Hoping to impress Europe's paymaster

When the Taoiseach, arrives in Bonn this afternoon to meet the German Chancellor, Mr Gerhard Schroder, he may have mixed feelings about what awaits him. The Chancellor is a man of immense personal charm who will give his guest a warm welcome. The two leaders have already had a chance to become acquainted, most recently at last weekend's EU summit in Vienna.

The two leaders have similar personalities and share a working-class background as well as a gift for negotiation and political intrigue. Neither is burdened with much ideology and both men pride themselves on being hard-headed pragmatists with a populist touch.

Yet there is no disguising the anxiety the new German government has already provoked in many European capitals, including Dublin. To make matters worse, Ireland may have more to fear from the new regime in Bonn than do many other EU states.

"Let's just say it will be a challenge," groaned one senior Irish official last week.

As one of the EU's smaller member-states, Ireland enjoyed a special place in the heart of Mr Schroder's predecessor, Dr Helmut Kohl. Dr Kohl made a point of reassuring the smaller states that their voice was just as important within the EU as those of their larger neighbours. And he often singled out Ireland, romanticised by many Germans as die grune Insel (the green island), as an example of how EU membership could help to transform a society.

Mr Schroder has little time for his predecessor's grand vision of European unity and, before his election in September, he was regarded as one of Germany's most Eurosceptical politicians. Since he came into office, the Chancellor has adopted a more strongly integrationist tone but, when he speaks of finding agreement within the EU, he usually speaks only of Germany, France and Britain.

Partly because he belongs to the post-war generation in Germany, Mr Schroder has no qualms about speaking openly in defence of his country's national interests. And he is determined to put an end to the system whereby Germany shoulders 60 per cent of the burden of funding the EU.

Reducing Germany's net budget contribution will be the Chancellor's top priority during Germany's six-month EU presidency, which starts next month. Ireland, a net beneficiary, is officially sympathetic to Germany's difficulties but rejects most of the measures Bonn is proposing to reduce its burden. These include cutting structural funds and changing the way farming is subsidised.

All these issues form part of the Agenda 2000 package of reforms, which EU leaders hope to agree by the end of March next year. Mr Schroder has made it clear that he will block enlargement of the EU to the east unless the reforms are agreed to his satisfaction and German officials are predicting tough and heated negotiations.

Where the funding of the EU is concerned, member-states fall into two camps, usually on the basis of whether they are net contributors or beneficiaries. Leading the paymasters is Germany, whose annual net contribution of 11.46 billion ecu dwarfs those of France, with 1.76 billion ecu and Britain, which ends up 0.66 billion ecu out of pocket despite its rebate.

The beneficiaries are led by Spain, which gets 5.54 billion ecu out of EU membership, followed by Greece with 4.3 billion ecu and Ireland with 2.8 billion ecu. Portugal, which benefits almost as much as Ireland, is the fourth member of this club.

Mr Schroder has identified the Spanish Prime Minister, Mr Jose Maria Aznar, as his chief adversary in these negotiations and he may view today's meeting as an opportunity to soften up one of Spain's allies.

There may be some room for compromise between Dublin and Bonn on the issue of funding but there appears to be little prospect of agreement on agricultural policy. Germany favours a system of "cofinancing" subsidies to farmers which would mean that memberstates would share the burden with Brussels.

Ireland has ruled out agreeing to any such move, insisting that the best way ahead is to lower consumer prices and compensate farmers for loss of earnings. At Vienna last weekend, Mr Ahern predicted that this issue would be the most difficult for Ireland during the forthcoming Agenda 2000 negotiations.

A call last month by Germany's Finance Minister, Mr Oskar Lafontaine, for greater tax co-ordination in Europe sent shivers down the spines of leaders in states such as Ireland which offer low corporate tax rates. Any illusion that Mr Lafontaine was not speaking on behalf of his government was swept away a few days later when Mr Schroder rowed in behind him.

The Vienna summit appeared to defuse the issue, at least temporarily, with an anodyne statement calling for greater co-operation to fight unfair tax competition. Mr Ahern will be relieved to know that Germany seldom spares a thought for Ireland's tax rates, preferring to focus its wrath on neighbouring Luxembourg, which attracts billions of deutschmarks from Germany every year.

Luxembourg's Prime Minister, Mr Jean-Claude Juncker, will also be visiting Mr Schroder today, a few hours before the Taoiseach.

With few achievements to boast about from the Vienna summit, populist leaders such as Mr Schroder and Mr Ahern have made much of the decision to reconsider the end of duty-free sales next summer. Both men are now eager to save duty free altogether, or at least to persuade the EU Commission to agree to an extension. They are likely to discuss strategy during today's meeting.

Mr Ahern's greatest obstacle in forging a close relationship with the Chancellor may lie in the fact that, in a community dominated by socialist governments, he belongs to a conservative party.

Europe's socialist parties enjoy a remarkable international network and links between Germany's Social Democrats and like-minded parties have deepened since Mr Schroder came to power.

Without these important channels of communication, Mr Ahern will need to call on all his reserves of personal charm and political skill if he is to forge the best possible relationship with Ireland's most powerful European partner.