Aer Lingus boss extols the virtues of Nice Treaty

Willie Walsh is better placed than most Irish business people to observe the benefits of EU membership in light of the potential drawbacks, writes Arthur Beesley

Aer Lingus chief executive Mr Willie Walsh was not going out on a limb a couple of weeks ago when he called for the Nice Treaty to be passed.

But in line with the consensus view in Irish business as he is, Mr Walsh is better placed than most to observe the benefits of EU membership in the light of the potential drawbacks.

"We must get the vote out on Nice," he said in a recent address. "Analysing the fine print is well and good, but we are either part of Europe or we are not."

Mr Walsh bears glad news these days of a return to profits this year after the September 11th attacks brought Aer Lingus to the brink of bankruptcy in 2001. Events during its turnaround were marked to a large extent by the EU's pervasive influence over its business.

It is an influence that has underpinned the boom in general, although the Irish economy was a laggard during the first 20 years of EU membership, with parlous public finances and high unemployment.

In the case of Aer Lingus, EU rules could be seen over the years as a threat or an opportunity, but they could never be ignored. The airline's most recent crisis is a case in point.

First, the European Commission refused permission to the Government to bail Aer Lingus out by means of a rescue package in the severe downturn after September 11th last year.

Such State aid might have provided a cushion against the 2,000 redundancies that followed. But it is illegal under the Commission's rules because it discriminates against privately owned competitors. Europe agreed to a €222.2 million State package for Aer Lingus in 1994, during a previous crisis, but only on condition that it be the last.

Second, the very presence of competitors such as Ryanair is possible only because the EU liberalised the airline business, paving the way for the demise of state monopolies and competitive pricing.

Before Ryanair was established in the 1980s, Aer Lingus and its state-owned counterparts all over Europe were bloated organisations, charging inflated prices for the simplest journeys.

The bargain carrier was not exactly made welcome by its competitors because it made life hard for them by driving airline prices down. It is ironic then that Aer Lingus has adopted the "low-cost" model as it makes radical cuts to stay ahead in a vulnerable market.

Assuming that further shocks in the airline business do not emerge, the next phase of Aer Lingus's development is likely to centre on privatisation or part-privatisation.

Like the other factors that influence the Aer Lingus business, such a development would be in line with the broader thrust of public policy in the EU, which favours private over public investment and the deregulation of state monopolies. Whether one considers this a good or bad thing is a matter of political outlook, but it is the unavoidable reality.

Observe the State's withdrawal from the telecoms and bank markets during the last Government and the opening of the electricity, gas and postal markets to competition.

Observe also the elimination of uneconomic State enterprises, among them Irish Steel.

So while the EU and its institutions are often criticised for their cumbersome bureaucracy, their effect on business has been to liberalise domestic and international trade, fostering competition, creating entrepreneurial opportunities and opening up the market for labour.

Just as this made opportunities for Irish companies to compete on a level playing field in the EU since 1992, foreign enterprises are free to do business here.

This is already under way where the candidates for EU membership under the Nice Treaty are concerned because those states entered free-trade agreements with the union in the 1990s.

This is the liberal dynamic of the modern economy. Even if the Republic was not in the EU, it could not be ignored.

But it is not without criticism. For example, an Irish Congress of Trade Unions (ICTU) paper submitted to the Forum on Europe claims that competition and regulatory policy is constructed to achieve the objective of the State's withdrawal from economic life.

Stockbrokers, bankers and consultants are big beneficiaries, according to ICTU. In addition, there are the power shifts to regulators from politicians. The ICTU makes serious criticisms of deregulation in the telecoms and electricity markets in particular.

Its paper says: "Competition policy is supposed to create a level playing field. In reality, the playing field is, by deliberate design, tilted against public-sector incumbents, particularly in the utility sector. This policy of stealth has had considerable support within some parts of the Irish public service."

It adds: "It is apparent that the European Commission has a clear policy of closing off as much space as possible for Government involvement in the economy. Europe is a liberal house, pure and simple."

For that, however, the opening of trade stimulates economic activity, creating jobs and wealth, but introducing competitive rigour too.

There is also the matter of transfers from the EU budget into the Irish economy, all of which came from public money. Department of Finance figures show the Republic has received some €48.13 billion from Europe since joining the then EEC in 1973, €35.22 million more than the €12.91 billion paid from the Exchequer into the EU budget in the same period.

This, of course, is set to change, with the Republic likely to become a net contributor to the EU budget as the union expands. Crucial here are plans also to reform the Common Agricultural Policy, which was worth €1.58 billion to Irish farmers last year. These are opposed but change is considered likely after 2006.

The import of these transfers into the domestic economy as it modernised cannot be underestimated, both in sustaining the farm business and building infrastructure.

As Mr Walsh well knows, they are not available to those running a State airline.

Still, it is in the nature of economics that one flow of money begets more down the line. In addition, entry into the European Monetary System and, later, to the monetary union, imposed discipline on fiscal policy as interest rates, inflation and taxation reduced.

Crucial to the transformation was the capture of large amounts of foreign direct investment but, in that regard too, access to European markets was a boon.

Combined, these factors helped lift living standards to a huge extent, with workers also free to work anywhere in the EU. For that, however, the notion of a job for life is defunct in many industries.

The Irish public service may be expanding, for example, but thousands of workers in State companies have lost their jobs as companies rationalised. Bear in mind that redundancy in a booming full-employment economy is not the nightmare it is when unemployment is rising and jobs are scarce.

In the early 1970s, gross domestic product per head was 61 per cent of the average in 15 states now in the EU, when measured on a purchasing-power basis. This rose to 73 per cent in the 1990s and stood at 115 per cent last year.

As Aer Lingus says goodbye to the State, tapping into such wealth is where it hopes to expand the business. Mr Walsh is not alone in that either.