It is not often that the most famous living Keynesian agrees with some of the most committed libertarians. However, the Irish referendum today on the Fiscal Stability Treaty is one such occasion. The Irish are the only Europeans who have been granted a chance by their government to hold a referendum on the treaty. With the exception of the UK and the Czech Republic the treaty has been signed by all EU member states. The treaty introduces measures that would punish governments that did not practice fiscal responsibility and opens access to assistance funds. In Ireland, the ratification of the treaty would also introduce a ban on structural deficits. The treaty has been so poorly thought through, and so poorly motivated, that whether you are against bailouts and for limited government or for increased stimulus, a “Yes” vote would be a disappointing outcome.
Paul Krugman has said an Irish “No” vote would “send a helpful message” because it would be a rejection of the so-called austerity the treaty would impose. Krugman went on to say that the euro was a mistake, as the currency union did not come with a political union, thus dooming it to failure. Milton Friedman made similar predictions, claiming that the single currency would not survive Europe’s next financial crisis.
While the left might object to the treaty because of the entailed austerity measures, libertarians have their own objections. Sam Bowman, Irishman and Head of Research at the London-based Adam Smith Institute, has nicely summarized the libertarian case for a “No” vote. One of the most important points made by Sam is that bailouts and welfare spending, both of which have already contributed massively to Irelands debt, are excluded from the structural deficit calculations. Perhaps more importantly, Ireland will still be able to access loans without ratifying the treaty at rates that might encourage good behavior.
Polling suggests that the Irish will vote “Yes”, but not by a huge margin. Indeed, the unusual good weather in Ireland today makes predicting the outcome of the vote even more difficult as more people are likely to head out to vote. It is unlikely that we will know the results of the vote until tomorrow. One only hopes that the EU accepts this Irish vote, unlike the referendum on the Lisbon Treaty. Only the EU could have come up with a piece of diplomacy that would unite Keynesians and Austrians, a testament to its own contradictory nature.