Archive for the ‘Economics’ Category

The story behind Hayek v. Keynes, The Fight of the Century

If you haven’t seen the latest EconStories video, The Fight of the Century, watch it.

This week on EconTalk, Russ Roberts interviewed his collaborator on this project, John Papola, and as ever, it’s worth listening to, here for an introduction to the ideas discussed. While there, subscribe to the podcast. It covers a wide range from week to week, and while Russ has an openly Austrian instinct, his guests come from across the spectrum, if with a bias in the regulars.

The one fault I’d find with the video is that I think Keynes’s lines would have been more interesting had they been scripted by a Keynesian, and they would have avoided what small accusations they got, and discuss in the interview, that his lines are not properly representative. But I do think Hayek’s case does not get a proper airing, so this video is a good addition to the debate from the Hayekian perspective, with the message that the only way we get prosperity is by producing things other people care about, and that this can best be determined by the free market. Any fair-minded assessment of the economy in either Ireland or the US over recent decades, cannot describe the system of government schemes and tax breaks, particularly in housing, as the free market.

And if you didn’t know this was a sequel, here’s part one:

Receipts for tax payments

Third Way, an American think-tank, last year had a simple proposal that should be possible to implement here as well, highlighted this week in Slate to coincide with the US tax-filing deadline. Each taxpayer would receive a breakdown of how their tax contribution was spent. It should be relatively costless, the same formula for all taxpayers, the amount paid divided by the proportions of government spending in each department, in one extra page sent with a P60.

At its simplest, it would simply present fifteen figures, one for each government department, though with a little extra effort, it would make sense to itemize further, to separate Environment from Local Government, Tourism from Transport, etc.

There are two broad appeals to this. One is a matter of fairness, if people are paying in some cases over 50% on some of their income, it should be clear to them how that is spent. The other is that voters would then be better informed in public debate, arguments at election time about spending and taxation would be much more concrete for them.

Site value tax or site sales profit tax?

6 March, 2011 1 comment

We’re awaiting this morning the Programme for Government, which will be some sort of compromise between the manifesto of Fine Gael and Labour. Given the ratio of seats of 76 to 37 (2.05:1), the balance will be in Fine Gael’s favour, but there are elements of Labour’s manifesto I like, and not just on social issues. In their section on taxation, Labour write, “Labour accepts that it will be necessary to introduce a site value charge, in order to prevent higher taxes on work”. Fine Gael have instead proposed a “site sale profits tax”, levied on the profit made from the site value on the sale of a residence. As a reliable and sustainable form of taxation, I find a site value tax most attractive, possibly the least worst form of any taxation, and it is possibly too the only economic measure proposed by Labour I would certainly endorse. But I only fully appreciated the problems with own proposal last Thursday, as I was doing a last-minute flyer drop off Leeson St the day before the election. I met an elderly couple who felt it wrong that they would particularly be hit because they wished to trade down on their retirement.

A site value or land value tax is economically attractive because it does not disincentivize further investment in one’s property. And other than occasional changes to the amount because of improvements in amenities like a new Luas line, it is a fairly steady source of revenue. A transaction tax, whether it be stamp duty or sales profit tax, would be dependent on vagaries of the market.

Labour did, however, acknowledge that because there would need to be a preliminary survey of property, it couldn’t be introduced till 2014. There should also be relief for those who have recently paid high levels of stamp duty. If we do get a pledge on such a tax in the Programme, and if that’s the timescale we get, I will be pleased, particularly so if over time more is raised through a land tax and progressively less through taxing income.

Rational optimism

7 June, 2010 5 comments

Last week, I attended a lecture by geneticist Matt Ridley, hosted by the Irish Skeptics Society. I have before read his books The Red Queen and The Origins of Virtue, explaining the genetic origins of human instincts and society. Politically, he is a proponent of free trade and small government, having written for The Economist from 1984 to 1992, and he served as non-executive chairman of Northern Rock from 2004 to 2007. His understanding of science and human nature leaves him open to the accusation of an attempt to justify his politics, but it is not with Ridley that we’ve first seen a convergence in views on the market and evolution. Charles Darwin saw the parallels between the simplicity of natural selection and Adam Smith’s invisible hand, while Friedrich Hayek saw the same processes of emergent order in nature as in many human endeavours such as the market, language or societal customs, none of which were ever formally instituted.

Ridley’s thesis is that what makes homo sapiens fundamentally different from all other species is our capacity to trade. Recent studies in the genome code have shown that even our closest relatives, homo neanderthalensis, probably had language, and excavations have shown that they had burial customs, but no neanderthal tool has been found more than two hours from where it was made. Of course, even if we have been trading as a species for 120,000 years, the acceleration of the benefits of trade only began to take off in the relative recent past, some time in the mid-eighteenth century. As a sign of the improvements to the common man from trade in those years, Ridley compared the situation of Louis XIV of France, who had nearly 500 people to prepare food for him, to any of us today, who have hundreds of people working for us, if we want to think of like that. Once we pay them for what we want, what difference is it to us that they’re also working hundreds of other people too?

Read more…

A liberal on trade

In The Storm, Vince Cable, Deputy Leader and Shadow Chancellor of the Liberal Democrats, outlines the bizarre Alice in Wonderland nature of trade negotiations argued on protectionist assumptions.

The main trading countries have been locked for several years in negotiations that centre on the following proposition: you agree to stop shooting yourself in the foot by paying out subsidies and hurting your consumers through costly import restrictions, and we shall, reluctantly, do the same. Or, more accurately, if you refuse to stop shooting yourself in the foot, we shall also refuse to and, indeed, shoot ourselves in both feet, just to show that we are more serious.

Bastiat and the fallacy of the Broken Window

11 April, 2010 2 comments

Tom G. Palmer explains in this short story from Frédéric Bastiat why destruction is not a reason for economic rejoicing:

A liberal on taxes

13 January, 2010 Leave a comment

A liberal should never forget that whatever justification given for taxes, to fund justice and security, public services, social welfare, or certain macroeconomic aims, they come from the people. German Foreign Minister Guido Westerwelle, leader of the FDP, Germany’s liberal party, in coalition with the Angela Merkel’s CDU, expressed this view well.

What kind of decadent understanding of the state is it that sees tax cuts as a gift? Citizens give the state their taxes, not the other way around.

(As reported by Derek Scally, The Irish Times, 8 January 2010)

Don’t blame liberal economics

8 December, 2009 Leave a comment

Mahatma Gandhi’s reported response when asked what he thought of Western Civilization was to say “I think it would be a good idea”. That is often my thought when considering capitalism and globalization in the world today. Too often commentators conflate a pro-business approach with a pro-market approach. A system that allows businesses and banks to play around with other people’s money, but then helps them out when things get rough is not true capitalism. Neither is a system that encourages businesses and banks to invest in a particular industry, allowing the economy to concentrate where it would not otherwise do so.

I heard Fintan O’Toole recently blaming the situation we are in on neo-liberal economics. I will probably read his Ship of Fools when it’s available from the library to be able to judge his analysis of the causes of our current situation properly, and while much of it will probably be valid, I don’t believe this is a fully accurate description of our economic situation in recent years. Low taxation and low regulation are not enough to qualify an economic system as liberal (or neo-liberal, if one prefers). The implicit guarantee to the banks, which became official in September 2008, was one sign that the banks were not working in a free market, as was the cosy relationship between bankers, regulators, politicians and property developers. In an economy such as ours, the careful regulation we lacked would have been entirely consistent with a liberal approach to the market. A few other features show that this was a populist, rather than liberal, approach to the economy:

  • The very structure of social partnership, with the unions and employers, in the form of ICTU and IBEC, was geared towards pleasing certain troublesome sectors of the economy, privileging those who were represented at those talks, rather than the majority of workers who are not in those represented unions. This led to significant pay increases in public sector pay, to the point where Ireland has one of the most highly paid public and civil services in Europe. When the government had the tax revenue, it was happy to pay off unions rather than endure public sector strikes.

  • We had a bloated semi-state sector, highlighted in the case of FÁS by Shane Ross, where the government was willing to spend money propping up it and other similar bodies. The boards of these companies had the usual suspects, with ICTU and IBEC well represented.

  • Social partnership also led to policies such as the minimum wage, which was not an issue during the boom years, but it now seems foolish to have any such disincentive to employment. While only 2-3% of workers are on the minimum wage, it affects competitiveness at the low end of the scale, and with the economy where it is, employers forced to pay workers at this price will either find other ways to lower their labour costs that would affect their workers’ welfare, or be more likely to let them go. It could also hurt the prospects of those seeking small employment at low skills level at the current time.

  • There was a considerable emphasis on taking people out of the tax net entirely, so that nearly half of the working population pay no income tax. This makes people as citizens less responsive to quality in public services, and seems overly progressive.

  • While we had budget surpluses in some of our years, this was then used to win votes with more government spending in the form of welfare or public sector payments rather than tackling the national debt. Charlie McCreevy’s response was “I have it, so I’ll spend it”. Not a classical liberal approach.

  • We had a universality principle with certain welfare payments. This predated the recent years, and in the case of the third-level fees being paid by the taxpayer was a decision made by the Labour Party just before the Fianna Fáil/Progressive Democrat coalition. But it was continued with measures such as the medical card for all over 70. Most economic liberals acknowledge a role for the state in providing for welfare, but it should not be for those who can provide for themselves, and should be structured in such a way that there is no disincentive to working more.

  • Perhaps the biggest and most pernicious instance of a populist rather than liberal policy was the support given to the property market. We should have experienced a recession in 2001/02 after the natural rise in house prices and property development that came with our prosperity waned. This we did, but it was then countered by tax breaks and incentives to development and mortgage interest relief to the public that continued long after it made sense for our economy. It suited the government, for many reasons, but in part because it was relying on stamp duty as a source of government revenue, and also because of the popularity of this artificial boom.

We need reform in this country, and I hope some of these measures are addressed in tomorrow’s budget. But the electorate also needs to realize some of the populist causes of our current situation.

The Bankers, by Shane Ross

7 December, 2009 Leave a comment

A few weeks ago now, I read Shane Ross‘s recent book, The Bankers, which I would recommend to anyone curious as to why the banking and financial crisis was so much worse here than in most countries.

Problems arose because both government and the banks were happy with a situation with only nominal financial, and the implicit assumption that they would help each other out if needed. While the regulators were supposedly independent, Sen. Ross shows how the cosy the relationship was between them and bankers. He opens with what he dubs the bankers’ last supper in Novemer 2008, to mark the retirement of the chairman of the Financial Regulator, Brian Patterson, where many of the major figures of Irish banking gathered. The event was hosted by Pat Farrell, president of the Irish Banking Federation, who also happened to be a former Fianna Fáil general secretary. Here we had a perfect case of the culture of the time, where bankers, those were supposed to regulate them, and actors in the political process mixed freely without any presumption of conflict.

Fianna Fáil doesn’t come out well in the book. In a chapter linking the triumvirate of bankers, developers and Fianna Fáil, Ross shows how entrenched property developers were as part of the party’s establishment in recent years. In the run-up to the 2007 general election, Bertie Ahern addressed the Houses of Parliament in Westminster, and one of those on the guestlist for the Irish delegation was property developer Sean Dunne. Dunne has had a long-standing relationship with Fianna Fáil, and his personal assistant, Anto Kelly, was a campaign manager for former Minister and Ceann Comhairle John O’Donoghue.

Or the Bailey brothers. Michael Bailey was famously reported by James Gogarty in the Planning Tribunal as answering “Will we, fuck” when asked if they would get a receipt for the payments they made in 1989 to Ray Burke. Justice Feargus Flood concluded in his interim report of the Planning Tribunal in 2002 that this payment had in fact occurred. To Fianna Fáil, that made little difference. They were as welcome as ever to the party tent at the Galway races, and that year Tom Bailey took time off work to canvass for the party in Roscommon. To Brian Cowen’s credit, the party tent in Galway has since been closed.

It was, of course, because they were in power that Fianna Fáil received such support from developers, but particularly because of the tax breaks for construction, which the Department of Finance had not even properly costed. These incentives artificially extended the boom years, and according to John Fitz Gerald of the ESRI, made a hard landing more likely, which had since proved to be the case. Similarly, warnings from UCD economist Morgan Kelly were also ignored, who showed that the trend in property bubbles in every economy since 1970 would predict anything other than a soft landing. I don’t mean to be partisan here, to isolate criticism of Fianna Fáil, but this is how it was. One might wonder if Fianna Fáil were more corrupt because they were in power more, or in power more because of their underhandedness and corruption. There are instances of the same with Fine Gael, who during their short stint in government from 1994 to 1997 had no difficulty finding builders to donate to clear their loan, and AIB and Ansbacher cleared a loan of £200,000 of Dr Garret FitzGerald which he had lost on shares.

Though it is what I took most from it, this book is not fundamentally about this corruption from the political side of things, but it does show how bankers managed to have such a free hand. The political process supported a system propping up their cronies in the banks and regulators. It is not a surprising statistic, given how used we have become over the past year to such facts, but John Hurley, Governor of the Irish Central Bank till a few months ago, earned more in 2008 than Ben Bernanke, Governor of the US Federal Reserve, who still has the power to set interest rates. Though not set by the public sector, the pay of the top Irish bankers is equally worthy of scrutiny. To take as an example, Brian Goggin, former Chief Executive of Bank of Ireland was paid €4 mn in 2007 and €3 mn in 2008, high even relative to his equivalent in the more successful Lloyds TSB or Ryanair’s Michael O’Leary. There is no reason to believe that the shareholders of the bank had to pay Goggin such a sum for fear that he would be snatched by a firm outside the country. Because this salary was possible with the cosy cartel of the banks supported by the taxpayer with an implicit guarantee from the government, which became real from last year, this is very much our concern.

With the government happy to see the steady trickle of revenue from stamp duty, they did little to discourage the 100% mortgages that have now left householders across the country in negative equity. We had a system of regulation that noticed none of the backdealing and switching of loans that was taking place, such that until October 2008, no bank was fined, while the Regulators found reason to fine The Irish Times and Phoenix €10,000 and €5,000 respectively. It was also a system that saw at times directors of AIB and Bank of Ireland on the board of the Central Bank.

I could go on. I’ve picked here only a selection of the facts that make it little wonder that the system went as it did. Ross does see a measure of hope because of our fortune of having Brian Lenihan, rather than one of the other members of the cabinet, as Minister for Finance. He rightly praises the departure he has made in recent appointments, such as choosing Prof. Patrick Honohan, an outsider to the old banker/regulator circles, to succeed Hurley as Governor of the Central Bank. Lenihan’s main obstacle to fiscal rectitude are his cabinet colleagues, all too eager to criticize the findings of the McCarthy Report. But Ross is strongly critical of NAMA, describing it as a bailout for the bankers.

My only minor criticism is the extent to which Ross involves himself in the analysis. As a journalist and Senator, he has been a voice in this period. While he does acknowledge (on p. 162) that he did not have the foresight to realize the perils of holding cash in Irish banks, in mentioning that our rejection of the Lisbon Treaty in June 2008 was part of the reason, as well as our bank guarantee, that we had lost favour in Europe, he does not mention his own advocacy of a No vote on that occasion. This is a minor quibble, and one of this nature is bound to occur in a commentary from someone so vocal. It is clearly well researched (and as a matter of full disclosure, I should add that I was working with Shane Ross while the finishing touches were being put on it), and stands as an entertaining, well paced and informative account of what went wrong with this sector of the Irish economy.

The government must stand firm to the unions

24 November, 2009 Leave a comment

The Irish government is now borrowing in excess of €14.7 billion, while the cost of repayment on these loans is increasing. The more tax the government has to spend repaying this loan, the less it has for more beneficial spending and the higher taxes will have to be. With roughly one third of government expenditure on public pay and one third on welfare, any cuts will have to include these areas. People at all levels are overpaid in this country, and this has been one of the strong factors in our loss in competitiveness.

These cuts must be made. To be fair, there need to be proportional cuts in salaries across the scale in the public sector. There was something particularly galling to see the higher civil servants on strike today as well as those earning far less than them. We are rightly shocked at Taoiseach Brian Cowen being the highest-paid head of government in Europe at €257,000. With this represented across the board and at all levels, we are not getting the value for money that other countries are getting. While the cost of living in Ireland is high, the level of pay is a considerable factor in this. And while the cost of living is decreasing at the moment, those on fixed income salaries are seeing a rise in real terms in the value of their salaries.

The simple point is that the government cannot afford to spend at its current level. Pay must be cut. At the top levels, this should be at a substantial level, even of 20%. Grades going down the scale should be cut at decreasing levels. At the lowest point, I would not advocate a direct pay cut, but a lowering of the tax base to include those at entry-grade level. This would, of course, apply across the board, in the private as well as the public sector. Even supporters of a proportional tax system should not support a system where only the top half income earners pay tax. Paying a certain level of tax acts as a reminder to the public of where public services come from, and why they should demand more efficient service.

The unions advocate increasing the higher levels of taxation. While it may seem a small amount extra for those who can afford it, with the top 5% of taxpayers paying 45% of the income tax in the country*, there is only so much this group can be targeted without affecting their incentives and risking a shift in capital investment out of Ireland. Not that the government should rule out tax increases, but in no way can they rely on them. And again, given the scale of our deficit, there is only so much of a reduction that can come through extra taxation.

Basically, the government overspent in the past ten years, willing to grant pay increases while they could afford it. Whatever Charlie McCreevy’s reputation as a fiscal conservative, this was true only to the extent that he cut taxes, stating that in terms of expenditure, “if I have it, I’ll spend it” (of course, the US Republicans also built up a massive budget deficit up to 2009, while cutting taxes, destroying the budget surplus that existed at the end of President Clinton’s time in office, with Vice President Dick Cheney claiming that “deficits don’t matter“). With the money associated with construction, either stamp duty or the related intake, and income tax down, with welfare payments up, they must cut back.

The trade unionists will rightly lay the blame for this recession and deficit on other hands, such as the lack of regulation in banking. But if it is not the fault of the public sector, neither was it the fault of the many in the private sector who have become unemployed or lost pay in the past eighteen months. This is not an attack on the public and civil service. I work part time in Dublin City Public Libraries, and it is by and large well run.

I think the government should be commended in December in as far as it does manage to tackle the problem, and be criticized most strongly if it fails to take hard decisions, particularly if it fails to tackle those interests closest to the party. We do need certain reforms to tax, as well as direct cuts in payments. I think stamp duty should be scrapped, and replaced with a property tax, as we should not find ourselves again relying on such a volatile source of income. I welcome the proposal from Fine Gael, of which I am a party member, to cut PRSI in an attempt to make employment easier, which should be offset with a properly implemented carbon tax. But I will be disappointed if Richard Bruton focuses his criticism on issues such as reductions in child benefit or if the party continues to oppose a reduction in the minimum wage, rather than, say, that more could have been taken on the top level of pay in the public service.

The unions seek to spread the recovery over a greater period of time, but this would only increase the cost of borrowing in the longer term. They are right to say that public sectors workers having less money will reduce demand in the economy. But we need this period of adjustment, in turn affecting prices, to make this country competitive again, so that the possibility of droves driving to Newry for their Christmas shopping will disappear, and that we once again attract inward investment. However tough it is for those working in the public sector, with pay as one of the biggest parts of the government’s bill, at around €20 billion a year, there is no alternative.

*Statistic corrected

What the next election should be about

29 October, 2009 Leave a comment

Though Prime Time will always have a debate between the leaders of Fianna Fáil and Fine Gael, general elections aren’t always in such terms. The 2007 election was about whether people wanted Bertie Ahern to continue as Taoiseach or for him to be replaced by Enda Kenny, but the 2002 election campaign was about whether Fianna Fáil would govern alone or continue in government with the Progressive Democrats.

The election due by 2012 should not be about creating a united opposition front to defeat Fianna Fáil. Just as it was inevitable that Fine Gael would lose badly in 2002, we can take it for granted that Fianna Fáil will not lead the next government. So the election will be about the respective bargaining powers of Fine Gael and Labour. Speaking particularly as a Fine Gael member, I believe the parties should not spend time before the election trying to present themselves as a credible alternative government. This has been Fianna Fáil’s ploy to date, to highlight the fact that, for example, Fine Gael and Labour had different approaches to the banking crisis. But as separate parties, this is only to be expected.

I see the next election, or what will come afterwards, as somewhat similar to the 2005 German election. Though there won’t be the near parity of seats that occurred with the Christian Democratic Union (CDU) and the German Socialist Party (SPD), the dynamic should be similar. While I would welcome it if the Labour Party were to show greater realism with regard to the public finances, this looks unlikely at the moment.

If we accept that in the Fine Gael-Labour government, Labour will get one of the major economic portfolios, probably Enterprise, Trade and Employment, as well as one of the big spending departments, either Education or Social Affairs, the overall budgetary position of the government will be towards the median of the two parties’ stated positions on economy. For this reason, I think it important for Fine Gael to push this median to be as economically stringent as politically possible before the government is formed, so that what compromise is inevitable still makes the needed impact in reducing our deficit.

This means that Fine Gael should be forthright in calling for cuts in public sector pay at all levels, along a graded basis and for cuts in welfare, both because the cost of living has gone down and because we simply cannot afford it. This does not mean that the welfare budget shouldn’t be readjusted in favour of those particularly affected by the recession; it should, but the overall welfare budget must decrease. Unless we tackle these areas, which comprise two-thirds of the national budget, what small cuts we would get from measures like the abolition of the Seanad will be of negligible benefit. The 1982-87 government struggled with the economy because of Labour’s overbearing influence, and ended prematurely when Labour withdrew after John Bruton promised a firm budget for 1987. This time round, Fine Gael need to take a tough line from the start.

This means that in Fine Gael we should not focus our energies at the election on criticizing Fianna Fáil for their mismanagement of the economy and foolish choices. We should rather present a clear message of the scale of the problem, and spend the campaign convincing the electorate of the need to scale back the public budget considerably. This is not in itself popular, but as things stand, this can be a winning strategy, as enough of the public know that there is no alternative.

Economists for Europe – 5 Economists and one opinion

29 September, 2009 Leave a comment

Published on the Ireland for Europe blog

As previously noted here, a recent Indecon survey reported that 90.8% of economists asked said that Ireland’s overall economic interests were likely to be best secured by a Yes vote.

These were economists from the seven Irish universities, from the ESRI and from Indecon itself. Economists working for the media, banks, government departments or agencies, or with employer or trade union organisations were not included.

In light of this, we held a seminar earlier today titled Economists for Europe, chaired by Dr Alan Ahearne, Special Advisor for the Minister for Finance, and with presentations from Dr Alan Gray of Indecon, Prof. Antoin Murphy of Trinity College, David Croughan of IBEC and Paul Sweeney of ICTU (so, of course, only Gray and Murphy contributed to the Indecon survey).

In his opening remarks, Dr Ahearne reported that the American Chamber of Commerce have said that they provide 300,000 reasons to vote Yes. He emphasised the benefit our EU membership gives us as a traditionally export-based economy, which is to be the case again after the brief period earlier this decade when we were demand-based. 62% of our exports go to other EU countries. Given this emphasis in our economy, he said that it was important for us that the globalised world functioned well.

Alan Gray, Managing Director of Indecon International Consultancy Group, prefaced his remarks by stating that both he and other economists tended to stay away from political commentary, but felt it important to intervene on this occasion. He said that the fundamental question was about confidence, something which can have a major impact, even if not easily quantifiable in models. He said that the economic question is not about the Treaty per se, but about the vote. If there were no vote on Lisbon, we would not feel its absence, but the vote itself would send out a particular message which would be difficult to explain to potential investors. He also made the point that investors would generally give very little attention to Ireland, so this could have a serious impact on perception.

Prof. Antoin Murphy, of the Department of Economics in Trinity College, Dublin, highlighted the help we received from the European Central Bank in two periods: the initial stage of multinational growth from the late 1980s, and in the past year when we needed an injection of liquidity. He also refuted claims that bond prices have already taken our rejection into account, as the trend downwards, rather than upwards as would be expected in such a case.

Paul Sweeney, economic advisor to the Irish Congress of Trade Unions, referred to The Charter Group, a pro-Treaty lobby group. He also admitted that there were concerns about workers’ rights in the EU, but that these had nothing to do with Lisbon. He appealed to the right of collective bargaining in the Charter of Fundamental Rights, and the benefits of FDI which we have from being less Eurosceptic than Britain. He termed Cóir’s poster on the danger of a €1.84 minimum wage as a disgusting lie.

David Croughan, chief economist of the Irish Business and Employers’ Confederation, talked of how business was overwhelmed by the benefits of the internal market and the single currency. In terms of specific changes Lisbon would introduce, he outlined the benefits of the Protocol on Eurogroup in terms of closer coordination and dialogue between finance ministers. He said that business never really thought there was a problem threat to our direct taxation last time, and that despite what we might have heard, he felt that our international reputation was damaged last year.

In conclusion, Dr Alan Ahearne recalled the old joke that if you have five economists in a room, they’d have six opinions between them. On this occasion, however, they were all of one mind, that a Yes vote was a crucial component of our route to economic recovery.

Economic effect of the Lisbon Treaty vote

23 September, 2009 Leave a comment

First published on the Ireland for Europe blog

Those on our side of this debate have been criticized for linking the Lisbon Treaty with jobs or recovery. It is, of course, not as simple as a claim that there will be jobs that will be created or maintained directly because of the vote on the Treaty, but it is part of the process. It is because of the reality that we attracted multinationals to this country for many reasons, such as our low tax rates and our well-educated English-speaking population, but also because we provided a link to a European Union which now has a population of 500 million.

If we were to vote No, the appetite for reform among other European countries would not be diminished. But with the likely election of the highly Eurosceptic David Cameron as Prime Minister, the United Kingdom could well decide to opt out of that process. After a second No vote, European leaders could justly assume that we had made our decision clear that we did not wish to be part of that process either. While the United Kingdom could afford to go it alone if they wished, we should not consider this an option for us.

It is true that we will remain members of the European Union no matter what way we vote on 2 October. But a No vote will mean that we will not be a part of core decision-making processes. Particularly for those who have had concerns about EU policies in the past, such as on agriculture and fisheries, it is crucial that Irish voices are heard at all levels of the EU.

This might seem like a biased analysis coming from this organization. It is backed up, however, by those who have no interest beyond creating and securing jobs, and by independent economic analysts. Those working at all levels, whether small firms, medium enterprises or multinationals, have emphasised the importance to job-creation and maintenance in this country of a strong commitment to Europe.

A recent survey by IBEC found that 86% of employers polled believed the passing the Lisbon Treaty was important or very important to Ireland’s recovery. In its statement, IBEC Director of EU and International Affairs Brendan Butler said: “Ireland has been very successful in attracting major investment from abroad, which in turn has led to the creation of many jobs. Being fully engaged with Europe is vital to ensure this continues. A yes vote will send a positive signal to foreign investors that Ireland is committed to being a key player in the world’s most successful economic union.”

Most significant is perhaps the judgement of academic economists in the Indecon report, which surveyed the views of the 66 non-government economists in all Irish universities and the ESRI. The report concluded that our vote would have a significant effect on the cost of borrowing. Alan Gray, one of the authors of the report, wrote that “a No vote would result in additional concerns about Ireland’s precise role in Europe at a time when we cannot afford any self-imposed additions to our economic problems.” Equally, many economists have spoken out in their own capacity, such as Prof. Alan Matthews writing for Irish Economy yesterday.

It is vital not to create this uncertainty about Ireland’s place within the European Union at this time given the state of our public finances, the cost of borrowing and our rate of unemployment. Over the remaining nine days, we will be maintaining a focus on this aspect of the referendum and the implications of our vote.


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