Europe’s Unholy Trinity

‘You Can’t Always Get What You Want’ sang the Rolling Stones in 1969. Jagger wasn’t singing about economic policy, but it’s a sentiment felt keenly by policy-makers the world over. They often face difficult choices between conflicting objectives.

Dani Rodrik, political economy professor at Harvard, has described an ‘inescapable trilemma’ at the heart of the world economy: we can have two of democracy, national sovereignty and open markets – but not all three fully and simultaneously.

As Europe’s elite desperately searches for a solution to stave off economic Armageddon, they face a similar trilemma. Technocrats’ assumption of power in Greece and Italy are cases in point.

Europe’s Single Market was constructed gradually, on the basis of delegated democracy, shared sovereignty and solidarity. Member States freely gave up autonomy in certain policy areas in order to be part of a holistic Union. As such, the EU is an unparalleled triumph of diplomacy and international cooperation, the bedrock of post-War peace and prosperity on the continent.

The single currency was to be the Single Market’s crowning achievement. At this moment of crisis, however, its inadequacies have been brutally exposed. To survive, it is argued, the Euro needs a quantum leap forward.

National sovereignty itself is an elusive concept. In truth, no nation is completely sovereign if it wants or needs to borrow on international capital markets. All nations face borrowing constraints, and the vagaries of financial markets can even induce crisis where economic fundamentals appear sound. Always and everywhere, freedom in fiscal policy is thus subject to the whims of lenders, well-founded or not.

Even before Europe ratifies new fiscal rules, Ireland’s effective sovereignty is at its lowest ebb since independence: We depend on the troika to finance our budget deficit. We depend on the ECB to fund our banks. We have taken steps to integrate our budget procedures with the rest of Europe through the so-called ‘European semester’.

Soon, the government will introduce a ‘Fiscal Responsibility Bill’ which will usher in an age of austerity stretching to 2039, when the national debt is expected to fall below 60% according to the government’s own projections.

While Ireland’s right to set its own corporation tax rate is seen as the ne plus ultra of fiscal sovereignty, this fetish is symptomatic of our fundamental dependence on foreign capital and failure to grow our indigenous industrial sector. Raising corporation tax to close the deficit is not seen as a credible policy option because multinationals account for 90% of exports.

Enda Kenny and other European leaders agreed a ‘fiscal pact’ at the end of January. Now, the ball is in our court. There is a critical distinction between the Dáil enacting a fiscal rule and voters enshrining it in Bunreacht na h’Éireann. Legislation can be overturned by a Dáil majority, and thus by a new government, perhaps having campaigned on a platform to do exactly that.

Our Constitution can only be changed by referendum following a Dáil vote, and past experience shows us how difficult this is to achieve. In fact, that is the point. The idea is to make such rules ‘credible’ by making them very difficult to change. Conversely, rules that are not credible are unfit for purpose.

There is no obligation and no need for the government to hold a referendum unless the Constitution is to be changed. As for a government’s legislation, the people can cast their verdict at the next General Election. That is the essence of our representative democracy.

Whether the government can sign up to an international Treaty, however, subjecting the country to sanction by the European Court of Justice when rules are broken, and whether it can do so simply through legislation, is open to legal question. It is not within the mandate of Dáil Éireann to impose de facto constitutional changes or to cede substantive sovereignty that is rightly the property of the people. Any attempt to short-circuit the democratic process for short-term political gain would entail a heavy long-term price.

In truth, there is no absolutist political trilemma. Ireland’s participation in the European Union doesn’t involve a choice between democracy, sovereignty and integration, but a delicate balance between all three. Pursuing further, accelerated integration at the expense of sovereignty and without democratic mandate would serve to undermine not only Ireland’s democratic institutions, but the legitimacy of the entire European project.

We can’t always get what we want, but we should be asked.

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