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Opinion: ‘Rejection could force Ireland to greater austerity’

On a ‘Yes’ vote: IBEC Director General Danny McCoy says that voting against the fiscal compact could bring dangerous economic instability and uncertainty.

Danny McCoy

IRISH BUSINESS CAN deliver the growth needed to overcome our debt burden, but companies will only invest and create jobs if there is economic stability and confidence in the future.

A Yes vote in the upcoming referendum will remove uncertainty in relation to Ireland’s future funding options and allay investor concerns about our economic outlook. In doing so, it will provide a platform for investment, growth and recovery. In stark contrast, there is not a single benefit to be gained from a No vote.

A No vote would create dangerous economic instability and uncertainty, and would undermine the very significant efforts that the whole country has made in recent years to revive our economic fortunes. This is, frankly, the last thing we need at a time when Ireland is slowly but steadily getting back on its feet.

Yes, major challenges remain, but the Irish economy has stabilised, and grew last year for the first time in four years. Despite the ongoing nervousness surrounding the eurozone crisis, the economy will again expand by about 1 per cent this year.

The jobs outlook has also improved somewhat over recent months and the export recovery has meant that job creation has exceeded job losses for the first time since 2007. The country is on the right track, it is not any easy path, but we need to stay the course. There is no quick fix alternative, notwithstanding the dubious claims of some treaty opponents.

‘Sensible rules to get debt under control’

The treaty is essentially about the better management of public finances.  It sets out sensible rules, the vast majority of which are already in place, to ensure that countries keep their debts under control and balance their budgets.

There is also flexibility built in. This enables governments to react decisively in times of acute economic difficulty.  The structural deficit rule, for example, takes account of the business cycle and explicitly allows government to take the necessary steps to support economic activity during a downturn.

In isolation, the treaty will not solve all of Ireland’s or Europe’s economic difficulties. But it is an important step in ensuring that we avoid future crises.

Taken together with other financial and governance reforms that eurozone governments have already agreed to, the treaty will deliver greater economic stability and help avoid the boom and bust cycle which Ireland, in particular, has been vulnerable to.

Of course we also need growth. The fact that growth is rapidly moving up the EU’s agenda is a very positive thing, but this does not negate the need for fiscal discipline. We need to do both, fix the public finances and grow the economy. Suggestions that we have a choice between growth and austerity are simply not true.

Claims that the treaty necessitates massive additional austerity are deeply misleading. The vast majority of the commitments set out in the treaty are already in place, either in the Growth and Stability Pact, or in the so called ‘six pack’ agreement that Ireland, along with our EU partners, signed up to last year.

But even without such commitments, Ireland cannot avoid tackling the deficit. To get back into the markets at a reasonable cost Ireland will have to repair its public finance position. This necessity, rather than EU rules, will be the predominant determinant of Ireland’s fiscal policy in the coming years.

‘Rejection would damage confidence and politically isolated the country’

While many treaty opponents misrepresent the consequence of a Yes vote, they also choose to ignore the dangers of rejection. A No vote would damage confidence and leave the country politically isolated and financially vulnerable.

Over the coming years Ireland will need to borrow billions to keep the country running. This money will be spent on health, education and welfare supports.

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But markets will not lend to Ireland if there is any doubt about our ability to repay our debts. As Europe’s lender-of-last-resort, the European Stability Mechanism (ESM) provides Ireland with a valuable insurance policy.

The Referendum Commission has put a stop to the spurious argument that Ireland could still have access to the fund in the event of a treaty rejection: No to the treaty means no access to the ESM.

If we exclude ourselves from the ESM, the country’s funding prospects beyond 2013 are uncertain. Even if markets were to lend to us, the interest rate of such a loan would be significantly more costly than that of the ESM.

The legally dubious suggestion that Ireland could and should veto the establishment of the ESM is perhaps the most misguided of all the assertions coming from the No side. Our European partners will go ahead with the establishment of a pan-European bailout facility with or without us.

Rejection of the treaty could then actually force Ireland to greater austerity. We could be forced to rapidly close the spending gap by radically cutting public spending and increasing taxes. The knock-on effect of another major economic shock on the country and economy are profoundly undesirable, both for businesses operating here, but also for each and every citizen of the country. We need to avoid this risk.

Growth is the most effective antidote to austerity, and business can deliver this growth, but first we need stability. A Yes vote will help us take back control of our economic future; give businesses the confidence to invest, grow and create jobs; and ensure that we have absolute certainty about the future funding of the state. A Yes vote will ensure that Ireland’s recovery remains on track.

Danny McCoy is Director General of IBEC, a representative body for Irish businesses and employers.

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Danny McCoy

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