Stephen Collins is Wrong…Again

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Stephen Collins is at it again. His latest Irish Times column on the Austerity Treaty (10 March 2012) displays his trademark disregard for the facts.

The column makes four key arguments. Let’s take them in turn.

Collins warns against the arresting but baseless slogans of no campaigners in EU referenda. He claims that opponents of the Austerity Treaty have adopted the mantra that the treaty will outlaw Keynesian economics.

In fact, the first economist to claim that the Austerity Treaty will outlaw Keynesian economics was Paul Sweeney, speaking to an Oireachtas European Union affairs committee on 23 February 2012.

Paul is the chief economists to the Irish Congress of Trade Unions. He is also a strong supporter of European Integration. During the Lisbon campaign Paul was also a vocal member of The Charter Group, a pro-Treaty trade union lobby group.

Speaking to the Oireachtas European Affairs committee in February of this year said that:

“The treaty is an attempt to outlaw Keynesian economics and stop any fiscal stimulus as a counter to recession. The Union will be outlawing interventionist economics.”

Interestingly the same Oireachtas committee heard University College Cork economist Seamus Coffee respond to Paul Sweeney’s claim. Seamus told the assembled Oireachtas members that while, “…the claim that [the treaty] outlaws Keynesianism is technically not true. It may be true in practice.”

Now, economists will continue to debate this point for some time. But the claim that the Austerity Treaty will make it more difficult if not impossible to employ Keynesian style economic stimulus is not baseless nor is it one exclusively articulated by those of us traditionally critical of European Integration.

In an attempt to emphasise his point Stephen Collins argues that if the Austerity Treaty sought to outlaw Keynesian economics Social Democratic parties across Europe would be “opposing it tooth and nail”.

To the contrary, we are told, the Swedish government were one of the first administrations to sign up to the Treaty.

Of course, Sweden is currently governed by a centre-right coalition led by the Moderate Party, so its support for the Austerity Treaty is hardly surprising.

Meanwhile Social Democratic parties are opposed to the Treaty and actively seeking changes to it.

Both the French and German Social Democratic parties have indicated that their support for the Treaty is conditional on securing changes aimed at promoting investment in job creation.

Notwithstanding this, mainstream European Social Democratic parties abandoned Keynesian economics some twenty years ago, so the strength of their opposition to the Austerity Treaty should not be taken too literally.

However, the last great bastion of European Social Democracy is the European Trade Union Confederation. Their opposition to the Treaty is clear and forthright.

Bernadette Ségol, the ETUC’s General Secretary said on 12 January 2012 that the Treaty:

“reinforces policies that do not work and fails to take up today’s challenges. Austerity does not work. We know this. It is clear from the effects of austerity measures on Greece that this is not the right way forward. The objective seems to be to impose even stricter austerity measures without offering any prospects for growth. The European Trade Union Confederation condemns this approach. Fiscal discipline alone, in the absence of recovery and investment measures, is dragging countries into crisis.”

So European Social Democrats are opposing the Austerity Treaty.

Having demonstrated his abject lack of knowledge about the politics of European Social Democracy, Stephen Collins changes tack and tries to impress us with his knowledge of the Irish economy.

He claims that the purpose of the Treaty is “to put an end to the kind of populist and inept fiscal policies that brought Ireland to the brink of ruin.”

This is a very important claim and one that deserves some close inspection.

Stephen Collins is claiming that the Austerity Treaty would put an end to the type of Government decisions that created our economic crash in 2008.

The Treaty seeks to impose stricter compliance with the existing Stability and Growth pact rules, namely the debt-to-GDP ratio of 60% and the general government deficit ceiling of 3%. It also seeks to strengthen the new structural deficit rule of 0.5% agreed by the European Council and Parliament at the end of 2011.

Now, Stephen is claiming that if the new enforcement mechanisms for the 3% deficit and 60% debt rules and the new 0.5% structural deficit rules had been in place prior to 2008 things in Ireland would have been different.

Unfortunately, for Stephen, the facts tell a different story. In 2007 the general Government balance was 0.3%, the structural balance was 2.3% and our debt-to-GDP ratio was 24.8%. In short we were completely compliant with the various components of the Austerity Treaty. Indeed on all three measures we were far from the danger zone.

Nothing in the Austerity Treaty would have compelled the then Government from taking different fiscal policy decisions.

When asked about this during the Oireachtas European Affairs committee meeting in February of this year University College Cork economist Seamus Coffee said, “”Had the fiscal compact been in place since 1999 it could not and would not have prevented the crisis in Ireland because we would have satisfied the structural deficit and debt break rule during the last five or six years prior to the crisis. As such, it would not have helped us in terms of avoiding the crisis.”

An economist closer to Stephen Collin’s own ideological world view, Colm McCarthy agreed with Seamus Coffee. Writing in the Sunday Independent on 5 February 2012 the UCD economist asked; “If the new treaty had been in place since the euro’s launch in 1999, would it have prevented the crisis?” McCarthy went on to answer his own question with a resounding, “no: only in the case of Greece, where there was real fiscal misconduct, might the treaty’s provisions have made a difference.”

It seems that Stephen Collins knowledge of the Irish economy is as limited as his knowledge of European Social Democracy.

Having so far failed to convince the reader with his baseless arguments, Stephen Collin’s does what supporters of the Austerity Treaty do when in a tight corner; he actively misrepresents the No side in an attempt to damage our credibility and then tries to scare undecided voters with claims that the country will go bankrupt if we reject the Treaty.

The first of these tactics doesn’t even merit a response.

The second claim, however, is much more serious and one I will return to at more length soon. But in considering whether the European Council would refuse emergency funding to a Eurozone member state frozen out of the markets it is important to keep two things in mind.

Firstly the impact of doing so would be seriously destabilising for the Eurozone as a whole, something no European political leader would risk.

Secondly the European Council in June 2011 said it would, “continue to provide support to countries under programmes until they have regained market access, provided they successfully implement those programmes.”

There is little doubt that the “no-ratification no-bailout funds” argument is being used to bully people into supporting the Treaty. Given their difficulty in presenting positive arguments for supporting the Treaty it is hardly surprising that the Government and their media cheerleaders such as Stephen Collins have to resort to threats to get people to vote yes.

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6 Responses

  1. redking

    March 12, 2012 2:12 pm

    Is there not a contradiction in your argument?

    The years during which Ireland would have been in compliance with the Austerity Treaty coincided with increased gov spending akin to a stimulus, though pro-cyclical. Leaving aside it having been generated by a bubble economy, doesn’t this suggest the terms of treaty don’t necessarily prohibit increased spending by the government?

  2. R

    March 12, 2012 4:57 pm

    One of the claims made by Collins was that groups opposed to the Lisbon Treaty were claiming that a yes vote would mean conscription. As Chair of the Peace & Neutrality Alliance that has consistently opposed various EU treaties since the Amsterdam Treaty and has focused on opposing the militarisation of the EU, we never said at any stage that any treaty meant there would be conscription. Even when we were members of the British Union there was no conscription. What we have sought is Protocol, similar to that achieved by the Danish people, that would exclude Ireland, like Denmark and Cyprus from involvement with the EU Battlegroups or the European Defence Agency. PANA will be again campaigning against the Austerity Treaty unless a Protocol, similar to the Danish Protocol be added to it.
    Since the Fine Gael / Labour government has agreed to spend €millions on ensuring Irish participation in the Austro-German EU Battlegroup while imposing massive cut in health, education etcthis year let alone continue to support Irish Army participation in the Afghan War, this is very unlikely.

  3. Desmond O'Toole

    March 14, 2012 12:06 pm

    One of the problems when people simply cut and paste what others write instead of reading the entire treaty is that you end up, like Eoin O Broin, with wrong conclusions. Perhaps he should try reading the sections of the treaty (Articles 1, 6, 9, 11 and 13) and the legislative six-pack that deal with economic and budgetary supervision and co-ordination. It is these elements that would have been employed to obviate the worst excesses of Fianna Fail’s vandalism of the tax base, the encouragement of an unsustainable property bubble and the criminal unlimited bailout offered to Anglo Irish Bank supported at the time by Sinn Fein.

    Furthermore, Sinn Fein and others’ claim that this is an “austerity” treaty that outlaws Keynesian economics (if by that is meant counter-cyclical stimulus) is directly contradicted by Article 3.3. which specifically relieves contracting states from the debt and deficit rules in the event of “periods of severe economic downturn” so long as medium term fiscal sustainability is not endangered.

    The mainstream European Left has serious reservations about this treaty, but our reservations go to the issue of a lack of balancing investment and employment targets and commitments. The underlying issue of fiscal sustainability and broadly balanced budgets over the economic cycle is one that we generally agree with. As Bernadette Ségol says in the quote you reproduce, “Fiscal discipline alone, in the absence of recovery and investment measures, is dragging countries into crisis.”

    Sinn Fein has form on misrepresenting EU treaties. Their opposition has little to do with economics and everything to do with their militant nationalism. After all, this is a party that consistently opposed every single treaty of the EEC/EU often using hysterical accusations about what these treaties allegedly contained. It is not just Stephen Collins who “… displays a disregard for the facts.”

  4. Eoin O Broin

    March 14, 2012 12:36 pm

    Desmond,

    In response to your patronising call for me to read the Treaty and six pack regulations all I can say that I have read both and my view of the Treaty comes from that and from the ongoing debates in political and academic circles. If there are any actualy misinterpretations of the Treaty in my article I am happy to debate those with you.

    As for your misrepresentation of Sinn Fein’s position on this Treaty or the EU more generally the only thing I can say maybe if you took a little more time to read those positions your commentary on the matter might be a little better informed.

    As for your substantive points. It is not SF who are arguing that the Austerity Treaty seeks to outlaw Keynesianism but Paul Sweney, a member of the Irish Labour party and chief economic adviasor to the Irish Congress of Trade Unions. That was the point I was making in the article.

    My own view, for what its worth, is closer to that of Seamus Coffee, also quoted in the article that the issue is not the intention of the Treaty but whats pans out in practice, which will clearly make expansionary, interventionist Government macro economic policy more difficult.

    As for the Treaty meaning greater levels of austerity post 2015 this is almost universally accepcted by economists of the centre, left and right in the debete here. Michael Taft, another member of the Irish Labour party, and economic advisor to Unite trade union has written two detailed posts on the issue calculating an additional austerity requirement arising from the Treaty of up to €6bn post 2015.

    I understand the social democratic response to the Treaty very well but don’t hold out much hope that the pre-election saber rattling in France and Germany will actually deliver anything substantive in terms of investment in jobs or growth post the elections in those two countries.

    I am also a little confused by the strong opposition to the Six Pack by Labour Party MEPs last September and the strong support for the same proposals aas contained in the Austerity Treaty by Eamon Gilmore et al in the Dail. The two sets of arguments put forward by members of the same party are contradictory. The MEPs rightly say that the six pack are anti-growth while TDs are saying that the Austerity will contribute to stability and growth.

    Finally, Sinn Fein’s opposition to the EU Treaty is based both on issues of economics and of politics. It will lead to greater levels of austerity and also gives significant additional powers to the Commission and the ECJ which undermines national democracy and sovereignity.

  5. Desmond O'Toole

    March 14, 2012 1:24 pm

    If you have read the treaty, Eoin, then it was remiss of you not to mention those articles of the treaty and the six-pack that deal with budgetary surveillance and economic co-ordination. This is not the first time that Sinn Fein spokespersons have been called out for selectively quoting EU treaties.

    It is blindingly obvious that the deficit and debt rules of the treaty would have had little or no effect on the unsustainable fiscal policies of the last government, and Michael Taft has done a concise yet comprehensive demolition of the claim that they would have. However, you do Labour Party-affiliated economists a disservice when you quote their informed observations in support of your wider claim that the Fiscal Treaty in total would have had no effect at all on the fiscal and economic policies pursued by Fianna Fail, or indeed by Sinn Fein when they initially supported the reckless bail out of Anglo Irish Bank. Incidentally, unlike in Sinn Fein, Labour Party members are allowed to disagree with each other.

    The question as to whether the treaty restricts the capacity of contracting states to effect counter-cyclical stimuls policies in a downturn is clearly not supported by the actual contents of the treaty. This issue is, however, a matter of political choice as it appears you are now accepting. A state led by the Right will tend to be antagonistic to stimulus policies as would European institutions where the Right, as now, are in the ascendant. It is also likely that they would avert to the Fiscal Treaty to provide political cover for their inaction on stimulus. That, however, is a long way from asserting that the treaty in and of itself oulaws counter-cyclical stimulus as Article 3.3. clearly says that it does not. The answer to this is to beat the Right in Ireland and across Europe, not to misrepresent the treaty.

    On the matter of the different positions adopted by the Irish Labour Party and the PES/S&D Group on the Fiscal Treaty. The European party operates in a different political space to Labour, unencumbered by the constraints of the Troika agreement. Both the LP and the PES/S&D support the need for suatainable fiscal policies and broadly balanced budgets over the fiscal cycle. (Does Sinn Fein?) However, the PES/S&D position is that this treaty is unequal to the task of economic recovery in Europe because it largely ignores investment and job creation. The Labour Party, however, has to contend, as a party in government, with the exigencies that exist here, namely the need to maintain and grow support in Europe for the changes we want to see to debt financing and the fact that failure to ratify the treaty would exclude future Irish access to the ESM. These are political realities and cannot be ignored. Expecting a rigid and conformist approach at national and European level may make sense in a militant nationalist party like yours, but not in a political family used to governing.

  6. Eoin O Broin

    March 14, 2012 1:59 pm

    Desmond, a few points.

    1. The Austerity Treaty would not have made any different in the years leading up to the crisis because the State was not in breach of the debt and deficit rules. That is a fact.

    2. Sinn Fein members disagree with each other all the time. However we vote as a party, so when a proposal comes before the EP and the Dail we take the same position. What is strange is for the Labour MEPs to so strongly (and rightly in my view) oppose the Six Pack last September only then to actively support the same proposals in the form of the Austerity Treaty here in the Dail, and in doing so to flatly contradict the analysis of the Labour MEPs.

    3. On the impact of the Treaty on fiscal policy we will have to agree to disagree. The purpose of the Treaty is to restrict government spending within even tighter limits than the original S&GP and to ensure stricter compliance with these rules (new and old). I have yet to hear an economist, other than Pat McArdle, argue that this Treaty is not more restrictive than the existing S&GP rules.

    4. As for Labour’s support for the Treaty your explanation is pretty poor. Its a bad Treaty. If the ESM link wasnt in it there would be no conceviable reason for a social democrat to support it. In my view even with that link its bad for Ireland and for the EU as a whole and should be opposed.

    5. Off course SF supports the fiscal sustainability, which is why we have consistently argued for an increase in the tax take as a % of GDP and against the low tax model advocated by FF & FG and now supported by Lab in Govt. Our problem, which I know you agree with, is that at both the domestic level and at an EU level there is no focus on stimulus. As a result the pro-aucterity policies being pursued by FG/Lab and the troika will not lead to fiscal sustainability, but undermine growth and lead to greater instability into the future.

    6. Finally on the bank guarantee – Labour in Government have adopted FGs support for the bank guarantee by twice extending the ELG, first for 6 months and then for 12 months, and on both occasions writing blank cheques for the banks and taking on additional liabilities for the State. The fact that Labour did one thing in opposition and another when in power is hardly something to be proud of.

    7. As for governing Labour is committed to social justice, yet your first budget hits those on low incomes the hardest. The RSRI study on the distributional impact of Budget 2012, published this February, said: “Budget 2012 involved greater portionate losses for those on low incomes: reductions of about 2 to 2 1/2 per cent for those on lowest incomes, as against losses of about 3/4 of a per cent for those on high incomes.” The report demonstrates that the FG/Lab budget is more regressive than each of the FF austerity budgets from 2008. If thats your idea of governing then Im afraid its not one that I can support.