Saving the Union
WHEN the recession began in 2008 the accepted wisdom was that it was a global crisis of which Europe was just one element. No one is saying that any more.
While other regions have returned to sustained growth we are now in the fifth year of the deepest and longest crisis in the history of the European Union. It has constantly evolved during this time.
It was a financial crisis which became an economic crisis. It is now, undeniably, also a profound political crisis. A consistent feature of the last five years has been that events have been allowed to spiral almost out of control before action has been taken.
When the immediate danger is overcome a new complacency sets in. The relative calm of the sovereign debt markets has been taken as a signal of the beginning of the end of the crisis. Yet there is widespread, and I believe overwhelming, evidence to show that fundamental problems have not been addressed. A series of once unthinkable steps, mainly taken by the ECB, have helped.
However, there are 27 million citizens of Europe unemployed, with youth and long-term unemployment expanding rapidly. There is only one demand which the people are making of their governments and their shared union — action for growth. And this is something which for five years the European Union has not been capable of delivering.
The EU is facing the very real and growing threat of permanent fracture and lost legitimacy. It will either develop its role to meet the challenges of today or it will suffer from a gradual and inevitable decline.
A reformed and strengthened EU is absolutely central to securing a successful future for Ireland. The fundamental facts of our location and size have not changed, nor has the economic reality that the only route to high employment and high living standards is for us to be part of a large block which allows us to seek both social and economic progress.
However the European Union today is not delivering for its citizens. One of the many damaging things which happened during the last 30 years is that there has not been space for “critical friends” to be heard. This is a growing middle ground which believes the EU is flawed but wants to fix it. The terms of the discussion cannot be set by views of the extreme left and right. Today, the best hope for the future is that we as a country accept the role of a critical friend.
Ireland must renew its core policies towards the union and accept that events require us to make choices which we have long avoided. With our nearest neighbour and most important trading partner pushing a destructive agenda which could lead to exit from the union in four years’ time, and with our people demanding action for growth, we do not have room for manoeuvre or nuance. In the choice between building up the union or tearing it down, we have to take sides and we have to commit to it fully and constructively.
I believe the time has come for a new Irish policy on Europe which sets out what our objectives are within the union, the principles underpinning our actions and the changes we will be pushing for both immediately and over the vital next few years.
Ireland needs to take a more assertive approach to the biggest threats to the success of the union. In particular, we have to set out very clearly where we stand on the British Tory agenda of hollowing-out the EU. We must assert strongly that we believe that the European Union is about more than a single market.
The very discouraging decision of March’s summit on the EU’s budget has confirmed that there will be no direct stimulus coming from Europe — in fact the opposite will be happening.
The reality is that the scope for changing this in the near future is almost zero, so we have to focus on other steps which can be taken. The IMF has confirmed in recent weeks its new recommendation to states to avoid self-defeating cutbacks in national spending.
The evidence is accumulating all the time that a key difference between Europe and other regions which are recovering strongly is Europe’s coordinated reduction in state spending. The United States is carrying significantly larger debt and deficit figures than Europe, yet no one doubts that their economy is in a stronger position. There are states, such as Ireland, which have no alternative but to maintain a policy of further cutting deficits. However, there are others who have significant room for maintaining spending or even increasing it.
The absence of a banking union to go with monetary union was at the very core of the financial crisis. The agreement to form a banking union was seen as impossible two years ago but it has been agreed in principle. Without this a restoration of normal credit flows within the eurozone is impossible. Without a single approach covering the whole eurozone, the basic principle of sustainable confidence in the banking system will not be achieved.
If the negotiating process goes on for too long, and if the final agreements continue to be watered down, a renewed destabilising of banks is entirely possible. The pace of negotiations must be speeded up.
It is incomplete but there is at least today a framework for dealing with banking collapse and sovereign debt pressures. Some countries, including Ireland, did not benefit from the new measures and were effectively left to carry an unfair burden as Europe sought to hold the line on policies now acknowledged as failed.
As the Taoiseach put it in October: “Ireland was the first and only country which had a European position imposed upon it in the sense that there wasn’t the opportunity, if the government so wished, to do it their way by burning bondholders.”
The recent deal on promissory notes is progress, but it goes nowhere near meeting the justice of Ireland’s case.
If recovery in Ireland is to be fully underpinned then we need further movement. Specifically, the ECB should not only allow the Central Bank to hold its Irish bonds to maturity, thereby returning interest payments to the Exchequer, it should commit to returning profits on its holding of sovereign debt to each country’s Central Bank.
A deal on this has already helped Greece significantly. If these two measures were implemented Ireland’s fiscal position would have a secure improvement of over €2bn per annum.
It is the lack of any credible central EU budget that is the single most important flaw that should be addressed. I would strongly support the adoption of a modest revenue raising capacity for the union as an essential step towards developing a growth-enabling budget. In the key areas of training, rural support, environmental protection and research, the EU has shown that it can help build the underlying growth potential of member states. It needs the budget to do this properly.
In the negotiations on treaty changes which will begin next year, we should say unambiguously that we support expanding the role of the EU in areas directly related to long-term economic growth. We should return to the fundamental point that the status quo is no longer tenable. The EU today is not fulfilling its core economic goals and for this to change the union itself must be changed.
Having spent nearly three decades indulging in anti-EU rhetoric and blaming the union for real and imagined ills, the eurosceptic establishment in Britain has brought the issue to its logical conclusion. They are demanding that the EU either be pared back to little more than a free-trade area or they will try to bring the UK out of it. They have said this process should be completed by the end of 2017.
Ireland obviously wants Britain to stay in the EU more than any country. The question for us is what price are we willing to pay in order to keep them in? Undermining the core of the EU, stripping away the consumer and worker protections which our citizens value so much and handicapping the ability to address clear problems in the EU, would be too high a price to pay.
By all means if permanently staying out of the euro is required, or if they want to opt out of a broader budget, there are means of accommodating them, but the EU has to be about something more than trade. Its policies cannot be allowed to be reduced to a fundamentalist implementation of the theory of comparative advantage.
It has been argued by some in London that they can leave the EU but retain full access to the single market. This is absurd. Membership must have some distinct advantages, and responsibilities carried by members cannot be discarded for those who opt out.
IF we allow the next four years to be dominated solely by the agenda of those seeking renationalisation of powers, the opportunity cost may be very significant — we would have lost critical time in reforming the workings of the union for those who are committed to its future.
That reform and development agenda faces many hurdles of its own. However, one thing we have learned over recent years is that countries are often willing to change fundamental positions during negotiations.
Ireland’s consistent policy for the last three decades has been to argue against a ‘two-speed Europe’ even if it means holding back developments we support. I do not believe we can or should sustain this position any more.
Britain has rarely been our only ally on important negotiations and we have many opportunities to develop closer coordination with other states.
If specific action is essential to fix and develop the EU, then we should support it. If this means that eurozone-specific or wider programmes are developed, so be it.
The other point which has been made is what does it matter what Ireland believes, the decisions will be made elsewhere? I completely disagree with this point. Every member state has a duty to make a constructive contribution to future policy. Standing on the sidelines doesn’t work.
Over the years, Ireland has had a major and positive impact on very important decisions. A more important point is that smaller members have not yet started to fully take the opportunity of the much expanded membership of the EU and the ability to develop new alliances and change the dynamic of negotiations.
When Ireland’s Presidency concludes at the end of June the Government should announce a formal process to set out Ireland’s position on the future of the union. I would like this to be an all-party affair.
If we want the EU to overcome this crisis we have to play our part in helping it to develop an agenda which is ambitious and urgent. We have to be willing to re-evaluate our core European policies and to become more assertive in pushing for real reform. The scale of the problems facing the Union and its members is so big that muddling through on the basis of current policies just won’t work.
We are doing ourselves and Europe no service by standing back.
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