“David Cameron has played a blinder and he’s done the only thing that it was really open for him to do” London mayor Boris Johnson speaking to the BBC after British prime minister David Cameron “vetoed” the Fiscal Compact in December 2011
The position on here is to advocate a “no” vote in the forthcoming referendum on 31st May.
So far, four countries have ratified or partially ratified the Fiscal Compact, the agreement which will be subject to a referendum here in just over a week – the four are Greece(completely ratified) and Poland, Portugal and Slovenia whose parliaments have ratified the Compact which is just now awaiting presidential assents. There are 27 countries in the EU, of which 17 are in the EuroZone. The heads of state of all EZ countries have agreed to the Compact, as have six of the eight non-EZ countries. The twocurrent dissenters are the UK and the Czech Republic, the UK having reached its decision after marathon all-night talks on 8/9th December 2011 in Brussels. This blogpost examines the reason for the UK’s abstention.
The Fiscal Compact has been described by its supporters as being primarily a document to encourage “good house-keeping”, as well as to give access to the new emergency bailout fund, the ESM. With such advantages on offer, why would a country like the UK decide to abstain from the agreement, in a way which was considered aggressive last December? Are there any lessons for Ireland from the UK’s abstention?
Question : Why did British prime minister, David Cameron veto what on 9th December 2011 was going to be otherwise a unanimously accepted Fiscal Compact?
Answer: Because he couldn’t obtain assurances and safeguards in respect of theUK’s critically important financial services industry
David Cameron was concerned that proposed financial regulations were not in the UK’s interests. Nicolas Sarkozy clarified that financial regulations mean the “regulation of financial services” when he said “we were not able to accept (the British demands) because we consider quite the contrary – that a very large and substantial amount of the problems we are facing around the world are a result of lack of regulation of financial services and therefore can’t have a waiver for the United Kingdom”
But hang on a second, Ireland has a very important financial services sector, not just for the domestic economy but in the Irish Financial Services Centre in Dublin where 400+ of the world’s biggest financial institutions conduct business which generates 25,000 jobs directly plus income into the local economy plus taxes. Why would David Cameron be so concerned with the Fiscal Compact for theUK’s financial services sector whilst we seem unbothered?
Channel Four news reported that “the main bone of contention for Mr Cameron was the reform plan’s proposal of a Europe-wide tax on all financial transactions – a so-called Tobin tax. He made it clear in the days before the EU summit that Britain would not negotiate this issue, and that protecting the City of London was paramount”
Of course the ESM is being set up for the benefit of, and is being funded by, EZ countries and the UK has its own currency which it has augmented by nearly GBP 300bn in so-called quantitative easing in its GBP 1.5tn economy since their crisis began in 2007.
Still, the UK is not governed by idiots and they’re saving our behinds with €4bn of a bilateral loan. So it is noteworthy that the prospect of a tax on financial transactions was considered so important that the UK risked a rift with Europe.
Thus far, it seems that the “yes” campaigners have not been challenged on this matter. Former taoiseach and Fine Gael leader John Bruton who has been chairman of IFSC Ireland since 2010, an organisation which promotes the IFSC internationally has come out in favour of the Fiscal Compact, but has not, to the best of my knowledge, spoken about the reservations which led to the UK being isolated with the Czech Republic with respect to the Fiscal Compact. The fear would be that Ireland’s financial services sector which is world-leading in areas such as aircraft leasing, would find itself at a disadvantage to London, and that we would see the export of jobs, income and taxes in a sector which is regarded as extremely valuable.
By the way, the other dissenter, the Czech Republic, is not signing up to the Fiscal Compact because it believes the Fiscal Compact makes political changes to the operation of the EU which mean that the Czech Republic’s voting power is diluted. According to the Czech government’s Englis-language website “Article 7, or the so-called voting cartel, is, in and of itself, a massive change in the operation of the EU, which the Prime Minister is not in favour of as a matter of principle, as it commits the state to vote for European Commission proposals even against its will.”
Article 7 says “While fully respecting the procedural requirements of the Treaties on which the European Union is founded, the Contracting Parties whose currency is the euro commit to supporting the proposals or recommendations submitted by the European Commission where it considers that a Member State of the European Union whose currency is the euro is in breach of the deficit criterion in the framework of an excessive deficit procedure. This obligation shall not apply where it is established among the Contracting Parties whose currency is the euro that a qualified majority of them, calculated by analogy with the relevant provisions of the Treaties on which the European Union is founded, without taking into account the position of the Contracting Party concerned, is opposed to the decision proposed or recommended.”
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