The fiscal treaty and the EU’s social bargain

Patrick Kinsella argues in today’s Irish Times that opposing the fiscal treaty is not equivalent to opposing the EU. In fact, his critique of the treaty is based on the argument that its narrow focus on budget discipline contradicts the de facto bargain between capital and labour that has guided European integration since the 1950s, with steps toward freer trade consistently offset by greater protections for social rights. This is a very compelling argument.

What Kinsella does not explain, however, is who will finance the growth-stimulating investment projects of EU member states that are beset with large public debts, aging populations and generous social protections if they have refused to commit themselves to sustainable budgets. In other words, this treaty may be flawed, but those who oppose it must credibly convince us that rejecting the treaty will not undermine the very investments that European economies and societies so clearly need if we are to sustain the social bargain. And that’s only at the general European level.

In Ireland, there’s also the thorny question of who will finance the state’s borrowing after 2013 if private markets refuse to buy Irish bonds at a reasonable price and Irish voters have rejected the fiscal treaty. Treaty opponents argue that it would not be in the interests of Germany, France etc to refuse a second bailout for Ireland. In addition, they argue, the conclusions of the EU summit in January 2012 committed the EU to meeting the financing needs of states (such as Ireland) already in bailout programmes. They may be right.

But old summit conclusions and even macro self interest could prove to be an awfully thin argument for voter-sensitive German (and Dutch, Finnish etc) parliamentarians who would have to approve any such renewal of funding. And if they refused, Ireland would have a simple choice: (1) bypass the EU and appeal to the IMF for funds; (2) pay the ruinous rates demanded by private lenders; or (3) eliminate the need for borrowing by slashing public spending. Option 1 (appealing to the IMF) is unlikely to succeed without EU participation, while options 2 & 3 would require a degree of austerity that overwhelms what we are now experiencing at the hands of the Troika. Where would that leave our social bargain?

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