As the euro crisis progresses, certain things need to be confronted. The first is that the withdrawal of Greece from the euro may be unavoidable, as the Greek populace decide that they will just not wear any more imposed-from-outside austerity. Instead, they may decide to attempt to reflate by defaulting on existing debts and introducing a new low-value export and tourist friendly drachma. They seem to forget that defaulting on their debts (and their medium-term ability to borrow) will mean that public spending will have no other option but to be matched to collected taxation (an austerity measure even more brutal than the ones they are currently objecting to, it would seem) but nevertheless, it may happen.
What happens to the euro? Well, let’s be honest: a currency that has bits of it falling off in mid-flight is not a confidence builder. But that does not mean it’s doomed. Anglo-Saxon economists tend to undervalue the political will to maintain monetary union, and also the fact that Germany and Greece are not seen as the same. But it does mean that in order to stop the fire spreading from Greece to Portugal, Ireland and elsewhere, the eurozone needs an imprenetrable firewall, and that may be fiscal union. If the Germans and others in the eurozone are to be expected to copperbottom the euro, possibly through a “eurobond”, then they will want their hands on the levers of power. Call it a Fiscal Council, call it the European Finance Ministry, or the EuroTreasury, that will almost certainly be the price.
Outrageous, many in Ireland will cry. Never! They shall not pass! It’s true, the chances of us passing a referendum to create a fiscal union are pretty slim. So what happens if we vote No? Legally: Nothing. The treaties stand. But bear in mind that Chancellor Merkel and President Sarkozy will, if they know what’s good for them, be very clear as to what Plan B will be, because their own electorates will demand it. If the Irish vote No to fiscal union, it could well be perceived as a No vote to saving the euro in its current form, which will almost certainly send market lenders legging it from Irish debt, because it now places Ireland on one side and France and Germany on the other. That in turn will surely leave Ireland once again reliant upon bailouts to fund current expenditure.
That may well put the Irish people in pole position once again, with their ballots to decide on one of two options: One is that we vote to exercise the McWilliams option, leaving the eurozone, defaulting on our debt and abandoning, in the medium-term (like Greece), the bond markets, and making a mad dash for instant budget balancing and a hope that An Punt Nua will kickstart the economy. Incidentally, as part of that, it would mean us accepting a liquidity crisis as savings fled the country, a huge hike in the cost of imported products, including our energy supply, and the next five years cutbacks rolled up into an eye-watering almost instant kick in our fiscal goolies. But, we will have our nominal sovereignty.
Or, we join the European Fiscal Union, possibly roll up a large proportion of our banking debt into long term (and thus more affordable) eurobonds, keep getting bailed out in terms of current spending, probably surrender our corporate tax, or a part of it, and accept a small seat at the heart of a Franco-German dominated federal union.
In short, the choice may well be a sharp drop in our living standards in return for our nominal sovereignty, or a relative maintaining of our living standards as the Arkansas of a United States of Europe.
But do not doubt one thing: The choice, ugly as it may be, will be ours. We may not like the choices on offer. But they will be ours to make. There will be some who say that it is not a democratic choice, that we are, in fact, being bullied. Bullied by whom, though? 82 million Germans? Because 4 million Irish getting what they want is democratic, but 82 million Germans getting what they want isn’t?
We have the right, through default, to stand up to the alleged bully and tell 82 million Germans to get stuffed. But there is a price to that, and it’s ours to pay, and it is that reality that irritates Irish people the most. We’re comfortable as the hapless victim of the inscrutable: We’re not so comfortable being master of our own painful choices.