The Independent Guide

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to the Fiscal Stability Treaty Referendum on May 31st

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The Referendum Commission

The Referendum Commission is an independent body set up by the Referendum Act 1998. The Chairperson of the current Commission is Mr Justice Kevin Feeney. The other members are: Mr Kieran Coughlan, Clerk of Dil ireann; Ms Deirdre Lane, Clerk of Seanad ireann; Ms Emily OReilly, Ombudsman and Mr Gerard Smyth, Secretary and Director of Audit of the Office of the Comptroller and Auditor General.

Introduction
On May 31st you can vote in a referendum on whether Ireland should ratify the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union. The short name of the Treaty is the Fiscal Stability Treaty. The Fiscal Stability Treaty was signed in March 2012 by 25 of the 27 EU member states as part of their response to the economic crisis, especially the crisis in the euro area. The Treaty is about strengthening the rules designed to make governments keep a balance between their income and their spending. There are already EU rules about this which apply to Ireland. The Treaty aims to strengthen these rules and requires countries to put some of them into national law. It is not necessary for all EU member states to ratify the Treaty for it to come into effect. If it is ratified by at least 12 euro area countries and if Ireland ratifies it, it will apply in full to Ireland as part of the euro area. This guide gives a general explanation of what you are being asked to vote on. It is published by the Referendum Commission, an independent body, whose job is to explain the referendum as clearly as possible. This guide does not argue for a yes or a no vote; it gives factual information in order to help you to decide. More detailed information is available on our website www.referendum2012.ie or by calling 1890 270 970. The Commission strongly encourages you to vote.

The Referendum Commission 18 Lower Leeson Street, Dublin 2, Ireland. Telephone: 01 639 5695 LoCall: 1890 270 970 Email: refcom@refcom.gov.ie Website: www.referendum2012.ie

This publication is available in Braille, on CD and in large text format through NCBI. It is also available in Irish Sign Language on the websites of the Irish Deaf Society (www.irishdeafsociety.ie) and DeafHear.ie.
Printed in Ireland on paper sourced from a sustainably managed forest.

Kevin Feeney Chairperson Referendum Commission

Referendum2012.ie
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What the Fiscal Stab ility Treaty is about

Summary This section gives a brief description of the
contents of the Treaty. More detailed information follows.
The Treaty is concerned with the rules limiting the size of government deficits. There are two ways of measuring a government deficit:

If a country spends more than it gets in income in any one year, it has a general government deficit. A structural deficit is what the general government deficit would be if economic conditions were normal and if one-off spending or income were not taken into account.

The national law would have to include a procedure, to be triggered automatically, for ensuring that action would be taken if the structural deficit was greater than the target set. A failure to introduce this national law could result in the Court of Justice of the EU imposing a fine.

The Treaty proposes to add to the current EU rules on government deficits. Current rules say that countries should keep annual general government deficits below 3% of Gross Domestic Product (that is, the deficit should not be more than 3% of the value of all the goods and services produced in the economy) and keep overall government debt below 60% of GDP. There are EU procedures in place to try to ensure that they do this. The main changes that this Treaty would make are:

Ireland is already involved in the EU procedures for bringing its general government deficit down to 3% and has a target date of 2015 for doing this. Other parts of the Treaty include EU rules that are already in place in relation to overall government debt, co-ordination of economic policies and information sharing among the governments of the countries that ratify it. The Treaty also formalises the current informal arrangements for governing the euro area. The introduction to the Treaty states that countries that want to get funding from the EUs new permanent bailout fund the European Stability Mechanism (ESM) will only have access to that fund if they ratify this Treaty.

The maximum structural deficit that a country could plan to have would be 0.5% of GDP. Each country would have a specific target for this agreed with the EU, which the country would have to work towards. The rules on structural deficits must be put into national law. The Treaty provides that there be an independent body at national level to monitor their implementation.

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Information This section gives more detailed information.

Useful Facts
What you are being asked in the referendum
On May 31st you will be asked to vote yes or no to adding a new subsection to Article 29.4 of the Constitution of Ireland. The wording of the proposed new subsection is: The State may ratify the Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union done at Brussels on the 2nd day of March 2012. No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State that are necessitated by the obligations of the State under that Treaty or prevents laws enacted, acts done or measures adopted by bodies competent under that Treaty from having the force of law in the State. If a majority of the people vote yes, then this new subsection will be added to the Constitution and Ireland will ratify the Treaty. The Treaty will come into effect if it is ratified by at least 12 of the 17 countries which use the euro so unanimity is not required. If it comes into effect and Ireland has ratified it, the national legislation which the Treaty requires would have to be introduced within a year. If a majority of the people vote no, this new subsection will not be added to the Constitution and the Government will not ratify the Treaty. The Treaty will come into effect if at least 12 euro area countries ratify it. Those countries which have ratified it will then be bound by its provisions.

The government deficit rules

In the referendum on the Maastricht Treaty in 1992, Ireland agreed to abide by the rule that the general government deficit must not be more than 3% of GDP in one year. There are detailed EU procedures setting out what happens if a country is not keeping this rule. Ireland must meet the 3% target by the end of 2015. The Fiscal Stability Treaty restates these existing EU rules and adds some new elements.

The structural deficit rule

This Treaty proposes to add to the EU rules by requiring that the structural or underlying government deficit must not be greater than 0.5% of GDP. (In certain cases the structural deficit may be up to 1% of GDP). If the structural deficit is more than is allowed, the country must work towards reducing it within a time limit to be identified by the European Commission. A country may deviate from this time limit only in exceptional circumstances. The Treaty provides that these rules on the structural deficit are met if the deficit is at the specific objective which is set for each country by the government with the agreement of the EU (this is known as the country specific medium term objective). The objective can be changed from time to time to take account of economic changes. If a country is missing its medium term objective by a significant amount, or if it is not moving towards this objective quickly enough, the Treaty requires that an automatic correction mechanism comes into operation. This will oblige the country to correct the deficit, for example, by raising taxes or cutting spending.

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National law
The countries which ratify this Treaty will be obliged to put the structural deficit rules into national law. This means that, if Ireland ratifies this Treaty, the rules must be set out in Irish law which must also contain details of the proposed correction mechanism and how it would operate.

The government debt rules

Under the current rules, all countries must keep their general government debt below 60% of GDP. Ireland agreed to this rule in the 1992 Maastricht referendum. Under existing EU rules excess debt must be reduced by one twentieth a year on average until the target is met. This Treaty restates these requirements.

Role of Court of Justice

If a country which has ratified this Treaty fails to put the structural deficit rules fully into national law, the issue may be referred to the Court of Justice of the EU. If a country fails to abide by the Courts binding ruling, the Court may then impose fines of up to 0.1% of the countrys GDP.

Co-ordination of economic policies

The existing EU treaties provide for various economic co-ordination procedures and mechanisms. The Fiscal Stability Treaty restates the commitment of the countries involved to take the steps required to ensure the euro area operates well. The countries ratifying the Treaty also agree to discuss planned economic policy reforms among themselves before they are implemented and, where appropriate, co-ordinate such reforms.

The general government deficit

The Treaty requires that the countries which ratify it support the European Commission when it makes recommendations on how countries should reduce their general government deficits. However, they do not have to support these proposals if a qualified majority of the euro area countries opposes the Commissions recommendation. (A qualified majority is a system where each countrys vote takes account of its population but is not directly proportionate to it.)

Useful Facts
Relationship of Treaty to EU law
The Fiscal Stability Treaty is a treaty agreed by 25 of the 27 member states of the EU and they are now considering whether to ratify it that is, to make it binding on them. The Czech Republic and the UK have not signed it. It is not an EU treaty and so does not change the treaties which govern the EU. However, the Treaty states that it is to be interpreted and applied in accordance with EU law (including the EU treaties), with EU law taking precedence if there is a conflict, and its implementation involves using some of the EUs institutions. The Treaty states that the countries which ratify it will aim to bring its substance into the EU treaties as soon as possible and within five years at the latest (this is called the repatriation clause).

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Governing the euro area

The Treaty formalises the present practice whereby the leaders of the euro area countries hold meetings. It requires that the Heads of State or Government of the euro area countries that ratify the Treaty must meet informally in Euro Summit meetings twice a year.

Terms you may hear during the debate

Fiscal: Fiscal means relating to government finances including
government spending, government income, government deficits and government debt.

General Government Deficit: The general government deficit

Useful Facts
Effect of Treaty on financial assistance/bail-out mechanisms
The Treaty starts with recitals, which are statements about the aims and intentions of the parties to a treaty. In one of its recitals, the Fiscal Stability Treaty states that it is not to be interpreted as changing the conditions under which financial assistance (bail-out) has been given to countries which have major economic problems. So it does not seek to affect Irelands current bailout programme agreed with the International Monetary Fund, the European Commission and the European Central Bank (generally known as the Troika). However another recital states that, from March 1st 2013, any future bail-out involving the use of funds from the European Stability Mechanism (ESM), will be given only to countries which have ratified and implemented this Treaty. (The ESM is the permanent EU bail-out mechanism which is expected to be established by July 2012.) So, any future bail-out could not involve access to this particular source of funding. There is a separate treaty which establishes the European Stability Mechanism. The ESM Treaty has been signed by the 17 euro area member states. It is NOT the subject of the referendum in Ireland. The ESM Treaty states in a recital that it and the Fiscal Stability Treaty are complementary in fostering fiscal responsibility. This recital also states that the parties to the ESM Treaty acknowledge and agree that bail-outs under the ESM will be available only to those countries which have ratified the Fiscal Stability Treaty.

in any one year is the amount by which government spending exceeds government income.

Structural Deficit: The structural or underlying deficit is the general government deficit for the year cyclically adjusted that means adjusted for the effects of faster or slower than normal economic growth and with one-off or temporary revenue or spending measures removed from the calculation. Government Debt: Government debt is the total amount that the Government owes. Gross Domestic Product (GDP): GDP is the total value of all goods and services produced in the economy. Fiscal Compact: This is the term that is often used to describe
the deficit and debt rules in this Treaty.

Stability and Growth Pact (SGP): This is the term used to

describe the current EU rules on government debts and deficits. These rules are contained in the treaties governing the EU and in a series of EU regulations and directives. New regulations came into effect in December 2011 and these are sometimes referred to as the Six Pack.

Medium Term Objective (MTO): This is the objective which is

set for each country by the government with the agreement of the EU in the context of meeting the structural deficit rules.

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Its your decision. Vote Yes or No.