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A Guest Post By Gavin Barrett

While I am second to none in my admiration of Vincent Browne for his willingness to engage with the legal issues raised by the Fiscal Treaty, I would have difficulties with some of the assertions made by him in his article in the Irish Times today.

1)      I am unable to see how the Pringle case (or any other case) can be the source of a legal threat to the Fiscal Treaty’s validity (as opposed to the ESM Treaty’s). The Fiscal Treaty is a normal intergovernmental treaty which the member states are perfectly entitled to agree with each other in international law.

2)      To my mind, the European Stability Mechanism Treaty clearly does not violate Article 3 TFEU. Nor does the Fiscal Treaty.  (Article 3 TFEU, as Vincent Browne correctly points out, confers exclusive competence on member states whose currency is the euro). The ESM Treaty has nothing to do with monetary policy. It sets up a permanent bailout fund to lend to member states in distress. The Fiscal Treaty also has nothing to do with monetary policy. As its name suggests, it has to do with fiscal (i.e., taxation and expenditure) policy.

3)      It is very far from clear that the Article 136 TFEU amendment process gives an opportunity to member states to veto the setting up of the ESM. It may be argued that it does, but it is not something I would bet the house on, much less the future of the Irish economy, which is what the ‘no’ side appear to want to do. The Referendum Commission does not support the view that there is a veto. Nor do the member states themselves, which will establish the ESM in July 2012 without Article 136 being in force. 

All going well, Article 136 TFEU should however be amended shortly afterwards by 1 January 2013. (Ireland, incidentally, has very little interest in vetoing this amendment, since it will put the legal basis of the ESM Treaty beyond any possible doubt. That is a good thing, since it looks increasingly likely Ireland will need to turn to the ESM for a second bailout in 2014.)

4)      I am unaware of any reason for questioning the use of the so-called Article 48(6) simplified revision procedure to effect the amendment to Article 136 TFEU.

5)       I am not aware of fundamental changes being planned for the EU’s structure which bypass procedures suitable for such change. The only one question mark that might be posed is in going ahead with the ESM Treaty without the Article 136 TFEU amendment. However, even if one took the view that the ESM Treaty should be supported by the Article 136 TFEU amendment, the latter amendment should follow its establishment within six months, then removing whatever doubt may be felt to exist in this regard.

Tom O’Connor sets out his views on the Fiscal Treaty here.   Seamus Coffey sets the record straight in a detailed response here.

Guest post from my colleague John O’Hagan

Many things in life are complex and are not, understandably, properly understood by most people, unless they devote enormous amounts of their time to do so. That is why we leave so many important decisions to our democratically-elected representatives and not to plebiscites/referendums.
The Fiscal Stability Treaty (FST) though has to be decided by referendum and because of its necessarily complex economic/legal language the electorate must rely partly on expert witnesses, as in any major court case by jury. A key thing for any jury is the credibility and reliability of these witnesses. And so it is with the referendum on the FST.

Martin Wolf provides a cogent if sobering analysis of the euro zone crisis (FT article here; Irish Times article here).    I previously discussed the “impossible trinity” facing euro zone in posts here and here.   The euro is facing an existential threat; there are political limits to the possibility of a transfer union (including limits on potential net transfers under strengthened euro zone mutual insurance mechanisms); and the ECB does not consider a higher inflation/nominal GDP growth target as consistent with its price stability mandate. 

Martin Wolf describes the dilemma thus:

If dismantling the euro is out of the question, true federal finance is unavailable and mutual solidarity will remain limited, what is left? The answer is faster adjustment, to bring economies back to health. Indeed, that would be essential even if stronger solidarity were available. The euro zone must not turn the weaker economies of today into depressed regions, permanently supported by transfers, a policy that has blighted the south of Italy.

So how is faster adjustment to be achieved? The answer is through a buoyant euro zone economy and higher wage growth and inflation in core economies than in the enfeebled periphery. Moreover, the required growth strategy is definitely not just a matter of policies for supply.

According to forecasts from the International Monetary Fund, euro zone nominal gross domestic product will rise by a mere 20 per cent between 2008 and 2017. In the latter year, it will be 16 per cent lower than if it had continued to grow at the rate of 4 per cent achieved between 1999 and 2008 (consistent with 2 per cent real growth and 2 per cent inflation).

For the economies under stress, such feeble growth is a disaster: it means that the euro zone as a whole tends to reinforce, rather than offset, their credit contractions and fiscal stringency. They can blame the universal adoption of fiscal stringency and the policies of the European Central Bank, which let the money supply stagnate.

Something may give, and it is potentially disastrous if it is the euro.   The possibility of higher nominal growth targets needs to be part of the debate. 

On strengthening the mutual insurance mechanisms, the discussion in our Treaty referendum debate of the legal mechanisms to stop the ESM going forward borders on the surreal.   The purpose of the fiscal compact is to provide an added degree of assurance that euro zone members will pursue reasonably disciplined policies.   The idea is to give other members sufficient confidence (and a degree of political cover) to allow the mutual insurance mechanisms – probably eventually including some form of euro bonds – to develop.