TIME TO DITCH EU REFERENDUM REQUIREMENT

The hurriedly withdrawn proposal that the Greek people should vote on the bailout package they were offered shook the European Union brought an end to the prime ministership of George Papandreou.

The horrified reaction of EU leaders to the prospect of a Greek referendum is highly relevant to Ireland. The Taoiseach has been extremely keen that the changes being made to governance arrangements in order to save the Euro will not involve a treaty change that would require him to hold a referendum.

It is easy to understand why the Government is so reluctant to hold another EU-related poll. Since the decision of the Supreme Court in Crotty  v Taoiseach in 1987, all EU treaty changes, even those such as Nice and Amsterdam that were relatively minor, have been submitted to the people for via referendum.

Referendums are, quite simply, a horrendous way to take political decisions. Clear-cut, stand alone issues such as the death penalty or the permissibility of divorce can usefully be debated and decided by popular vote. Complex multi-faceted proposals such as a budget or the Lisbon Treaty cannot.

Getting oneself up to speed on the minutiae of budgetary policy and EU governance takes an enormous amount of time and effort. Most citizens, even those who are civically-minded simply don’t have the time or interest in doing so.

In these circumstances, debates on issues like the Lisbon Treaty are often made hostage to the hobby horses of individual groups that are focused on the impact of one out of a myriad of the issues covered by the relevant treaty.

Worse, long complex agreements are particularly susceptible to being misleadingly portrayed. In the last Lisbon campaign the elements of the both sides had to resort to gross simplifications and distortions as it would have been impossible to have a sufficiently “accessible” debate on the broad and largely technical issues dealt with by the Treaty.

There is a major danger that a referendum on EU Treaty changes to  save the Euro will be, once again, hijacked by groups focused on other issues such a neutrality or abortion.

In these circumstances the Government may well wish to test the continued validity of the Crotty decision. This judgment was the result of a 3 to 2 split in the Supreme Court in which the minority strongly argued that it was not constitutionally necessary to submit each and every new European treaty to the electorate.

The Maastricht Treaty, which established the Euro, was certainly constitutionally revolutionary and should have been submitted to the people. Depending on its contents, a treaty that adjusts and establishes various mechanisms to ensure the currency’s smooth operation may well be less so.

Bunreacht na h-Éireann deliberately establishes a parliamentary, not an popular democracy. Doubtless aware of the perils of direct rule by the people the Constitution in Article 29.4.1 gives the power to make treaties and carry out external affairs to the Government which in turn must lay all treaties before the Dáil for ratification (Article 29.5.1). 

Perhaps because of its origins in the 1930s when representative democracy was under severe pressure from demagogic extremists, the Constitution envisages a very limited role for the direct democracy.

Though a referendum is always needed for constitutional change, Article 29.4.10 provides that “No provision of this Constitution invalidates …. acts done or measures adopted by the State which are necessitated by the obligations of membership of the European Union”. 

Given that, in the absence of an opt-out, EU membership requires adoption of the Euro, it is certainly arguable that, treaty changes designed to ensure the currency’s proper functioning can be seen as “measures necessitated by obligations of membership” and are therefore covered by the Constitution as it stands.

Another European referendum would generate enormous amounts of heat and little light. It would require the public to develop an enormous level of interest and expertise in complex public policy issues even though most people lack the time, interest and ability to do so. It would make key questions of foreign and economic policy hostage to the obsessions of particular groups.

The Constitution deliberately gives almost exclusive conduct of matters of public policy to an elected legislature and the Government responsible to it. Direct government by the people is dangerous to minorities and to sensible policy making. Furthermore, though they have often let us down, we require professional politicians to run our affairs. Most of us do not have the time or expertise to acquaint ourselves with the minutiae of public policy.

The Crotty decision was wrong. Requiring a referendum for each and every EU treaty change is inconsistent with the Constitution’s commitment to parliamentary democracy and is damaging to Ireland’s interests. The Government should think seriously about testing the correctness of this decision before dragging us into the nightmare of yet another European referendum.

Trichet: The Man Who Destroyed the Euro

I don't know much about economics. However, sometimes the truth is so plain that even (or only?) those who lack expert knowledge can see it.

Call me Cassandra but the first article I ever wrote for the Irish Times came out on 13 January 2004. Funnily enough, at the time, the main complaint in the media was that the now saintly Germans, along with the French had not been punished for running excessive budget deficits. My article noted the differences between booming Ireland and struggling Germany and argued that "the euro is not sustainable under current political and economic arrangements". What was necessary, I thought, was for us to "face the reality that a single monetary policy will not be able to function with out any significant harmonisation of fiscal policies". The article concluded that "unfortunately there has as yet been no indication that European leaders are willing to take the tough decisions necessary to address this problem". While being right is nice, it is not as nice as living in a functioning economy. Sadly however, in the past seven years it appears that the decisions have only got tougher and the willingness to take them more scarce.

As far as I can tell, the folly of the approach of European leaders to situation in relation to Greece is equally obvious. The German finance minister, who gave a great speech to the Bundestag the other week, (http://www.irishtimes.com/newspaper/finance/2011/0611/1224298736676.html) has called for those private institutions who lent Greece money in order to make a profit to take some of the losses resulting from the fact that Greece can't pay.

Unfortunately, he has been blocked by Jean Claude Trichet (http://economicsnewspaper.com/policy/german/greece-crisis-schauble-in-confrontation-with-the-ecb-31778.html), the president of the European Central Bank who fears that to do this would cause a banking crisis similar to that which occurred when Lehman Brothers collapsed and banks ceased lending to each other for fear that a large number of banks could go bust due to losses incurred in relation to deals they had made with Lehman's.

Trichet is right that a Greek default, or forcing banks to take a haircut on money they have lent will be very tricky. However, what he has not made clear is how he envisages getting out of this mess without such a default.

Greek public debt is over 150% of GNP and they still have an enormous budget deficit. Greece is not going to be able to pay this debt back under any conceivable scenario. The scale of tax increases and spending cuts necessary to generate the kind of budget surplus to pay this kind of debt off would shrink the Greek economy to such a degree that the ratio of debt to GNP would only worsen. Trichet has not made clear how his recipe of further austerity can possibly bring Greece or the Euro out of its current predicament.

Banks who paid their analysts hundreds of thousands to verify that Greek government debt was a good bet and who hoped to make a profit from lending to the Greek government, will have to take a hit. Not only in the Greek case, but most flagrantly in relation to the private debts of Irish banks, Trichet has tried to avoid the economic damage done by foolish lending by banks by having the public take responsibility for paying off debts that might otherwise not be repaid (the ECB blocked IMF backed attempts to get senior bondholders of Irish banks to take a haircut).

His thinking is presumably that the public purse is so enormous that it could take the strain and the disruptive consequences of allowing banks to suffer the consequences of their greed and stupidity could be avoided. What is clear now is that the amount of debt owed is so great that the public purse is unable to sustain it in Greece and possibly in Ireland too.

Despite these clear facts Euro zone governments and the ECB keep avoiding the evil day those who foolishly lent money will have to take some of the consequences of doing so. This day will be painful but delaying it by throwing a further €12 billion at Greece will only make things worse.

Jean Claude Trichet presided over the huge credit flows within the Eurozone that caused this mess. He, along with feckless Greek governments and stupid, blind and lazy regulators in Ireland, allowed this huge credit bubble to reach an unmanageable size. He needs to be asked "How is your recipe of further austerity and no restructuring of debt going to allow Greece to pay off its debt mountain?" Any fool, even one who, like me, knows little about economics, can see that his "solution" cannot but fail. Austerity will shrink the economy, debt will increase relative to GNP and the cycle will go on making the debt ever less sustainable.

What is needed is an orderly restructuring. Banks will have to take a hit. This is going to be very very disruptive. Perhaps the ECB can, like the US Federal Reserve and the Bank of England, engage in "quantitative easing" (printing money). The Germans will hate this but there is no reason that the need to save the European economy should be subjugated to  the need to assuage the traumatic memory of high German inflation in the 1920s. There are no easy options and the future is going to be rough. Sticking plaster remedies based on the hope that something will turn up are going to make things worse.

European leaders are behaving like the authorities of a burning city who can't bring themselves to take the unpleasant step of dynamiting buildings so as to create a firewall to stop the spread of the flames. Yes, dynamiting houses will cause homelessness but  wringing your hands and doing nothing in the hope that it might suddenly rain will lead to the whole city burning.

Trichet's intransigence and stupidity may well mean that he may well end up being the person who destroys the Euro and with it the credibility of the European integration project.