debate on the economic implications of Lisbon, I’ll be fascinated to see what he comes up with! A three year old child should be well able for him on that topic.

@ Veronica
“Under the Lisbon Treaty there’s an enhanced role for national parliaments in making EU law, not the reverse, as you state above.”

Just for clarity, this enhanced role for national parliments is not a legislative role, is it?
Why would it be important?
If the enhanced role occurs at the same time as EU lw trumping nation law then how enhanced can that be?

Still undecided
Al

Al,

We’re part of the Eurozone. Ratifying the Lisbon Treaty, or not ratifying it, will make no difference to that. The only way to avoid future ECB increases in interest rates is to leave the euro, create a new small currency of our own, peg it to sterling…it doesn’t bear thinking about the consequences to our economy, short and long-term. If we weren’t in the eurozone, we’d be Iceland long before now.

Yes, it is a legislative role. Before the Commission can bring forward proposed legislation, the proposal will have to be circulated to the national parliaments of member states. If a certain number of those parliaments object to the proposal – can’t think of the exact number but off the top of my head I think it’s one third – then the proposal is kaput. If you’re undecided about which way to vote, the best neutral source for information is the Referendum Commission site http://www.lisbontreaty2009.ie, which should help you make up your mind.

@Veronica
“there’s more to life than just “pounds, shillings and pence”
Depends if you have any I guess…..

@Veronica

Believe me, I’m not that enthusiastic about Europe! I just believe that a ‘yes’ to Lisbon is in our best interests, especially our economic interests,

I am enthusiastic about Europe. I have no problems about heading down the federalists road.

As I stated before, there is nothing in Lisbon2 that is in our Economic Interest.

What Lisbon2 is, and I agree, is about perception.

You said earlier: I, for one, will be dipping into it for arguments to support the ‘Yes’ case when I’m blogging and canvassing in the weeks ahead. What makes the report so useful is that it contains authoritative comments on some of the questions that were put to respondents, including Prof. Lane, for example.

Make the case here of the economic benefits to Ireland of Lisbon2.

I want to see it ratified, but not by using terror tactics of economic doom to persuade my fellow citizens to back it.

Using the economic arguement, to me anyway, is just lazy politics.

@Michel Hennigan

Yes. We’re about as politically bankrupt as economically! Our political system has been blamed. Certainly our local democracy is a bit of a mess. About the only real power councilors have is over planning. I think we mostly just get the politicians we deserve though. In many ways we might be better off just outsourcing our problems to Europe. They probably would do a better job. But I kind of think that is a cop out. Maybe if we screw up enough times we’ll eventually figure things out for ourselves.

I cannot claim to be an economics expert however I would like to raise what I feel are legitimate concerns about a yes vote based on this report.

Prof O’Hagan said in the report that Ireland has litte or no control over environmental damage.

How would Ireland fare outside of Lisbon on, for example Global Warming negotiations?

We could go to Copenhagen and argue for a modest straight carbon tax. The cost of this could be negative if the least economic sources of CO2 were targeted first in the true spirit of a CO2 tax.

Under Lisbon our policy would come from what the EU agreed. Their 2012-2020 plans could cost Ireland €1 to €2bn per year and would have no more effect on the climate than the above proposal.

The report makes the same point about our lack of control over threats to energy supplies. What is meant by this? It is in the producer’s interest that the product gets delivered to the customer because that’s how they get paid. Surely as it is their money to loose and to earn, they would be better than govts at this. So what will Brussels do to improve the supply of energy?

They have already tried to improve (secure) the supply of food through the CAP but this has only resulted in higher than normal prices.

These were the first two points made in the report. The rest is not very convincing.

Lisbon will also bring in the Charter of Fundamental Rights which is unequivocally defended by the Yes side as improving workers rights. But will it also improve our international competitiveness?

Regards,

Neil S

“Note to all : Future Taoiseach is a p.ie virulently anti-EU poster……dont engage.”

Brian, I am actually very pro-EU. It is Lisbon I am virulently opposed to and the Irish people rejected it. So I make no apologies for my stance.

Michael Hennigan, given you are involved in finfact.com I find your contribution surprising. Here is my summary of some data I found on your site:

Irish exports have risen 5% in the year up to April, compared to a drop of 29% in Germany. In the year up to June, Irish exports also rose 5%. Irish industrial production rose 8.9% in the year to July – rising by a huge 68.3% in the American pharmaceutical sector here.

In that context, the argument that this recession is related to a Lisbon-related exodus of FDI does not stand up to scrutiny. The evidence suggests strongly that the no vote has not impacted negatively on investor sentiment of Ireland. Intel and Ryanair have their own reasons for supporting Lisbon, relating to Intel’s appeal against the €1.06 billion fine, and Ryanair’s desire to takeover Aer Lingus which the Commission previously blocked. What is dragging the economy down has nothing do with Lisbon, but may partly be laid at the door of the ECB’s monetary policy, which has imposed Franco-German interests on an economy at the perhipery of Europe, which had an overheating economy until 2008. A property-bubble and crash became inevitable as a consequence. If anything, events underline the dangers of too much centralisation of economic sovereignty in supranational institutions, which tend to be dominated by the Big States.

Lisbon is about the race to the bottom and cheap labour. This is in no way the fault of migrant workers, but rather the political and corporate elites who use exploitation to line their pockets while using Political-Correctness to prevent discussion on the matter. The Viking Case in the ECJ referred to limitations on workers-rights in the Charter of Fundamental Rights. The Charter also increases the pool of cheap labour through Article 15(1) which legalises work for asylum-seekers by stating: “Everyone has the right to engage in work and to pursue a freely chosen or accepted occupation.”. Consider the impact of that provision given the British optout protocol from the Charter. As with 2004, we are effectively being asked to agree to something others in the EU won’t. As Ireland and Malta would become the only English-speaking countries forced to allow asylum-seekers to work, it can be expected a large increase in illegal immigration would result. Furthermore, Paragraph 7 of the referendum legislation (28th Amendment to the Constitution Bill 2009) states that the Government and Oireachtas may take us into the Schengen area, meaning the abolition of passport checks on travellers from 25 countries at Irish ports/airports. This fits into my wider point: Lisbon will increase unemployment through the race to the bottom and facilitation of greater cheap labour movement into Ireland. That is why fatcats support it. With respect to Ryanair, it wants to take over Aer Lingus and the European Court of First Instance in March overturned a Commission ban on concessions to Ryanair by Charleroi Airtport, Belgium. They also remember the Commission blocking their previous attempt to take over Aer Lingus and hope supporting Lisbon will earn them brownie-points in Brussels. Intel was fined €1.06 by the Commission, and is currently appealing it to the ECJ. What better way to earn brownie-points with them than helping them get their federalist treaty through. I’m voting no. The men and women of 1916 died for our freedom – not to swap one empire for another. Yes to Europe – No to Lisbon.

Also, Commission President Barroso and Catherine Day both said last week that Ireland will not be punished for voting no:

“he EU is not punitive and there would be no question of throwing Ireland out [of the EU] or taking repercussions” (Catherine Day – reported in Irish Times the Monday before last)

“There will be no discrimination against Irish people if there is a No vote. You will not hear from me any threat to Ireland.” (Commissioner Barroso)

@ Neil
…..
Please!!
The Cato Institute is a libertarian institute where small government regardless of outcome is a virtue in itself.
Al

@ Al

I have been slowly learning that there are some people and groups that one should never quote here in Ireland. One is Margaret Thatcher and another is the Cato Inst. So it’s probably not worth while referencing the extensive work that has been done in the UK on the costs and benefits of membership of the EU. Although they are a different country, they are not that different to us.

Despite the limitations of cost/benefit analyses, is anyone aware of such a study having been done here since 1992 (Maastricht)? Over 800,000 people did not take the time to vote No last year because of Sinn Fein.

Regards,

Neil S