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Briefing document: The Austerity Treaty

Author: Sinead Kennedy

Bank bailouts, savage attacks on health, education and welfare budgets, cuts to the public sector, wage cuts and extra taxes have devastated the lives of working class people in Ireland.

These austerity policies have also made the economic crisis much worse.

Every week the government press office releases some new ‘feel-good’ story ranging from ‘we’ve turned a corner’ or ‘we’re back on track’ to Michael Noonan’s bizarre statement that the Irish economy is about ‘to take off like a rocket’. The reality, however, is a very different.

Not only has this government failed to stabilise the economy, figures released last week confirm that the situation is getting worse with the Irish economy, once again, falling back into recession.

Now the Fine Gael/Labour government are trying to make the situation even worse with the signing of the ‘Fiscal Treaty’.

Austerity Treaty

The ‘Fiscal Treaty’ is best described as an ‘Austerity Treaty’. If passed, it will mean ever more savage attacks, as governments are forced to introduce swinging cuts and increases on the taxes being paid by ordinary people.

This will not ‘balance the books’, as the government is fond of saying.

Rather it will worsen the situation as ordinary families have less to spend and more and more people are thrown onto the dole.

We only have to look to Greece to see how austerity has impoverished people to such extent that parents are putting their children into care because they can no longer afford to feed them.

The Treaty is designed to stop governments spending more than they take in tax.

This may well seem to be common sense.

But in the middle of a severe economic crisis, like the current one, this approach is economic suicide.

If the private sector goes on strike, the government has to be able to step into the breach.

Going against the economic cycle has been part of standard macroeconomics since the 1930’s but now the mandarins of Europe want to make this illegal.

The elites argue that the crisis was caused by irresponsible government spending. But the fiscal crisis only emerged after the banking crisis. In other words the fiscal crisis was an effect of a crisis that was caused by the private sector.

Government spending increased to try to solve the crisis and the main reason for government deficits is that income tax has collapsed due to mass unemployment.

What does the Treaty do?

Article 3 of the Treaty requires all member states to meet a harsh new ‘structural deficit’ target of 0.5% by 2015.

For Ireland to achieve this figure it would mean an additional €5.7 billion worth of annual cuts and taxes on top of the €7 billion the government are already committed under the EU/IMF bailout deal.

Article 4 of the Treaty demands that all member states reduce their debt to GDP ratio to 60%.

Ireland’s debt to GDP ratio is expected to be 120% by 2015. If the economy fails to escape recession, something practically guaranteed by the savage cutbacks insisted on by Article 3 of the Treaty, this will impose a further €4.5 billion on top of the €9 billion in interest payments already earmarked for that year.

These numbers are simply unsustainable and Ireland will soon go the way of Greece.

What happens is we say NO?

Both Fine Gael and Labour understand how deeply unpopular their austerity is. They are terrified at the increasing level of resistance in the country and they are adopting the ‘Armageddon strategy’ to sell the Treaty.

In other words, they hope to frighten and, if that fails, blackmail people into voting yes.

They are trying to scare people by claiming that Ireland will anger the European Central Bank (ECB) and be kicked out of Europe. This is simply not true.

We may indeed anger the ECB. But in reality all it will mean is that Ireland has not signed up to the Austerity club. Britain, for example has refused to sign and Sweden already has an opt-out on many of the Treaty rules.


The only argument the government have in their favour is the so-called ‘Blackmail’ clause, which means that if Ireland does not ratify the Treaty it will not have access to a second bailout from the European Stability Mechanism (ESM). The government actively collaborated with Merkel and Sarkozy in insisting that this clause was included in the Treaty. It has the power to demand that the clause is dropped but it wants to blackmail the Irish population.

Anyone would think that a second bailout is some form of gift from the EU. But let us not forget that bailouts are far from charity.

They work to impose the costs of the crisis on ordinary people, and in any case, the only reason that Ireland will need a second bailout is because the government is wasting billions paying off bondholders and protecting the super-rich.

The cost of the second bailout to Greek society has destroyed the lives of millions of people.

Far better to cancel the debt and redistribute the country’s assets.


More than anything, the Fiscal Treaty is an attack on democracy.

The little remaining say that we have over our economy will be handed over to unelected bureaucrats in Europe. Key decisions about our economy and our public services would be put into the hands of the European Commission and the European Court of Justice.

It will mean that any future government will have its hands tied and be forced to pursue the current austerity policies regardless of how many people oppose them.

There is an Alternative

Mainstream politicians and the media constantly insist that there is no alternative to the current strategy of bailouts and austerity. That is why they tell us we must vote for this Treaty.

The ruling class tell is that billions must be allowed to flow freely in Eurozone when it is allocated to bondholders, but that governments are not allow to invest in public services and protect the interest of ordinary people. That is why we need an alternative, one that puts the interests of people before profit.

As we argued earlier the current deficit is a result of the economy seizing up. The only way to deal with the crisis is to put people back to work through a public works programme and to tackle the investment strike of the super-rich. To do this a number of measures are required:

We need to stop paying off all debts incurred from private bank losses and indefinitely defer the rest.
We need to impose capital controls to prevent the rich moving money out of the country.

We need a wealth tax on the global assets of all who reside here. Wealthy individuals must be treated in exactly the same way as social welfare recipients. They should be legally obliged to make a full declaration of their assets to that they can be properly taxed.
We need a financial transactions tax both to make the movement of money more transparent and to prevent speculation.
We need one good state bank to manage the flow of credit in the interests of human centred and environmentally sustainable development.
We need to raise the corporation profits tax and abolish the Universal Social Charge so that the spending power of working people increases.
We need to take Ireland’s natural resources into public ownership and use them to promote industrial development.
We need to use this money to create a public works programme to put people back to work by building schools and hospitals and developing public transport and communications

These socialist policies would challenge the very basis of the EU’s structures which have been designed to serve capital.

They will not be granted through quiet diplomacy or government-to-government negotiation. They will require an escalation of the protest movement onto a new political level that involves the strength of organised workers.

This will take much work and energy but a start can be made with a loud NO to the Fiscal Compact Treaty.

The SWP will publish a more comprehensive document on the fiscal treaty in the coming weeks. The pamphlet, written by Kieran Allen is entitled, Fiscal Treaty and Euro Crisis –Reasons to Vote No.

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