16 November 2011: the day Europe lost its marbles
The Irish government has consulted with its lawyers, and decided that it must hold a referendum on whether to ratify the EU fiscal treaty. This is the treaty under which, as Owen noted when it was first announced by Merkozy in December, Keynesianism will become illegal.
Given the Irish public’s experience of enforced austerity, a bote in favour of ratifying the treaty must be unlikely, and the commentators are hard at work now trying to work out what the consequences will be, both for Ireland and the EU as a whole. Michael Burke is optimistic:
If Irish voters do reject the treaty, they will be performing a great service to the population of Europe. It could mark a turning point in the EU and beyond, pulling the brake on the austerity express before it hits the buffers.
I wish I could share with Michael’s enthusiasm, and hope that leftwing governments, led by an incoming socialist government in France, and backed by Ireland and others, could get on with offering a new vision for Europe based on sustainable growth; that is, after all, what I was advocating not long ago.
That, however, was before I had read up properly on the six EU regulations (the so-called ‘six pack’) that came into force on 16th November 2011, three weeks before the Merkozy plan was made public.
These six regulations (if you’re short of time, 2011/1176 and 2011/1174 are the crucial ones) mean that the treaty is little more than the political icing on the cake. The regulations passed in November, with no oversight from national parliaments and no news coverage to speak of, already enshrine in law the way in which governments must run their economies, the measures by which they will be judged and (in the Eurozone) how and to what level fines will be levied on countries with “macroeconomic imbalances”.
These fines will run at 0.1% of a country’s GDP. Spain, with a GDP of roughly £1 trillion, would therefore stand to be fined £1 billion in each year of non-compliance.
But this is only the start of the madness. To get a real feel for how crazily counter-productive the new arrangements are – they’re already in force, remember – you have to look at the detail of the “scorecard” by which country compliance will be measured. This is a good summary.
The “scorecard” has two areas: a) External imbalances and competitiveness; b) Internal imbalances
The external imbalance part calls foul when a country has a “3 year average of the current account balance as a percentage of GDP, with a threshold of +6% and – 4% of GDP”. This is drawn from the original Growth and Stability Pact, and has been the focus of comment to date, as it is also the lynchpin of the proposed treaty.
Even so there are measures which cause greater concern, including the requirement that export market shares must not dip by more than 6%, and – most worryingly – that “the nominal unit labour cost” must not exceed +9% in euro countries and +12% in non-euro countries. These two measures are, to any sane person (let alone a sane socialist) are extraordinary, in that they a) punish governments for economic activity over which they have relatively little control; b) effectively outlaw workers gaining better terms and conditions for the same labour, over and above a certain point (this would mean that a government could not raise its national minimum wage as a pro-active policy measure, by say 25%, for fear of being called out for “macroeconomic imbalance”.
But we’re not done yet. The regulation scorecard moves from external to internal imbalances. Here, alongside the requirement to hold down private sector debt to less than 160% of GDP (again, largely beyond a government’s control in a market economy), there is the baffling idea that a country is unsustainably imbalanced if house prices deflate by more than 6% year-on-year. Woe betide any country which decides that it might be not such a bad idea to let house prices decline so that people – in areas where there is little rentable accommodation – can actually afford to live in a house.
And to top it all, countries stand to be fined if they let unemployment exceed 10% on a three-year average. This little pearl comes at the end of a set of criteria which directly militate against lowering unemployment.
So while I’d like to share enthusiasm about the potential for seeing off the austerity treaty – and I wish the Irish public all the best in their efforts – I can’t help feeling that deep in the bowels of the EC/EU, those who wield the power by regulation will not be too concerned. They’ve already imposed the treaty – they just didn’t bother to tell us.
Remember the date – 16th November 2011: the day Europe finally lost its marbles.