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European Fiscal Compact

Posted by jj on March 01, 2012 at 11:08:53:

There is a lot of comments on other websites about a no vote, and it appears to be more about protest than actually anything in the treaty.

The Treaty, and I admit I have not read it completely, contains some of the following

1. Budgets should be balanced i.e. no stipulation on how governments raise taxes or how it spends, but just that it spends what it receives in taxes. Deficit of 0.5% possible, or 1% if under 60% total debt to GDP. (personally I agree with it in principle, but think the 3% deficit under Maastrict was sufficient, and should be over a period of time, i.e. a 3yr period, i.e. if ran a surplus in one year, you can carry that forward to following year(s).

2. If total debt exceeds 60% they governments should aim to bring it back to that (over 20 years - am not 100% clear exactly but that is my reading). Again, not an unusual aspiration, and clearly debt levels should be reduced.

3. Issue of fines, if exceeding the above budgetary constraints, EU can propose a fine of upto 0.1% to be used by EU budget or ESM.

The above budget constaint is defined by "structural deficit" - definition is difficult to define, but usually Capital Expenditure on "new" infrastructure is excluded. i.e. if the government wanted to incentivise the rollout of faster broadband, then that expenditure is excluded. TO be honest, who decides that not sure.

I don't have a vote in Ireland, but in the interest of openess I would probably vote in favour of the treaty. I am concerned that Ireland, such an open economy, is more suceptible to changes in GNP than some of our EU neighbours, and I haven't seen a mechanism to use surpluses gained (like the National Pension Fund historically), for some expansionary Keynesian policies in downturns.

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