Ireland’s Moment of Fiscal Decision

DUBLIN – “The construction of Europe is an art,” former French President Jacques Chirac once said. “It is the art of the possible.” If so, then Europe’s deconstruction – or, worse, its collapse – would be a shockingly fearful and painful business.That was the situation faced by European leaders last autumn. The euro was in serious trouble, buffeted by rumors of imminent banking collapses. Bond yields in southern Europe were rising, and a pervasive sense of apprehension and fear cloaked governments in European capitals. But political leadership was sorely lacking. Finally, in December, decisive action was taken. There would be a “fiscal treaty,” which would reinforce the Stability and Growth Pact and, importantly, entail automatic sanctions to ensure that eurozone members stick to those rules. At the same time, the European Central Bank unleashed its €1 trillion ($1.3 trillion) long-term refinancing operation, which pulled the European banking system back from the brink.These two measures were both timely and vital, creating a much-needed period of calm. In March, having agreed on the fiscal treaty, the European Council turned its attention to reviving economic growth, which will be the key to long-term fiscal sustainability.In Ireland, our attorney-general advised on the need to hold a referendum on the fiscal treaty, and we are now in the midst of the campaign. The government parties, Fine Gael and Labour, as well as the largest opposition party, Fianna Fáil, are campaigning tirelessly for a yes vote.The reasons we are backing the fiscal treaty are simple. The treaty would promote stability in the Irish economy and contribute to stabilizing the euro, our currency. It would increase confidence in Ireland and allow us to increase the existing flow of inward foreign direct investment. Ratification would also give us guaranteed access to funding from the European Stability Mechanism (ESM), should we ever need it.The ESM is Ireland’s insurance policy as we work our way out of the bailout program with the “troika” (the European Commission, the ECB, and the International Monetary Fund) and return to the markets. Most importantly, the fiscal treaty promises to ensure responsible budgeting throughout the eurozone. For us, that means that the economic mismanagement that caused the Irish economy’s collapse would never recur. It would also mean stable European economies to which we can export.For Ireland to continue on the path of economic recovery, it needs to be seen as part of the solution, not part of the problem. We are making progress, and we need to continue doing so. Ireland’s government has exceeded its targets under the troika program, and the economy returned to growth last year.International investors are increasingly looking at Ireland as a smart place to do business. They recognize the dynamic, transparent, and competitive fundamentals of the Irish economy. We are highly regarded around the world as an excellent export base. Global companies recognize that, as the only English-speaking member of the eurozone, Ireland is ideally placed as a gateway to Europe.Indeed, Ireland is ranked as the best place in Europe to do business, the easiest in Europe for paying taxes, and number one in Europe for completion of tertiary education. We are an open, transparent economy with a highly skilled workforce and a market of 500 million people on our doorstep. Crucially, we are also a member of the second-largest currency area in the world.Foreign direct investment accounts by more than 1,000 overseas companies translates into 145,000 jobs in Ireland, 70% of total exports, and €2.8 billion in corporate-tax receipts. These companies spend €16 billion per year on goods, services, and wages in Ireland.The latest figures show that 2011 was a very strong year for attracting investment into the Irish economy, with a record 148 new projects – a 30% increase in companies investing in Ireland for the first time – implying an additional 13,000 jobs.Investors come here because they link Ireland’s eurozone membership to our long-term economic stability and access to outside support if necessary. By voting for the fiscal treaty, we can guarantee that stability and support – and thus guarantee continued confidence and investment in the Irish economy.The new treaty reflects clear recognition that the euro’s initial design was flawed. We spoke about European Monetary Union, but we didn’t have it. The Stability and Growth Pact, contained in the Maastricht Treaty, laid down strict rules of budgetary discipline, which were immediately violated – and not by small countries, but by both France and Germany.Irish recovery cannot occur without European recovery. We must stand together or fall together, because our economies are so interconnected. This involves putting our public finances in order, which the fiscal treaty allows. We have begun that process; the next stage will be an unwavering focus on growth and economic renewal throughout the European Union.Lucinda Creighton is Ireland’s Minister for Europe.Copyright: Project Syndicate