The outcome of the 15th consecutive EU summit to resolve the eurozone crisis fails to meet any Irish requirement. The government is sleepwalking towards a referendum defeat, unsustainable national debts and ever diminishing economic sovereignty. The only discernible strategy is the usual “make it up as we go along — hoping something will turn up”. It’s increasingly apparent that our dependence on the kindness of strangers is being met by Franco German self-interest that disregards concerns of smaller European states. Yet, we give them a blank cheque of compliance.
It seems Irish delegations suspend their critical faculties in assessing consequences for us of EU pacts. The latest fiscal compact set out financial disciplines for each of 17 eurozone countries. The rules are clear: sovereign debt must be limited to 60% of GDP; annual budget deficits cannot exceed 0.5% of GDP; if the public deficit exceeds 3% of GDP there will be automatic penalties and sanctions. Let’s do the simple mathematics. Our GDP stands at €170bn, while our gross government debt is set to exceed €200bn by 2014. Our obligation, under these rules, is to reduce the national debt to €102bn. Last month the current budget deficit stood at €21.4bn, this must be cut to €850m.
No timetable was set out for any state, because these targets, in the context of zero real growth, are utterly illusory. EU leaders and technocrats have learned nothing from the Greek debt crisis, which remains unresolved. Applying dissuasive penalties just doesn’t work. That’s why they softened our bailout terms with reduced interest rates and longer repayment periods. How could any analyst, let alone merciless markets, attach currency credibility to such long-term aspirational remedies? Ireland will be unable to adhere to these criteria for at least a decade. It probably precludes future meaningful public capital infrastructural development programmes.
The crux of the crisis remains the capacity of eurozone governments and European banks to re-finance their operations in 2012. The summary situation is: €1bn of sovereign bonds, with almost a third of this required in Italy in the first half of the year; €640bn of rollover finance for circa 90 banks. If private and institutional investors require double-digit bond yields, the funding will be unsustainable. The EFSF/ESM entire pot amounts to a maximum of €700bn — falling well short of the potential firewall or backstop of almost €2 trillion. A shortfall seems inevitable unless the ECB can step in to provide emergency liquidity or Eurobonds. The most significant fallout from Brussels bungling is the new fracture in UK/EU relations. Deepening British euro scepticism has developed into outright conflict with Nicholas Sarkozy. Why should the Brits give up the flexibility of macro economic management they retain through the Bank of England and Chancellor of the Exchequer for a currency they don’t belong to? This chasm runs deeper than merely an exemption for the City of London from the Tobin tax on financial transactions. David Cameron may be bête noire of Europhiles, but probably has majority popular support at home. Defiance of Merkozy dictatorship merits wider consideration. Sarkozy resembles a sleazy serpent. Hopefully, he may not get re-elected.
All previous EU treaties (Rome, Amsterdam, Maastricht, Nice, Lisbon) operated under fundamental compromises that required ultimate unanimity. Remember the “all or nothing” refrain on our second Lisbon vote. A new precedent to embark on an inter-governmental agreement weakens, and could defy, EU law and pillars. Von Rompuy, Barroso, Rehn and entire commission have been marginalised by Franco German duopoly. This undermines founding principles of equality and rights of smaller states. 85% qualified majority rules also mean that the veto is now exercised only by Germany, France or Italy. The big boys are using the currency crisis to bully peripheral countries and bulldoze their way through community institutions. Other leaders meekly acquiesce.
Ireland’s interests? This sequence of events could hardly be moving in a more negative direction. Common language and geography (as neighbours) between us and UK mean we are especially vulnerable to UK/EU divergence. The IFSC and ISEQ in many respects are Dublin satellites of a London hub. Deeper demarcation between our island economies and administrations can only be to the detriment of Northern Ireland and its economic prospects. Continental Europe can jettison Britain. Ireland can’t, given our mutual trade dependence and exports worth more than £1bn per month. Tourism, food industry and transport networks are inextricably linked.
Our key competitive advantage lies with a lower corporation tax rate. Multinationals spend €19bn here in wages, sub-supply services and procurement — as well as €1.2bn in CPT. Direct and indirect employment amounts to almost 240,000 jobs. Sarkozy won’t let go of this bone, ever since Google came to Dublin. In pre-summit correspondence from Merkel/Sarkozy to the EU president, they re-stated their requirement for tax harmonisation. They don’t want us to have flexibility to retain incentives to survive. The final communiqué still hankers after fiscal “integration”. Like insurmountable Greek debt, it won’t go away. A fleeting glimpse of the Shamrock was evident on the eve of the summit. Enda Kenny requested agenda inclusion of Irish debt restructuring (ie some relief on continuing to absorb full costs of ECB bond redemption policies). Like a pimple on a buttock, this plea was ignored. Despite being the best Germans in class and a role model for bailout servitude, we’re told to keep taking the austerity medicine.
The German prescription for Ireland is now to apply to all of the EU. They want an “Austerity Union” — less government spending and higher taxes with no quantitative easing. Their monetary and anti-inflationary policies are a recipe for prolonged stagnation, without growth. This entraps us on a treadmill of deflation and decline.
The Government heads towards another EU referendum. All academic and other constitutional legal experts, who have proffered an opinion to date, suggest there is no avoidance of a public vote. The 1987 Crotty case and Supreme Court sentiment expressed therein imply the Oireachtas doesn’t have the authority to relinquish or transfer sovereignty. Articles 5, 6, 17, 21 and 28 are problematic. Procuring the detailed EU text and consideration by the Attorney General are only delaying tactics. The politics, as well as the legalities, of the situation mean a plebiscite.
Sweden, Hungary, Finland, Denmark, Czech Republic and Netherlands may yet encounter likely reservations. Government’s stance is based on deference in the hope that we will be eventually looked after. Negotiation cannot be predicated on the expectation of concessions. We need to launch diplomatic initiatives of common causes amongst eurozone states. There remains no legal provision for anyone to be expelled from the euro.
Last week’s events were the latest culmination of the campaign to re-elect Sarkozy. Preservation of France’s triple-A rating is paramount. So, no private investor pain. A new EU treaty that provided for Eurobonds and removed the legal constraints on the ECB might procure a yes vote. Make-believe rubbish and denial deserves rejection. It’s time for Kenny to relay realities of resistance.