Populism will be undoing of eurozone

In many ways the relationship between Ireland and the eurozone encapsulates the possibly insurmountable challenges facing the embattled monetary union.

Irish people have been enthusiastic EU members for most of the 41 years of membership.

From 1993 for the next 15 years, Ireland was one of the fastest growing countries among EU member states. During the credit boom of the noughties, Irish politicians grew increasingly arrogant in their attitude to EU relations. But this arrogance was misplaced and cause a lot of resentment in the corridors of power in Brussels.

The initial phase of Irish economic expansion between 1993-2000 was based on compelling fundamentals. A highly productive English speaking workforce combined with a low cost base attracted some of the biggest multinationals in the world in the areas of pharma, technology and financial services. This gave way to a credit-fuelled binge from 2001 onwards. A glut of savings that had built up in core eurozone countries such as Germany played a big part in stoking property bubbles in the periphery, and in particular Ireland. When the global financial system imploded in 2008, Ireland was left dangerously exposed.
The decision to guarantee the banks forced the Government to absorb €64bn of bank-related losses. Since 2008, a total of €30bn, or 20% of GDP, in spending cuts and tax increases have been taken out of the economy through budgetary consolidation. This has meant swingeing cuts to essential services such as health, education and policing.

The inchoate rage among Irish citizens has focused on two key targets: the national Government and the EU. The Irish political system has been left largely unchanged for the last century. The administrative arm of the State is ill-equipped to deal with the everyday demands of running a country, never mind the challenges posed by globalisation.

The Fine Gael-Labour Party Government coalition has shown a great deal of competence in dealing with the economic crisis. But this has been matched by incompetence in other areas that has allowed a number of controversies about cronyism and the introduction of water charges mutate into existential crises.

There has also been a rise in populism. Sinn Féin has very skilfully exploited growing public unease with a seductive mix of unravelling all spending cuts and soaking the rich as well as euroscepticism. An electorate buffeted by years of austerity and concerns about globalisation have in ever increasing numbers signalled their intention to vote for far-left parties in the general election scheduled for 2016.

German finance minister, Wolfgang Schauble, and Angela Merkel represent the unsympathetic face of Europe. Both are implacably opposed to giving debt relief to Ireland. They cite structural reforms and austerity as the way forward. With justification, Irish taxpayers feel they have shouldered billions of losses that should have been borne by reckless lenders, such as German banks. Ireland is part of the eurozone. The architecture needed to make the eurozone a viable entity is incomplete. This means closer fiscal, economic and political integration.
Because of Ireland’s constitution, any change in EU treaties has to be put to a referendum. It is unlikely that the electorate will endorse closer integration for at least a generation. This a trend that is mirrored across the eurozone. The creditor countries, led by Germany, sought to protect their own taxpayers when the fallout from the sovereign debt crisis wreaked havoc across the Eurozone. They ultimately achieved a temporary patch up job at the expense of growing resentment in the debtor nations. The next phase of the eurozone crisis will be a political event — most likely the election of an anti-EU national government. Whereas over the last six years, EU summits have forced 11th hour agreements that staved off the collapse of the euro, reaching this consensus will not be so easy when a member state wants out. This is only a matter of time.

Unfortunately, the powers that be are fighting yesterday’s war. Coming up with a vision that is sufficiently malleable to keep the eurozone and ultimately the EU together is not even on the agenda.


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