Fiscal Compact Resources for the Public

Let’s try something. We have a lot of information on the fiscal compact between the moderators and the readers of this site. The public at large would like to know more about the fiscal compact-what it is, what is it supposed to do, how it is supposed to work, and its potential ramifications.

So let’s put something together. I volunteer to edit and typeset a booklet (type thing) for free download here on the Irisheconomy blog as an Irisheconomy note. Let’s set ourselves a deadline for perhaps 2 weeks’ time.

What I’m looking for are short pieces of text, links, illustrative examples, and source documents, contributed by commenters.

Obvious links are the treaty itself, and Seamus’ Oireachtas briefing document.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

35 replies on “Fiscal Compact Resources for the Public”

If it’s aimed at the public at large, should it have ‘analysis’ (comment, opinion) as well as facts?

I am a member of the public ‘at large’ who comes to this website regularly to read both the posts and the comments. So do many of my friends who are also non-economists seeking readable expert opinion on economic issues Absolutely it should include analysis. Why not?

Is this the best version of the six pack to link to?

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/898

Some of the argument centres about how much of the “Fiscal Compact” differs to the six-pack, so it is useful to know what the six-pack is.

Also, even if they are very similar it is useful to know how they might change or be changed in the future, ie you can sign up to two things which look the same but if one is renegotiable but the other isn’t then they’re different.

Maybe we could structure it like this, with commenters filling in sections or adding links?

1. What are fiscal rules?
1.1 What is the six pack?
2. What is the debt brake?
2.1 What is the fiscal compact?
2. What does it say?
3. What is it intended to do?
4. Arguments for and Against

and so on

By Post Author

I think if you’re going do analysis as well, which is obviously going to contain opinion as well as facts, then we may need some “I’m voting Yes/No” disclaimers, just so we can then all decide if there is an editorial bias, so to speak.

On 4, ask Japan what would have happenned if they had tried to apply the fiscal compact over the last 20 years. After 2 attempts to reduce the budget deficit (1997 and 2001) which led to massive contractions of the economy and increases in the deficit, they finally got it. At the next attempt (2005), the Bank of Japan told the government in unambiguous terms that it should NOT attempt to reduce the budget deficit. That is the difference between experienced policy makers and the European austerity clowns.

How about some context ? Budget deficits of the PIIGs , bond yields, LTRO etc

Informative charts are always useful .

So then:

0. Context
0.1 Budget deficits, Bond yields, LTRO, etc.
1. What are fiscal rules?
1.1 What is the six pack?
2. What is the debt brake?
2.1 What is the fiscal compact?
2. What does it say?
3. What is it intended to do?
4. Arguments for and Against (with individuals saying whether they are ‘for’ or ‘against’ ala BEB.)

By Post Author

@Stephen

Given the large amount of misinformation that is likely to circulate during the treaty, perhaps it is wise to have a section entitled “What it does not say”.

Arguments for and Against (with individuals saying whether they are ‘for’ or ‘against’ ala BEB.)

If you’re going that route, suggest classifying the arguments by type; for example:

Economic arguments (about constraints on countercyclical fiscal policy for example).
Political arguments, EU level: why compact good/bad politics for EU.
Political arguments, Irish level: why compact good/bad politics for Ireland.

This is perhaps the best way to unpack a view such as Colm McCarthy’s: the compact is lousy economics, won’t work for EU, but Ireland needs to go along to ensure ability to borrow.

@bazza, that’s a really large set of information, no? I’d like to stick fairly close to the ‘facts’ first and then leave interpretation towards the end. Perhaps two or three 600 word pieces ‘for’ and the same number ‘against’?

By Post Author

@ Stephen Kinsella

The first key question is what, if anything, will the fiscal pact add to the limitations that Ireland has already accepted and incorporated in its legal system (via the adoption of EU Regulations, the elements of which need not be transcribed into Irish legislation) in the context of the Six Pack?
(In arriving at an answer, a compare and contrast between the language of the relevant texts in (i) the Six Pack (ii) the Fiscal Pact and (iii) the agreed programmes for Ireland will be required cf. recent contribution by Brian G.)

The second key question is a political rather than an economic one; what extra limitations have been accepted with regard to the domestic repeat domestic conduct of budgetary policy (essentially Article 3.1.e and Article 3.2)?

If the answer to the first is zero, which I think it is, then the question that the Irish people are being asked to give their opinion on can only relate to the second issue.

This Janus-like nature of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (SCG Treaty) – facing towards the EU and national capitals – is its really distinctive and important feature.

@Docm, these are all good points, but I guess what I’m looking for first is a set of simple explanations and paragraphs for the structure above, and then the what if stuff you’re talking about, which is all valid, but only after the reader understands, say, what a structural deficit is, and what a debt brake is, and so forth.

By Post Author

@ Stephen Kinsella

Once the discussion turns to the arcane technical aspects of the treaty, what it is really about will be lost to the general reader.

I will take the liberty here if quoting what Brian G had to say on the other thread (re. article by Colm McCarthy).

Quote

1) Debt above 60% GDP must be reduced gradually.
This is not new. The need to reduce debt by 1/20 of the excess over 60% GDP is part of the six-pack, introduced late last year.

2) Maximum structural deficit of 0.5% GDP

This is not new. Ireland has already signed up to a target of 0.5% GDP structural deficit under the medium term objectives part of the SGP (the medium term objectives were introduced a few years ago). The absolute SGP limit is 1.0%, but Ireland agreed a slightly stricter measure on the basis of future pension liabilities. (The SGP limit of 1.0% is going to be reduced to 0.5% to align with the treaty target).

Unquote.

This was news to me and may also be news to others.

@Stephen

I take your point, but it would be good to dispell the myths that will likely be propagated. For example, it should be stated clearly that the treaty will not affect:

– our membership of the Euro
– our membership of the EU
– access to the current bailout funds
– the current program of deficit reduction (and resultant austerity) overseen by the troika.

I would hazard a guess that these facts are not clear for the majority of the electorate.

@stephen

In your list I think you should include

“Why are structural deficits hard to define and measure?”

“Why are they particularly difficult to define and measure in an economy like Ireland’s”

@Stephen Kinsella

In the spirit of the Aesthetic Turn in Irish Political Economy, may I humbly suggest an illustrative ditty for the front page …. the children of the nation will readily understand it … as it dawns on them that they and their future offspring may have to wear it and pay for it … savvy adults should also be able to figure it out ….

The Owl and the Pussycat [Edward Lear on the Merkozian Fiscal Corset]

The Owl and the Pussycat went to sea
In a beautiful pea-green boat,
They took some honey, and plenty of money,
Wrapped up in a five pound note.
The Owl looked up to the stars above,
And sang to a small guitar,
“O lovely Pussy! O Pussy, my love,
What a beautiful Pussy you are, you are, you are,
What a beautiful Pussy you are.”
Pussy said to the Owl “You elegant fowl,
How charmingly sweet you sing.
O let us be married, too long we have tarried;
But what shall we do for a ring?”
They sailed away, for a year and a day,
To the land where the Bong-tree grows,
And there in a wood a Piggy-wig stood
With a ring at the end of his nose, his nose, his nose,
With a ring at the end of his nose.
“Dear Pig, are you willing to sell for one shilling your ring?”
Said the Piggy, “I will”
So they took it away, and were married next day
By the Turkey who lives on the hill.
They dined on mince, and slices of quince,
Which they ate with a runcible spoon.
And hand in hand, on the edge of the sand.
They danced by the light of the moon, the moon, the moon,
They danced by the light of the moon.

http://www.rhymes.org.uk/the_owl_and_the_pussycat.htm

@ Stephen

I am not sure which target market you have in mind but would an introduction to the Troika not also be useful ?

@ Stephen Kinsella

‘…I guess what I’m looking for first is a set of simple explanations and paragraphs for the structure above, and then the what if stuff you’re talking about, which is all valid, but only after the reader understands, say, what a structural deficit is, and what a debt brake is, and so forth.’

If there is anything I have learned from this board, it’s that economic problems are anything but simple. The ‘good fiscal housekeeping’ meme is also a clever way of distracting the citizenry from some deeper and nastier issues, such as those raised by Paul Hunt and the Dork, for example.

I would hope you won’t play along with that one. Things are too serious.

@seafoid

Unicorns and cannonballs,
Palaces and piers,
Trumpets, towers, and tenemets,
Wide oceans full of tears,
Flag, rags, ferry boats,
Scimitars and scarves,
Every precious dream and vision
Underneath the stars

(-;

@Stephen Kinsella

A “What’s new in the fiscal compact” section would be useful (and short).

It would also be very useful to try and get some insights into the legal issues involved from those that have an understanding of this, and then summarize the result. For example – one of the few new features in the treaty is that the fiscal rules would exist in national law as well as EU law. Since EU law takes precedence, what’s the point? Can someone (or some other country) now take an action in an Irish court against the government for breaking the law”? What if they win – what are the remedies? Could budget measures be decided in the courts? If a budget is illegal what budget then applies – the last legal one? Since it makes no sense for the government to fine itself, fines would have to be levied by the EU Commission, which would require EU-law, rendering the national law pointless? And so on.

The idea is an excellent one.

A few possible topics of interest.

What is meant by ‘structural deficit’, and who decides?

Why is this not part of the EU?

What good/harm could it do to the EU?

What good/harm could it do to Ireland?

What is the ESM treaty this one is linked to?

What cost/benefits arise for Ireland in that treaty?

@ Stepehn Kinsella

For the purposes of Article 8 a link to, and brief description of, the Court of Justice of the European Union would be handy.

Having said that and @ paul quigley

I’m not sure a document like this is the place to try to fully contextualise everything. At the least it would introduce a lot of disputed material. Also, it might feel like an endless wander through Borges’s library.

I agree with seafóid’s putting of a context at the beginning, and for those who are interested a good set of ‘further reading’ links at the back should do it – including the irisheconomy.ie where they can meet Mr Hunt and the fearsome Dork themselves.

http://curia.europa.eu/jcms/jcms/Jo2_7024/

Martin Wolf today

Nobody knows what a structural deficit is.
This is no quibble. Consider the structural fiscal positions for 2007, the last largely pre-crisis year, estimated by the International Monetary Fund in October 2007 – in “real time”, as it were. This was a year when the indicator needed to scream “crisis”. Yet it showed Spain with a large structural surplus and Ireland in structural balance (see chart). Both were even in better shape than Germany. Greece did have a sizeable structural deficit. But the French deficit was worse than that of Portugal. The rule would not have discriminated between vulnerable countries and immune ones because it ignores asset bubbles and financial manias.
The IMF then had second thoughts. By October 2011, it had concluded that Greece’s structural fiscal deficit in 2007 had been 10.4 per cent of GDP, not 4 per cent, and Ireland’s 8.4 per cent, not 0.1 per cent. This is not a criticism of the IMF. It merely shows that the concept the eurozone wishes to embed in a new treaty will fail when accuracy is most needed. The true structural deficit is unknowable.

*And ain’t it just so*

http://www.ft.com/intl/cms/s/0/f54332d2-66dc-11e1-9e53-00144feabdc0.html#axzz1oQjSW8iQ

a reading list as suggested by Gavin would be very useful.

@ Eamonn Moran

Thanks for the links. They are highly informative contributions from Seamus Coffey, as usual. The first slide is, however, a bit puzzling. The government has already indicated that, as far as the Constitution is concerned, the amendment for which authority will be sought by way of referendum will be a simple yes or no to the insertion of a text authorising the government to ratify the fiscal treaty. (There are several examples already in the Constitution in relation to other international agreements viz. Articles 29.5 7,8,9).

There is an implementation delay of one year after the treaty comes into force with regard to the new rules to be adopted nationally (Article 3.2 of treaty).

Breaking Newz

Text from Blind Biddy:

‘In Frankfurt for International Women’s Day – We’re gonna have a Bonfire of those Fiscal Corsets … home soon!’

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