A number of people have asked me why I am voting yes in the upcoming referendum on the Stability Treaty (Fiscal Compact, whatever you want to call it!), so I have decided to do a series of posts on why I am voting Yes. Here is the first part of the series.
One of the main reasons I am voting yes to the 30th Amendment to the Constitution on May 31st is to ensure Ireland has stability in the future. If we do not have access to the European Stability Mechanism (ESM) we put this at risk, in my view.
We are going through a tough time as a country at the moment, with the Troika (IMF, ECB and the EC) here telling us we have to cut spending and raising taxes to meet certain targets. We need to hit these to enable us to return to the markets.
If we do not accept this treaty we will not have access to the ESM, which will have more money available to us then the IMF.
While we will still have access to the IMF, we will not get the same level of funding as we did last time. It could mean a tougher time for us as citizens. UCD Economist Karl Whelan recently explained this on Morning Ireland
Ireland could apply to the IMF for funds. However, people need to understand that the IMF has its procedures in which is assesses how much money it’s willing to lend to a country. How much money they’re normally willing to lend a country, depends upon what’s called the size of a country’s IMF Quota. They normally will lend maybe three, four, five times a country’s Quota. They’ve already loaned Ireland, fifteen times our Quota. So that is well beyond their normal behaviour. Now why did they do that? They explained why they did that. They said that because Ireland has this additional support from Europe, they think that they’re not in as much, in as risky a situation. So we are now talking about, in addition to those loans that we already have from the IMF, will they give us far more than that, because now instead of being one third of the current bailout, they would have to be all of what’s afterwards. Most likely in that situation, what the IMF would do is deem Ireland’s debt situation to be unsustainable. The only way I think that they would be willing to lend to us, is if they say oh yeah, these guys are not going to be able to pay back all their debts. So you will see the existing debts, the sovereign bonds that we’ve issued to private investors, will at that point most likely be restructured. At that point they may be willing to think about, after a default, and we are shut out of financial markets for a number of years, they may be willing to give us a small amount of money.
So that means we have the possibility of a default if we do not vote Yes. Also possibility of a default means that we have a chance of having more austerity then less. As Karl Whelan again pointed out on Morning Ireland,
I think a most likely outcome of a No Vote that isn’t in any way reversed, and we just say we don’t want to borrow from the ESM, the most likely outcome from that is a large scale sovereign default, followed by possibly a small IMF Programme that would see the country have to run a zero budget deficit very very quickly. In other words, far more Austerity. So people who think they’re Voting No because they don’t like the Austerity, need to understand that it is more than likely that a No Vote would being us more Austerity in the near term than a Yes Vote.
So to avoid this scenario and to provide stability to the Irish Economy in Future, I am voting Yes on May 31st.