Controversially for Ireland, Macron is pressing tax issue

When the true history of the past tumultuous decade is written, I suspect we will get a clearer understanding of just how concerned the political system and the monetary policymakers in Europe were about the sustainability of the euro and the whole economic and political structures that kept it together in the midst of the financial crisis.

The various crises in countries such as Greece, Cyprus, Portugal, Spain and Ireland were individually of sufficient magnitude to destroy the system, not to mention when they were all combined. The fact the euro project has survived bears testament to the political will to ensure that it did survive against the odds.

The pledge from the ECB president Mario Draghi to do whatever it takes to keep the system alive was of the utmost importance.

The eurozone has many obvious fault lines. These include the inherent difficulties in setting a single interest rate and monetary policy for 19 very different economies; the lack of a large EU budget to enable fiscal policy be dictated from the centre; the lack of euro bonds which would allow individual countries borrow with the backing of the EU rather than the individual sovereign; the lack of a proper banking union and an ability to deal with banks in trouble; and the basic fact the members of the EU in general and the eurozone in particular still act on the basis of national interest rather than what is in the greater good of the union.

I could go on but all of these fault lines and more were self-evident before the euro was created, but politics prevailed over economics.

Politics can only prevail over economics for a limited period and ultimately if the economics are not right, the chickens will come home to roost.

French President Emmanuel Macron seems to recognise that just because the euro has survived and that the economies of the eurozone are now looking a lot better, ultimately it will be very difficult to keep the economic and monetary union together in the absence of a much greater level of economic, political and fiscal union.

When the next crisis happens, as it inevitably will, it is not clear that the structures of the eurozone are fit for purpose and President Macron as the most pro-EU politician in the EU, is intent on addressing these issues.

In his much-heralded and lengthy speech this week, Mr Macron laid out a very comprehensive vision of where he would like to see Europe going. Basically, he wants much closer integration in the EU in general and the eurozone in particular.

In his own words, he wants to create a more “sovereign, democratic and united Europe”. This includes the creation of euro bonds, an EU army, and total integration of the French and German markets by 2024.

Most controversially, particularly from an Irish perspective, he wants to create a minimum and maximum corporation tax rate and all countries will be expected to stay within that band.

If they don’t, then he wants to see those countries prevented from accessing EU cohesion funds. He wants corporate tax receipts to be pooled and used to finance investment across the EU.

Given our dependence on foreign investment and the importance of our low nominal corporate tax rate, such tax harmonisation would represent a serious challenge for Ireland and one that it will undoubtedly fight to the bitter end. The fact that the UK is unlikely to be fighting alongside us will weaken our position.

I still suspect that in the short to medium-term at least, we need not be too concerned about the harmonisation of corporate tax rates.

Following Angela Merkel’s difficult election at the weekend, it is likely that she will have to form some sort of political alliance with the Greens and the FDP.

While the Greens would support the French stance, the FDP would not.

While President Macron’s proposals make a lot of sense to those who yearn for a United States of Europe, the rise of anti-EU forces in countries such as France, Germany, and Italy will make it difficult to deliver this vision.

The most likely scenario is that the EU will continue to muddle through. The next crisis will again threaten the foundations of the EU, just as the last one did.