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Martina Devlin: Fiscal compact could help to rein in our politicians

THE good old days of Nice and Lisbon are finished. Europe has us cornered because the Irish veto on treaties is history -- this time, we can still vote against but it's as effective as King Cnut ordering the tide to retreat.

As with the royal ankles, water is lapping at our feet already. Voting down the referendum won't thwart the fiscal compact, so rejection becomes an exercise in pique.

Admittedly, there is a temptation to show Eurocrats we might be in a tight spot, but we have attitude. Our satisfaction would be short-lived, however.

With or without Ireland, the fiscal compact will proceed and the sting in its tail will be our banishment from the new rescue fund, the European Stability Mechanism (ESM).

Disbarment from this permanent bailout piggybank will make life difficult for us (yes, even harsher than currently). It's a parachute: strap it to our backs, and the money markets regard us as a safer bet. Take it away, and it's hard to see how we can return to the markets.

And like it or not, we need to go back to the moolah men, probably fully in 2013, although with minor forays this year, because we are still spending considerably more than the tax take. The anticipated gap for 2012 is €17.3bn.

Of course, that handy ESM parachute costs. The price tag is ratifying the fiscal compact, which means further attrition of sovereignty -- with no end date to work towards, unlike life under an IMF programme.

The real challenge for the Government is how to persuade the electorate to vote on the issue put forward. Waters get muddied and messages mixed. It happened with Cnut, in fact -- apparently he was trying to show his courtiers he lacked power over the elements, but the Danish-born monarch of England and a swathe of Scandinavia has gone down in history as the epitome of folly and misplaced arrogance.

Folly and misplaced arrogance are the twin evils which contributed to Ireland's economic collapse. Plus ca change, as Cnut might have said, although not in French obviously.

Citizens view this referendum as an opportunity to express opinions on everything from austerity in general to the household charge in particular. If I felt mischievous, I might tell the Government the going rate for my 'yes' vote was €100 this year, rising exponentially in line with future household hikes.

But we'd be selling ourselves short. Renouncing the fiscal compact is counterproductive, however sweet in the short-term, whereas embracing it should bring benefits -- even allowing for the disadvantage of sovereign erosion.

Europe imposing prudence is an undoubted incentive. Irish politicians will never deny themselves the latitude to run the State into the ground, so a wagging finger from the Continent, unfortunately, is all for the best. But we need to feel the love, Europe.

Let's have a sweetener to Ireland's electorate before polling day. Yes, I know it's a bribe. This is realpolitik. Here's how Irish negotiators might put the case in the corridors of power in Frankfurt or Brussels, or any restaurant of Angela Merkel's choice.

While waiting for the dessert menus, let them remind Eurocrats how Ireland took one on the chin for the team, recapitalising our banks at a cost of €64bn to prevent further corrosion to the European banking system. Now it's their turn to lighten our repayment burden -- scrap the promissory notes relating to Anglo and replace them with something cheaper.

In the Government's shoes, I'd crack on with that, because the scaremongering floodgates are open already on both sides. Equally apocalyptic visions of life if we say yes or no are being presented. They make the Book of Lamentations, which mourns the razing of Jerusalem and the Holy Temple, read like Pollyanna's diary: "Cut off your hair and throw it away; take up a lament on the barren heights, for the Lord has rejected and abandoned this generation ... "

Personally, I sway towards a 'Yes' vote, although not without reservations. What convinces me is that folly and misplaced arrogance mentioned earlier: Ireland found itself up the creek in the first place because of these damaging traits.

State spending rose by more than 11pc in 2007 and 2008. That left us with "an unfortunate late burst of spending which boosted the underlying deficit at almost the worst possible time," according to Central Bank governor Patrick Honohan's 2010 report on the banking crisis.

WHY so much cash pouring out of the Exchequer at such an ill-advised juncture? Two words: general election. Bertie was eyeing his third win in a row, and to pull it off he spent as if the Last Trumpet was blasting in his eardrums, while the chequebook remained open the following year to deliver on election promises.

The boom peaked in 2007. That year's pre-election budget from Bertie's Finance Minister, Brian Cowen, included a cut in the top rate of income tax from 42pc to 41pc, and pension and social welfare increases. Foolhardy to the point of dereliction of duty, the €3.7bn package redefined the term 'giveaway' and helped to nudge the economy into freefall.

We can speculate on reasons but short-term political gain leads the pack. That's why domestic politicians in Ireland cannot be trusted -- balancing the books matters less to them than winning and keeping power. Consequently, loss of sovereignty in the area envisaged by the fiscal compact could be palatable.

The compact sets limits on the amount of money a country can borrow, and on the size of the gap between spending and revenue. It's akin to telling someone they can no longer drive an oil tanker the wrong way down a motorway while four times over the legal limit. It shouldn't have been happening anyway. But keeping public debt at safe levels is something governments do not easily manage, because of the need to court popularity.

Something needs to turn the tide of Irish politics, and the fiscal compact may be that turning point. It could compel our political masters, and the senior civil servants who control them, to act prudently rather than as a tribe of self-serving spendthrifts.

If we sign up to a deal that forces virtue on Ireland, our citizens will be the main beneficiaries.

Martina Devlin tweets @DevlinMartina

Irish Independent