Ireland needs a new game plan for Europe

In the end the recent European Union summit showed that the bloc had learned the lessons from the past decade of financial and banking crises. Desperate to remain relevant (and to be seen to be useful), Europe has achieved what was unthinkable barely five months ago.

For in agreeing to an increased budgetary framework up to 2027 and an additional recovery fund to combat the current coronavirus crisis, Brussels is beyond relieved to be seen as rising to meet this crisis. Out have gone austerity, fiscal consolidation and worrying about how to plug the Brexit budgetary hole. In have come collective borrowing and €390 billion in non-repayable grants that will be sprinkled like confetti among member states up to 2023.

On the surface, this deal represents a huge victory for the reborn Franco-German integration engine and a fitting legacy to Chancellor Angela Merkel’s leadership. Driven by Paris and Berlin (after Merkel’s unexpected conversion to debt financing) this agreement has been hailed as a “historic change of our Europe and euro zone” by President Emmanuel Macron. It is, after all, the stuff of long-held French dreams.

And therein lies the seeds of peril for Ireland and all other smaller member states.

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Because in viewing this agreement as a stepping stone to further integration (and even fiscal union in the euro zone) France and Germany are now locked into the warm harmonising embrace of states such as Italy and Spain.

And that is not good news for small, competitive, Atlanticist economies such as Ireland and the Netherlands. Nor does it bode well for other smaller net contributors to the EU budget such as Finland, Denmark and Austria.

Pressure

In reality, the panic of coronavirus (and Brexit) have coalesced the interests of the larger European economies to a remarkable degree. And smaller states are feeling the pressure.

This smaller-state fear of the overwhelming dominance of big economies was the key factor underpinning Minister for Finance Paschal Donohoe’s recent election as president of the euro group. It was a sort of euro-zone revenge of the little people.

That is why the overwhelmingly negative portrayal of Dutch opposition to large-scale collective borrowing is totally missing the point.

Forget the sideshow about grants or loans, that argument is only a cypher for the much more important debate about what kind of Europe will arise post-Covid-19. This summit was really about Dutch-led resistance to a more expensive, hyper-harmonised, indebted and clearly Franco-German-led EU.

But rather than leading to a new era of frictionless further integration, the ambition of Europe’s new financial framework may well limit its effectiveness. Three fudges arising from last weekend’s summit pose a serious threat to its long-term sustainability. First, no agreement, not even of the preliminary kind, has been reached on how the additional expenditures will be financed. Expect more EU-level taxes, including of the digital kind. This won’t be popular anywhere.

Second, a cumbersome and almost subjective governance mechanism has been brokered which allows an individual member state to raise objections about how other states are allocating their grants. This is a recipe for Eurovision-level disharmony in the future.

Concerns about democracy

Third, the summit has done nothing to allay widespread concerns over the health of democracy in in Central and Eastern Europe. Rather, the desperation of the EU to do a deal has placed its founding principles in the back seat.

For Ireland, the summit highlights the need for a new strategy in Europe. Previous flirtations with the fiscally responsible crew (the new Hanseatic league) were undermined by Ireland’s rush to embrace EU debt financing and “solidarity” with Italy and Spain.

Ireland may well see itself as a “bridge builder” between the different factions of the EU, but the reality is that its lack of commitment to any coherent long-term vision for Europe (beyond seeking Brexit help and refusing every tax reform proposal) is beginning to grate on many member states, especially the larger ones.

The remarkably defiant response of the European Commission to its recent court defeat in the Apple/Ireland case highlights the EU’s patience for Ireland is running thin. Ireland needs a new game plan that extends beyond trying to be everybody’s friend.

Ireland would do well to find some Dutch courage in Europe. As a net contributor dependent on global trade Ireland should be fighting for a leaner, meaner, more competitive Europe. That means dancing with the Dutch, Austrians and others. Not hedging its bets on an autobahn that’s going straight to greater harmonisation with Berlin and Paris.

The Economist recently highlighted Ireland’s habit of getting what it wants in Europe by attempting to appeal to everyone. Part northern (balanced budgets), southern (bailout veteran) and eastern (once poor, now rich). But the age of chameleons died with the dawn of Covid-19.

Ireland may soon find that in trying to stand for everyone, it ends up representing nobody at all.