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UNDERSTANDABLY, IN THIS referendum we are focused on the impact of the Fiscal Treaty on Ireland. But this is a Treaty for the eurozone and the entire EU (with the exceptions of the UK and the Czech Republic, which are pursuing their own home-grown austerity policies).
The Government has made much about how the Fiscal Treaty will introduce ‘stability’ and ‘confidence’ in the Irish and European economies. So what might we expect from this unique experiment in simultaneous austerity and how might it impact on an open economy like Ireland. Will the Fiscal Treaty actually result in ‘stability’ and ‘confidence’?
Not according to the Institute for Macro-economic and Economic Research (IMK) based in Germany. They teamed up with other research institutes in Austria and France to assess the impact of the Fiscal Compact on Eurozone and EU growth. And the numbers are not good.
The IMF is already projecting that Euro area and EU growth rates will be well below world growth rates. In a post-fiscal treaty scenario, the IMK projects that European growth rates will be cut further – with Euro area growth rates falling to an insipid ½ percent average annual growth rate.
The IMK also looks at specific countries.
It might surprise some that Germany – the ‘engine of the Eurozone economy’ – is already projected to be a low-growth economy under the IMF projections. Even by 2016, the IMF expects the German economy to grow by a mere 1.3 percent. However, given that Germany doesn’t have a significant structural deficit issue, the impact of the fiscal treaty will lower growth only marginally.
However, when it comes to France – which does have a significant structural deficit problem – we see that a low-growth economy will find its growth rate cut in half by the Fiscal Treaty. As for Italy which, like Germany, doesn’t have a significant structural deficit issue, average growth rates fall into negative territory – from an IMF projection which shows them already flat-lining.
The IMK projections for Ireland don’t really work well because they assume all countries the Fiscal Compact would be implemented will meet the structural deficit target by 2016, whereas Ireland may get more leeway coming out of a programme. However, if we assume that Ireland must meet the structural deficit target what might we expect?
I have assumed that a further €5.4 billion fiscal adjustment would be necessary to close the structural deficit gap by 2017 (€5.4 billion being the gap in 2015). This adjustment is to start in 2015. What we find is that GDP growth stagnates at 2014 levels – with implications for unemployment (which the IMF already estimates at over 10 percent in 2017 with a growth rate in excess of 3 percent), incomes and living standards.
And if the Irish growth rates still look better than other countries in the post-fiscal treaty scenario, we always have to remember that GDP is flattered by a multi-national sector which books profits here and then immediately takes them out of the country in what is essentially an accounting exercise.
So all of this is supposed to instil ‘confidence’ and ‘stability’? Cutting growth rates even further in Europe which is already looking forward to a low-growth medium-term scenario – far below world growth rates? How does this promote the confidence necessary to increase investment – when domestic demand is being cut in a number of countries simultaneously? How does this stabilise public finances when economies are going to find it even more difficult to generate the revenues necessary to repay debt? And what happens to all this math if Spain falls into bail-out?
For the Government this is a special problem. Their recovery strategy is based on an expanding export base. However, if European countries are simultaneously driving down their demand, our markets for exports will be contracting. How does reduced demand in Europe impact on our real export growth.
This is not a drive to promote ‘confidence’ and ‘stability’ – this is a dangerous experiment that will produce even greater uncertainty.
This is a recipe for extending and deepening stagnation.
But, hey, at least we’ll be doing it together. As they say, misery loves company.
Michael Taft is Research Officer with UNITE the Union; author of the political economy blog Notes on the Front; and a member of the TASC Economists Network.
You can read more from Michael Taft here.
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The producers are bluffing the EU, Ireland is doing it right. Aldi and Lidl do this here too – you can see exactly where the fish was caught, how it was caught and even the scientific name of the kind of fish. It obviously doesn’t cost Aldi and Lidl huge amounts to respect customers enough to supply information.
New law! How about enforcing the old laws that would be a start.
Closing the stable door after the horse has bolted.
This is why intelligent humans choose vegetarianism.
@Tommy_Bannon: Closing the stable door after the horse was eaten , to be more precise
Don’t forget there are plenty of intelligent people who eat meat too.
If you want to be healthy try cutting animal products from your diet. Processed meat that comes in a packet can’t be good for you. Either can milk from another animal that full of hormones and puss..
European milk does not contain hormones or ‘puss’. Every delivery from every farm is checked for temperature, antibiotics, bacteria etc. So stop spreading downright lies about the food we produce.
@Mick: of course there’s hormones in milk. You do realise dairy cows are constantly impregnated to produce milk. Cows like women are full of hormones while pregnant and those naturally produced hormones go into their milk to help bulk up calves. Its not intended for human consumption.. If you’re happy drinking and eating another animals milk go ahead.. Each to their own i suppose
I’m a dairy farmer myself. I understand completely the process works. What you are implying is false though. Natural, grass fed milk contains nothing untoward, we’ve been drinking milk for thousands of years. It’s when people start adding sugar and salt, E numbers and artificial chemical additives is when the trouble starts.
@Mick: Mick im not implying anything false. Cows milk is full of hormones, hormones that nature intends to help calves bulk up hundreds of pounds. It is not intended for children or adults to consume.
The natural hormones in milk are not in unusual quantities to cause any harm in humans. The levels of protein, butterfat etc in the 6L+ of milk that a calf consumes are responsible for growth. Generations of Irish people have eaten beef, dairy, eggs etc without issue. Obesity has only become an issue in this country since the 70′s, due to the advent of cheap, highly processed foods, the likes of coca cola with 30g+ of sugar per serving.
@Cosmo Kramer: backtrack much?
What about products labelled as Irish but brought down from the Uk?
No mention of take always etc imposing their religious beliefs on you, if you buy a ham pizza at many hundred placed you may be served dyed turkey NOT ham because these people don’t have any respect for you, nor your freedom to eat what you choose. It is often written on menu boards but often it won’t; it is dishonest but not illegal make sure your ham is not turkey meat dyed pink a common practice these days but The EU respect our rights on these issues.
Any particular reason a Lidl own-brand product was chosen to illustrate the story? Is there something we should be told?
Anybody .anywhere.here or abroad held accountable for putting shit into our food in the form of un regulated horse meat?anyone..
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