A view from the other side

Enda Kenny, Irish Taoiseach (picture EPP)

Enda Kenny, Irish Taoiseach (picture EPP)

By Patrick Mc Nally

The mood is subdued. This is an underwhelming summit deal. The summit failed to deliver a decisive result in favour of the single currency and has made a grave problem more difficult by embarking on a new institutional debate over the relationship between an intergovernmental treaty operating outside the EU, yet expecting it to police budgets and rules set down in EU law.

There is a realisation that the proposed funding to support the euro is inadequate. The fundamental problem remains that there is not enough money to see all the weakened states through the crisis. It is now realised that more austerity will not solve Europe’s problems indeed if all countries introduce austerity programmes they will drag each other down and the programmes won’t work. There is a real danger that Europe will face a return to the 1930s. It is still not clear that the euro will survive. We will have to wait and see how soon the markets thrash the latest European Council offerings

The summit conclusions show no substantive advance on previous commitments. The focus is all on financial discipline. All that has happened is to demonstrate that European members will be subject to tough financial disciplines once the current crisis is over. It has done nothing to solve the immediate financial sovereign and debt crisis.

A new treaty was seen as the price rather than the mechanism for saving the euro. It was believed that some form of German-backed ECB action would follow as this was the only way to save the currency. If Germany got new treaty guarantees that eurozone countries wouldn’t abuse the ECB facility then Germany would assent to massive central bank intervention in the markets. After last week’s summit, that view is being revised. The anticipated new intervention by the ECB is still awaited.

One commentator believes that nothing will change until Germany feels the white heat of contagion. Another shock may be required before everyone in Europe reads from the same page; perhaps if a major German bank experiences difficulties in the market then this would produce the recognition that everyone is in the same boat.

The other disappointing aspect of the summit was the inability to strike the right balance between austerity and growth. It seems that the German definition of fiscal union is tighter regulations only. Every European crisis summit solution has been trashed by the market when the small print has been analysed. If this is repeated this time a high political price will have been paid by Europe and enormous damage done to the idea of the European Union for nothing.

The result of the summit has been a setback for Ireland, Germany and the European Commission. Ireland has lost a key heavyweight supporter in European negotiations. Without the weight of the British, Ireland will have to face these treaty sessions with only small countries as allies. This leaves them open to more bullying from France and Germany.

Germany has lost a counterbalance to French statism and the European Commission has been sidelined. France has gained because the intergovernmental arrangements will increase its influence in the eurozone. Already many countries are uneasy about the direction of current Franco-German policies. With such power moving to a European level and without a corresponding increase in democratic arrangements such developments are worrying. If a referendum is required in Ireland many previous pro-Europeans will be reluctant to support a Yes vote for what appears to be a fiscal austerity union based on an intergovernmental process. The government will try to frame the question so that the vote will be whether Ireland should remain in the euro. The argument in favour will be that the euro has increased in value over the past ten years, it has increased inter-European trade by 50 per cent and it has been a better antidote against inflation. The drawbacks of withdrawing from the euro will also be highlighted.

Britain’s relationship with Europe appears to have changed and a looser arrangement between Britain and Europe is anticipated. The fact that Britain may be isolated in Europe is not a welcome development from the Irish point of view as Britain is still our biggest trading partner. Ireland is Britain’s fifth largest trading partner and we consume more British imports than Brazil, Russia, India and China combined. The value of imports and exports between the two countries is £1 billion (€1.2 billion) a week. The Government has insisted that Britain’s opt-out would not affect Ireland’s trade relationships as we are both covered by the Single European Act, but there is fear however that Britain and Ireland could be operating under different trading arrangements sometime in the future. Should it ever come to pass that Britain leaves the Union there is a concern that custom barriers will be erected again south of Newry between Northern Ireland and the Republic, the UK’s only land frontier with a fellow European member. Then the two parts of Ireland will be operating under different European regimes and the Republic would be operating different rules to our biggest trading partner. One consequence would be that Ireland‘s financial services industry could be hampered if a new tax on financial services applied in Dublin and not in the City of London, leading to a flight of business to London though this can be overstated.

It is not in Ireland’s interest that Britain would be left isolated. To prevent this, it is been proposed to institute a more regular series of bilateral meetings between Britain and Ireland concerning their positions within the EU on common matters of interest. The key issue is to ensure that Britain is not isolated from the process that will unfold over the next three months. This will include such policy issues as employment, enterprise and financial services

Ireland may now be approaching a crossroads. Does it choose a closer relationship with its nearest neighbour or does it choose its continental EU partners? If European states can secure the stability of the euro, there is really no choice. Ireland’s prospects are inextricably linked to the euro and the country needs to support the measures necessary to sustain it.

All twenty-three members of the euro-plus economic pact are being invited to the special monthly summits. It has now been confirmed that the other four countries will be invited to these meetings on an observer basis. The first draft of the proposed intergovernmental agreement will be available to governments before Christmas.

The summit agreement means that it is necessary to construct a new body of law, outside the ambit of EU law. This will give a greater role to the eurozone governments where France’s voice will be amplified. This has been one of France’s strategic interests since the crisis began. The UK decision to sideline itself served French interests well.

Through this arrangement we are being forced to sideline the Community institutions and structures which have provided a buffer for the smaller countries and have served small states well. This has reversed the notion that the integration of Europe always proceeds in the same direction, albeit at a different pace. Europe is turning longstanding principles on its head and it is not clear where that may lead. The euro crisis is turning into a crisis for the whole European project and as a result the union is facing the gravest crisis since its foundation.

The Council’s legal services presented its opinion on the proposed intergovernmental agreement. It concluded that it would be illegal to involve EU bodies in any deal involving less than the 27 member zone. There was a reported sharp exchange between the German delegation and the Head of the European Council’s legal service. A day later the legal opinion was reversed however there is still a concern in Germany about the legality of the intergovernmental structure yet to be agreed. Eurozone sources also express scepticism saying that the plan to create a non-EU structure to oversee an EU budget was fraught with legal uncertainty and it is far from clear that the scheme will work.

The crisis of the euro has become a crisis of the entire European project. The European model is failing and this raises the question as to whether it is capable of further development. A study by Janis Emmanouilidis of the European Policy Centre shows that the vast majority of citizens in European countries have lost confidence in the European project, and some elites seem to share this judgement.

If the European model cannot take the next step in integration, the belief that it is a model for government structures in the 21st century takes a big knock.

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