Logic dictates that we support new deal for Europe

STEPHEN COLLINS

INSIDE POLITICS: It would be economic madness not to sign up for the financial discipline required by a new European treaty

THE AGREEMENT of 26 of the 27 EU countries to support a treaty establishing a fiscal union in the euro zone could mark a pivotal moment in history where the future of this country and the future of Europe could be shaped for decades to come.

Ireland is now at a crossroads in terms of its future relationship with its nearest neighbour, Britain, and its continental EU partners. We have to choose a much closer relationship with one or the other, and there will be no going back.

The future of the euro is at stake and, given the calamity that would befall this country if the currency were to collapse, there is really not much of a choice. If the new treaty agreed by the 17 euro zone members and nine of the 10 remaining EU states delivers the stability required to rescue the currency then it would be economic madness not to sign up for the discipline required.

The only alternative would be to leave the euro zone and attempt to peg the Irish currency to sterling. That would effectively amount to an application to rejoin the United Kingdom on the 90th anniversary of the treaty that led to the establishment of this State. As long as there is a realistic chance of saving the euro it makes far more economic and political sense to stick with “our gallant allies in Europe”.

It’s ironic that Sinn Féin has joined with the “burn the bondholders” brigade in the Dáil in promoting the argument for leaving the euro and, in effect, throwing ourselves at the mercy of the United Kingdom.

Not only is the euro a currency which has served us well since its introduction but we are utterly reliant on European institutions and the IMF to provide us with the funds we need, at reasonable interest rates, to run our State and fund our banks.

What has been demanded in return is that we should run our economy in a sensible manner and do the kind of things like bringing in a property tax and a water tax that our own politicians were too cowardly to do.

The new treaty establishing a fiscal stability union may require a referendum, and while that will inevitably result in another divisive and bruising campaign it is nothing to be afraid of. Tánaiste Eamon Gilmore spelled out the reality to the Dáil on Thursday that Ireland’s prospects are inextricably linked to the euro and we need to support the measures necessary to sustain it.

“If that is what we have to do to save our currency, to restore our economy, to be able as a sovereign nation to borrow again on the financial markets and to ensure that no future government can ever again bring us to such a sorry state, then let us not be afraid to put that choice to the Irish people.”

The conviction displayed by Gilmore in the Dáil debate is exactly what will be required in a referendum campaign in order to convince the people to approve a new treaty. In recent referendums the “Yes” campaigners’ arguments too often lacked conviction and were drowned out by the naysayers’ passionate intensity.

This time around there should be no doubt about where the balance of economic self-interest lies. In this newspaper yesterday economics editor Dan O’Brien calculated that if the euro broke up the State would face a shortfall of about €30 billion in the public finances next year. Given the controversy over an adjustment of €3.8 billion, just imagine how this society would cope with an adjustment of €30 billion in 2012.

The alleged threat to Ireland’s 12.5 per cent corporate tax rate is again being furiously peddled by anti-European campaigners. There is no immediate threat to the corporate tax rate and, even if there was, there is no comparison between the threat to Ireland’s interests from the collapse of the euro and the ending of the low corporate tax rate.

Remember that Ireland introduced its innovative zero tax rate for exports as long ago as 1956. While that did help the economic expansion of the 1960s, Ireland was still far behind the rest of the EU in terms of average income until the late 1990s. What happened in the 1990s is that foreign direct investment flooded into Ireland as a result of the moves towards monetary union. If we were outside the euro zone much of that investment would disappear whatever the corporate tax rate.

A referendum on a euro zone treaty would be a very different one from the recent EU referendums. It will be a simple case of joining or not joining and there will be no question of a rerun if there is a “No” vote. If the Irish people decide not to sign, the others will press ahead and we will have to make our own way outside the euro. The kind of catastrophe that would ensue is obvious.

The “No” campaigners who are so intent on burning bondholders may find the Irish voters a little reluctant to set fire to the money in their pockets and their bank accounts for a theoretical, outdated notion of sovereignty.

There is no guarantee the new treaty and the expected action by the European Central Bank in the months ahead will be enough to save the euro but the likelihood of the currency’s survival has certainly improved. It is in our vital national interest that it does.

The fact that Britain is now isolated in Europe is not a welcome development from the Irish point of view. It is still our biggest trading partner, although not nearly as important as it was for the first 50 years of this State’s existence.

However, becoming involved in Europe since 1973 has given this State the “freedom to achieve freedom” that Michael Collins aspired to in December 1921. Moving towards grater fiscal union will enhance rather than diminish that freedom in real terms.

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