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YOUR Fiscal Compact questions: Answers from European Policy Centre

We asked TheJournal.ie’s users to put forward their questions about what the Fiscal Compact actually MEANS and we would get straightforward answers. Here they are.

LAST WEEK, THEJOURNAL.IE issued a callout to you, our readers and fellow citizens and voters, on the question of the Fiscal Compact referendum.

We wanted to know what YOU wanted to know about the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (official title).

First, we picked the most commonly-asked questions you submitted on points that you didn’t understand or wanted clarified in the wording of the treaty.

Then we posed those questions to two independent bodies here (the Referendum Commission) and in the EU (the European Policy Centre), as well as to a representative each of the ‘No’ and the ‘Yes’ side.

Click here for answers from all sides.

HERE: Fabian Zuleeg, the chief economist from the European Policy Centre (an independent, not-for-profit think tank), answers your questions:

What is NEW in this treaty for Ireland?

There are a number of new elements in this treaty, including that future support of countries will depend on the ratification of the treaty.  In general terms, this is an attempt to create commitment at the national level to maintain strict public finance control, for example requiring countries to put some of the European provisions into national law.

Can Ireland still access the EFSF fund regardless of what way the vote goes?

Any country will be able to access funds which have been agreed as part of previous packages of support; these will be unaffected by the treaty. However, any new funding will require ratification.

A figure of €11 billion has been suggested as Ireland’s maximum input into the ESM. Does the ESM have the power to increase this figure if required?

The ESM is established by a separate treaty (and is thus unaffected by the ratification of the stability treaty), which specifies the maximum amount of the ESM, as well as the ESM contribution key, i.e. what percentage is contributed by each country. To alter these would require a new treaty.

(A clarification: When asked about clauses in Article 10 of the current treaty which allow the board of governors to seek extra capacity, the EPC added that yes, this could happen, but it would require a unanimous decision, ie, each country has a veto.)

If we do require funding can the ESM set additional austerity measures as part of the agreement to provide funding to Ireland?

A new support programme would need to be negotiated between the country requiring the support and the providers of the funding, including ESM and the IMF. There would be conditions attached to such a programme, i.e. funding would be conditional on a reform programme.

If we vote Yes in this referendum, is the treaty being added to our constitution?

I am unable to answer this question as this is related to the constitutional law of Ireland.

If we ratify the treaty and then the wording of the treaty is changed afterwards, will the same amendments apply to us?

The wording of the treaty cannot be changed retrospectively. A country is bound by what it has signed so the text cannot be altered. There might be a possibility that a protocol is added at a later stage (for example, stating the commitment of Europe’s leaders to growth) but this would have a very different legal status.

The Taoiseach Enda Kenny said after the informal summit in Brussels this week that there can still be a growth deal among EU countries, completely separate to the fiscal compact. Is this possible?

It is possible and even likely that there will be some form of growth pact at European level. However, at this stage, it is unclear what this will contain and what legal status it will have. But it is highly unlikely that Germany would agree to such a growth programme without commitment to the stability treaty.

What interest rate will the ESM charge? Is it ‘at cost’ as some in the ‘Yes’ campaign have claimed?

‘The pricing for the loan shall cover funding costs plus a margin determined by the Board of Governors.’ (from the OECD)

The treaty refers to “Structural Deficit”, but it doesn’t define the term.  Some economists are worried that the term is undefined.  Could you please define “structural deficit” and provide a definitive explanation as to how exactly it is measured.

A structural deficit is relatively easy to define but how to measure it is a bit trickier.

Here is a standard definition: ‘A budget deficit that results from a fundamental imbalance in government receipts and expenditures, as opposed to one based on one-off or short-term factors.’

Different international organisation (EU Commission, IMF, OECD) estimate structural deficits on the basis of long term trends and cyclical movement in a country’s economy, but there can be differences between these estimates.

The treaty says: “In the event of significant observed deviations from the medium-term objective or the adjustment path towards it, a correction mechanism shall be triggered automatically. The mechanism shall include the obligation of the Contracting Party concerned to implement measures to correct the deviations over a defined period of time.”

Who defines what a ‘significant deviation’ is; what are the “corrective measures”; who is to define the period of time?

The medium term objective is defined in the treaty – in essence, each country should have a structural deficit which is no greater than 0.5% of GDP. The adjustment path, i.e. the timing, is proposed by the Commission. If a country deviates from this path, there is no need for a vote in the Council (which was the case in the past) but it automatically triggers a procedure where the country needs to show how it will get back to the agreed path or face further sanctions.

Corrective measures are any which can affect the structural deficit, i.e. cuts in expenditure or increases in taxes. The specific nature of the corrective measures is not going to be dictated by the EU but they will have to be sufficient to get back to the agreed adjustment path.

Is there provision for any circumstance that any individual or group of countries to opt out of this treaty in the future?

No, opting out at a future point is not an option. Countries decide now whether they are in or out, but once signed this becomes part of the country’s European obligation.

Answers from the Referendum Commission>

Answers from Sinn Féin’s Pearse Doherty for the ‘No’ side>

Answers from Fine Gael’s Simon Coveney for the ‘Yes’ side>

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About the author:

Gavan Reilly

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