Ahern may live to regret giving McCreevy Finance

The tensions recently introduced into our relationship with the European Commission and our EU partners are unnecessary and dangerous…

The tensions recently introduced into our relationship with the European Commission and our EU partners are unnecessary and dangerous. It is worth reflecting on how this problem has arisen.

Institutional, political and personal factors have been at work in creating this crisis - and their combined effect has proved explosive. Other countries seem to have been better at tackling the institutional factor, viz adjusting the domestic governmental system to the new situation created by EU membership.

National governments are organised departmentally - and policies are often generated and always implemented, through this departmental structure. In the first half-century of Irish independence foreign policy impinged only slightly, and sporadically, upon the work of home departments. But within the EU co-ordinating the work of domestic departments to matters involving the Union is needed.

This co-ordination function is complicated by the EU not being a federation, with competences clearly divided between two levels of government, some at federal and others at national level. Instead, in creating a single market for goods and services, the Union's competences have had to be extended to any area of domestic policy where unfair competition might distort the market. In an increasingly globalised world economy this involves many aspects of domestic policy.

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Within 20 different formats of the EU Council of Ministers, ministers from each member-state, and their civil servants, have to agree on how best the common interests of the EU peoples can be advanced, with due regard to the interests of their own states.

Every country has its own way of securing co-ordination of this process in the overall national interest - usually, but not always, by its foreign affairs department. Aware of this problem, I felt it necessary on becoming Taoiseach for the second time in 1982 to write to all the members of the government to stress the importance of the co-ordinating role of the Department of Foreign Affairs in EU matters.

Naturally, this co-ordinating process can sometimes create inter-departmental tensions. Departments and ministers for agriculture, for example, who identify strongly with their farming communities, have never taken kindly to such co-ordination.

As foreign minister during Ireland's Presidency in 1975 I was twice pressed by my Foreign Affairs colleagues to go to meetings of ministers for agriculture to ask them if they could speed up action on a matter that was holding up decisions we had to take on international trade. As I told my Foreign Affairs colleagues, this was a thankless mission - I was effectively thrown out by the agriculture ministers under Mark Clinton's chairmanship!

In the 1970s and 1980s this issue did not arise very often in the Economic and Finance Council (ECOFIN), which then had a light agenda. Indeed, foreign ministers, whose meetings often went late into the night, would sometimes, somewhat unfairly, describe ECOFIN as a council that met for lunch and then went home.

With European monetary union (EMU) that changed radically. Acting in a restricted format involving the 12 EMU finance ministers, and also as a council of 15, ECOFIN now has the crucially important task of ensuring that member-states' financial policies are not pro-cyclical.

In other words, it has the task of securing that the budgetary action of national governments does not either unduly depress an economy in downturn - a fairly improbable event, although it happened here in 1952 and 1956 - or, much more likely, act to expand a rapidly-growing economy excessively, perhaps in the run-up to a general election.

(EU finance ministers also have power to penalise financially governments that run excessive deficits - not an Irish problem at the moment.)

The trouble is that a finance minister, who plays a powerful domestic co-ordinating role, can prove resistant to a foreign affairs minister seeking to exercise his EU co-ordinating function by reining him in, if and when the finance minister shows signs of over-expanding the economy.

Here we know that the Government as a whole was excluded from preparation of the December 1999 Budget, learning of its contents only on the morning of its presentation to the Dail. That innovation, copying British practice, may have begun when Charlie McCreevy took over in Finance in 1997. But because of the political mess made of the December 1999 Budget, that of last December seems to have been discussed beforehand in Cabinet.

This would have given the Minister for Foreign Affairs the opportunity to press on his Finance colleague the need to adhere to his commitment to avoid pro-cyclical action running contrary to the obligations that Minister had voluntarily assumed as part of our EMU membership.

We do not know to what extent Brian Cowen as Minister for Foreign Affairs sought to exercise his co-ordinating role in this new and very important policy area. Nor do we know what advice these two Ministers may have received on this matter from their civil servants.

All we know is that Ireland's position within the EU was badly damaged when Mr McCreevy, conscious of approaching a general election, chose not alone to ignore his EMU obligations in drawing up his December Budget, but then aggressively to defy the European Commission and by his stance - and the Tanaiste's in her unwise Financial Times article - to irritate all his EMU colleagues.

This raises questions about the Taoiseach's judgment both in his choice of ministers and in carrying out his overall co-ordinating role in Government. From his party's viewpoint his choice of Charlie McCreevy in Finance was a risky one. In temperament the Minister is an ideological PD rather than a Fianna Fail pragmatist, and in a FF/PD government, which tends to be pulled dangerously to the right by the smaller partner, there was bound to be a need to counter-balance rather than to reinforce this pull in Finance.

There was also a danger in making the Minister for Finance a strong-minded accountant with a gambling streak: the minds of some accountants can at times be resistant to economic considerations, and this is clearly so with our Minister, who seems to be unable to accept even such obvious economic concepts as the need to pursue counter-cyclical rather than pro-cyclical policies.

No one can doubt McCreevy's ability: he is an outstanding and personally charming member of this Government who, rightly, knows he is exceptionally gifted. But that self-certainty, combined with a strong ideological streak, has made him a dangerous choice for the Finance post and one his party may have cause to regret.