EU and Ireland’s love affair turns sour

THE rate at which Ireland is falling out of love with Europe and vice versa is startling, and gathering pace by the day.

The change of government, the confusion over loans and austerity measures, the lack of information and the complexity of the financial issues are all feeding a rapidly growing EU scepticism.

The feeling is so intense that every ailment in the country is being blamed on the EU, even planning problems that have resulted from the government’s failure to implement measures they agreed to in Brussels.

There is no doubt that the 3% interest rate the country is being forced to pay as a penalty is contrary to all logic. It’s the same as the poorest in society being driven to borrow from money sharks at exorbitant rates since banks will not lend to them.

Unfortunately, the Irish Government agreed to this penalty rate when it was only being applied to Greece, and was happy to benefit from the extra money it would receive. So what goes around, comes around.

There is some sympathy for the country among other member states. As was seen at Friday’s summit there was a willingness to cut the interest rate by 1%, but every economist will tell you that this €450m cut will not solve the country’s problems.

It was unfortunate that the issue was hi-jacked by France’s President Nicolas Sarkozy who is fixated by Ireland’s 12.5% corporation tax rate. The answer to that is of course that the French effective rate is much lower at 8% once all the special deals for companies are taken into account.

It was unfortunate also that more work had not been done in advance of the meeting so that the Irish could have something to offer in exchange for the interest rate cut. It was also a pity that they did not peruse the other idea on the table — that the penal 3% interest would be put into a separate fund and returned to the country once they had achieved the programme targets.

There was considerable understanding of Ireland’s position even from the Dutch — usually among those most insistent on getting their pound of flesh. After Friday’s summit their prime minister told journalists the Irish needed something to help them through the misery, and that he understood we needed the low rate corporation tax to be competitive.

Even the Finns, facing elections next month and with the EU sceptic True Finns party threatening the established politicians, conceded that Ireland should get a reduction in the interest rate, and that the quid pro quo does not need to be an increase the corporation tax rate.

Had a Bertie Ahern type been representing Ireland perhaps he would have come up with a deal that would save face all around and walked away with the interest rate reduced to 2%.

But perhaps it is better that Mr Kenny pleaded that he was just three days in government and needed time to figure out something.

As a result all the issues are on the table at the same time — from the need to renegotiate some aspects of the loan agreement, the reduction in the interest rate and the worsening position of the country’s banks. The banks issue is the most serious.

Now that the government knows the true state of the banks is perhaps the best time to thrash out all these issues in what is really a last desperate bid to prevent the country from bankruptcy.

The ECB is the key player here. Their fears have contributed to the current situation and they are reluctant to make any medium or longer term commitments. While they are independent, they are more likely to respond knowing they have the support of the member states leaders.

It was perhaps good also that Mr Kenny indulged in his “Gallic spat” with Mr Sarkozy now as he may be less likely to do so in the future. The Greeks remarked that the new Taoiseach looked as relaxed, optimistic and fresh as they did 18 months ago when they thought everything was possible. On Friday they agreed to another round of austerity and sale of assets worth €55 billion for an extension of the loan and a drop in the rate.

One lesson from this debacle is that we need a new way of doing business, that will include the government being honest with citizens. But they had better start soon or EU scepticism will take root, distorting the truth and depriving people of an objective view from which to make their own judgments.