Generating an Improved Debate on the Fiscal Treaty

In recent days, the compressed run up to the Fiscal Treaty referendum has been heavily criticized as  providing little time for Irish public to measure consequence and order our future. Beyond ‘trains  departing’, ‘being for Europe’ or the alleged construction of some all powerful deathstar of  austerity,  what are the important baselines to the debate?

1. The Referendum Wording
The Government selected a permissive wording, which allows for the ratification of the Treaty, and  provides relevant immunities. Usually, going for a permission rather than transplanting the rules  into our Constitution, makes it easier for future governments to withdraw from the agreement. As I discussed in my previous blog, however, the Treaty makes no provision for withdrawal, and the general rules of international law favour the blocking of unilateral withdrawal. While domestic legislation can be revoked, it is difficult to see a right to withdraw from the Treaty internationally once ratified. Der Spiegel reported last week that this lack of right to rescind has come to the attention of German politicians and that a constitutional challenge there is now likely. A reminder that in the event of a yes vote, the word necessitated will act as a brake on actions which are over expansive – as I will illustrate, there could be confusion between what the Commission/other governments expect as a matter of policy and what the debt brake commitment requires to be placed in Irish law.

2. Vagueness of the Structural Deficit
“The novelty in the Fiscal Compact Treaty is that it defines a balanced budget more precisely” – Former Taoiseach John Bruton

We should not confuse complex economic concepts with precision. The vagueness of the obligations is emerging as a consensus position amongst lawyers and economists. The lack of agreed interpretation of the structural deficit amongst the Commission, the OECD, the IMF and economists is clear. Equally the disputed nature of the concept amongst the parties – in 2011 Denmark and the Commission were nearly 2% apart in what they calculated the structural deficit to be (remember the limit is 3%) makes one skeptical that any common intention regarding the concept was present when the Treaty was concluded. Yet under the Commission’s definition, ratification of the debt brake rules would seem to require extensive cuts on the part of all but four of the potential ratifying states. The calculation can involve multiplying uncertainties – concepts such as the output gap (revised on numerous occasions by the Commission in reference to Ireland under the Stability and Growth Pact) and potential GDP. Many believe that the necessary certainty will, ultimately, be delivered by the Commission using its own detailed set of criteria. The rules may be too complicated to ever be comprehensible to the public. The Treaty does put responsibility for defining ‘common principles’ for the rules in the hands of European Commission, including principles on “the independence of the institutions responsible at national level for monitoring the observance of the rules.” In other words, independent bodies at member state level are to be set up, presumably consisting of economists and legal experts, to help discipline member-state governments. It is critical that such independent bodies which Ireland may establish are filled with critically minded economists who will position our interpretations, and enjoy government support to mobilize all diplomatic and legal energy to secure them. It is also significant that this Treaty will not benefit from common EU law devices such as direct effect and supremacy, consequently the open-textured nature of the commitments, and the cumbersome oversight methods, should be exploited to the full.

3. Exceptions on Exceptions
From Fintan O’Toole to the front page of the New York Times, the claim has been made that Keynesianism is outlawed, and austerity is institutionalized. Firstly, we must recognize the provision for “exceptional circumstances” can include an “unusual event outside the control of the [Eurozone government] concerned which has a major impact on the financial position of the general government.” Such circumstances could also include “periods of severe economic downturn”, causing a “temporary deviation” in the budget that “does not endanger fiscal sustainability in the medium term”. That second provision contains an exception to an exception, and relies on an open-textured concept like ‘sustainability’.

It is time to decommission the easy absolutist Keynesian statement – it remains possible to create surplus in the good times and disburse this – Keynesian economics is based on reading the stage of the cycle – and doesn’t just kick in the context of recessions. As for the scale of the inevitable austerity, looking at the structure of the exceptions, we see uncertainty. Essentially the Treaty is like a Russian doll. What do we end up with after all the layers? A legally imposed definition by the Commission? An economically driven definition responsive to the market? A political definition stabilized only by power relations amongst institutions and Member States? The more I look at this instrument, the more its vagueness funnels us into the question of interpretive power. How will definitions of these concepts be produced and enforced? What do the relevant parties understand by these terms? This reality will produce claim after claim about the Treaty’s potential, with no agreement on either side. The problem is summed up well by Professor David R Cameron:

As a measure of fiscal rectitude, it mandates use of a statistic that is unobservable and can be estimated only with a plethora of assumptions about cyclically adjusted revenues, expenditures and output. Nevertheless, it mandates that the rule incorporating that measure be inscribed in national law through “provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed” and be accompanied by an automatic correction mechanism based on principles proposed by the European Commission.

The outstanding example of the poorly written nature of the Pact is the fact that even the ‘permanent’ (whatever that means) automatic correction mechanism required under Article 3(2) “shall fully respect the prerogatives of national Parliaments”. Yes, that is an automatic budgetary correction mechanism that, while removing the power of national parliaments to implement certain budgetary policies, also ‘fully’ respects the traditional powers of Parliament. This seems to denote a spirit of moderation, of partnership, but certainly does not contain any clarity. This is a Treaty that reaches grandly for the symbolics of law while never pausing to construct practical functionality. An informed debate demands more information on the process which will be unleashed if it enters into force – otherwise we are left simply swapping old polemics.

4. Enabling, not Congruent Law
The great legal philosopher Lon Fuller produced eight basic (and hardly controversial) values essential to well-operated law. In order work, law is not simply something imposed but something that is practiced by society and renewed in its practice. One of his most fundamental principles was that the law be congruent. This refers to the degree of fit that there should be between what written laws declare and how officials enforce those laws. Congruence requires that lawmakers pass only laws that will be enforced, and requires officials to enforce no more than is required expressly by the laws. Building a consistence practice of communicative legality is something which European institutions failed to do under the Stability and Growth Pact, and arguably, more broadly. The absence of congruence in European law has led to the justifiable criticism of another great philosopher Jurgen Habermas announcing that Europe cannot continue in such an elitist modus. Simply stating that the Commission will give the answer that does not serve predictability, consistency or link to democratic consent. Can we rely on the Commission to be consistent, as underlined by the recent Spanish success in softening the time required to meet their target? If the Commission imposes its interpretation, can the Treaty framework cope with real, concerted disobedience?

5. Can we exploit its shaky administrative and judicial structure?

This Treaty normalizes a state of exception. The UK government continues to insist that it reserves the right to challenge the use of European institutions to supervise a non-European agreement where it goes against their interests. One of the primary ways of enforcing the Pact is by imposing upon European states an obligation to follow the Commission’s recommendations in the deficit procedure (with a qualified majority required to reject them). At first blush, this obligation seems contradictory to EU administrative law, article 126 and 16(3), which provides for approval by qualified majority. The Centre for European Policy Studies note that all sides negotiating the Treaty wished to avoid even the appearance of conflict between EU law and the Treaty’s terms (Articles 2 and 7 of the latter reiterate the supremacy of EU law), ‘therefore, only a “soft” interpretation is justifiable in terms of a political, non-justiciable commitment’. The paper concludes that the Fiscal Compact has been oversold in terms of its practical impact.

Recent days have seen the publication of an excellent overview of these issues by the European University Institute in Florence, where a number of experts, including Bruno de Witte, have very cautiously concluded that the Fiscal Pact scheme is unlikely, ultimately, to be found to be incompatible with the European Treaties. The lack of clarity is not just relevant for the United Kingdom’s potential action – it speaks to the practicability of the entire Treaty framework – European institutions concerned about their competence are more likely to be collaborative and less likely to challenge transgressive behaviour. Ultimately, what should unite all citizens is the need to gain a sense of how the Commission and other governments conceive the power they are gaining. Will they be chastened by the disorganized nature of the constitutive Treaty? How will our government seek to exploit the circular, open-textured nature of the obligations in passing the national implementing legislation and in their international actions? Just as those on the ‘yes’ side justifiably warn against an uncritical ‘no’ which ignores consequences, an uncritical or overly deferential ‘yes’ must also be avoided.

Generating an Improved Debate on the Fiscal Treaty

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