Orwell’s Words Proved Wise?

By, 06/13/2008

Story Highlights:

  • Ireland's long-awaited referendum on the EU's Lisbon Treaty is here.
  • Several things are at stake, including sovereignty over corporate taxes.
  • Only time will tell whether the market likes the treaty—if it's even ratified—but the referendum may help ease some of the uncertainty and negative sentiment of the last several months.


Like Big Brother's regime crushed independent spirits, sometimes geopolitical uncertainty can dampen the market's animal spirits. Unclear global direction can bring risk aversion, weighing on stocks. One big uncertainty stems from a major turning point in the EU's future:

Ireland in Crunch EU Treaty Vote
By Staff, BBC News

The EU is once again trying to centralize power. Dutch and French voters derailed the last attempt in 2005; the Lisbon Treaty, signed in December 2007, is a watered-down version of that failed constitution.

The treaty is expected to pass without incident in most European countries. But Ireland is holding a referendum on the treaty—in Orwell's words, "If there is hope, it lies with the proles." Recent momentum has been with the "no" vote, though the latest polls indicate an almost even split. If one country says no, the treaty dies. And make no mistake: The dismissal or ratification of the Lisbon Treaty will have global implications for decades to come.

So Ireland suddenly finds itself with the power to make or break the EU. Naturally, uncertainty over the vote abounds. What happens if Ireland rejects it? Will the EU fizzle, or will it expel Ireland and the opt-out-loving UK? If that happens, can 1984's superstates of Eurasia, Eastasia, and Oceania be far behind?

All this and more weighs on the Irish as they cast their votes. Yes, some do fear an Orwellian superstate. Grandiose rumors abound: The EU will force a two-child rule! (No.) The EU will place tracking microchips in children! (No.) Of course, there are rational concerns too, but officials are quick to defuse them. They assure voters individual countries will retain sovereignty over domestic and foreign policy, non-euro countries will set their own monetary policy, and the UK and others can still opt out of certain areas.

Voters also have economic concerns. The treaty seeks to cement a "single market," centralizing socio-economic policy (hello, labor laws!). As the EU has trends toward increased regulation and protectionism, some fret Europe's future economic viability if the treaty passes.

The Irish are particularly prideful about their economy and ability to compete internationally—and they fear the Lisbon Treaty could kill both. How? Simple—Ireland enjoys a 12.5% corporate tax rate, making it Europe's destination of choice for multinational companies. But the treaty has several references to "harmonizing" corporate tax bases (a pet project of Nicolas Sarkozy) and avoiding "distortion of competition." Such opaque language on far-reaching issues is frightening—it's just murky enough that regulators can "interpret" it any way they wish.

Treaty supporters argue harmonizing corporate tax bases doesn't remove Ireland's ability to set its own rate—they say it just standardizes the portion of taxable corporate profits. But, Irish voters worry, what happens if other countries decide Ireland's low tax rate "distorts competition"? In theory, Ireland's weakened influence in the European Commission under the treaty would make it easier for other nations to force Ireland to raise corporate taxes in line with Continental norms—roughly 30%! Ratify the treaty, they fear, and kiss foreign firms and prosperity good-bye.

But this scenario is hazy. The treaty is so long and complex (and, some suspect, written in newspeak) that most don't fully comprehend it—there are certainly other factors to the corporate tax dilemma. But the passion on both sides is even more vehement than 1984's Two-Minute Hate, so it's hard to tell who's right. While leaders ensure constituents it's a good deal, folks still wonder whether their arguments are more Ministry of Truth propaganda than reality.

Thankfully, we have the market to discount all widely known information. Sure, the announcement of the Irish vote results on Friday will at least calm one uncertainty: Whether the treaty lives or dies. But following that, only time will tell whether the market likes the result and potentially the treaty itself. Until then, stay vigilant and keep an eye on the world—contrary to the Party's slogan in 1984, ignorance isn't strength!

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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