Where will Ireland stand in an altered EU?


WORLD VIEW:There needs to be more debate on the implications for us of the euro zone crisis, writes PAUL GILLESPIE

STRATEGIC THINKING is always a bonus in politics, never more so than during a crisis. It is rare in Irish political life, particularly in linking national and international developments.

This week the Greek and euro zone dramas have forced a rethink of positions all around Europe and in the wider world, as people are suddenly made aware of the dangers arising from a possible disintegration of the euro system. National interests and power politics come to the fore at such times, including in Ireland.

Revealing perspectives on these questions were offered by Taoiseach Enda Kenny in this newspaper on Wednesday and on Thursday by Minister for Finance Michael Noonan in an address to the Institute of International and European Affairs (IIEA).

Together they chart a strategy to deal with the rapidly changing events. It deserves serious analysis as well as political criticism as to its realism and implications for our future.

Kenny argued against using the restructuring of Greek debt as an opportunity to repudiate the EU-IMF deal with Ireland and renege on our debts unilaterally.

This would be disastrous for recovery because it would cut Ireland off from further loans, force a drastic immediate budgetary balance, plunge the economy back into recession and impose severe social hardship. He prefers a growth strategy to default and believes it is achievable.

Multilateral renegotiation, he says, has already achieved reduced interest rates on the bailout terms. Allowing Anglo Irish Bank to default would jeopardise the €110 billion funding already made available by the ECB at low interest rates to Irish banks, however unfair the burden on taxpayers.

As Noonan said in the Dáil on Wednesday, paying off the Anglo bond was the “lesser of two evils” given the ECB’s refusal to countenance a default for fear of contagion. Being classified as a country that won’t pay rather than can’t pay would earn additional penalties, Kenny said.

Noonan was in upbeat form at the IIEA, delivering his message with a confident informality (you can see a video of it on iiea.com).

He spoke of a third phase in the multilateral negotiations to reduce the debt by €15 billion-€20 billion by 2013.

Implicit in this was an assumption of a readiness to deal from the European side. That would be greatly helped by Ireland’s restored reputation and positioning within the system as a northern state with far more in common with the UK, Germany and the Netherlands than the southern Mediterranean states.

Noonan is optimistic about the euro’s future and believes it has been a great success, reducing inflation, encouraging trade and holding its value. This is a crisis of the euro zone, not of the currency itself, but it does need to adapt and institutionalise further, as it has done over the past year.

He supports automatic stabilisers, transfer payments and a bank of last resort role for the ECB similar to the US Federal Reserve. This is a vision of deeper integration, raising all the obvious questions about political consent and acceptability.

Noonan sees two major problems: the weakening power of the European Commission within the emerging euro zone architecture and the associated tendency of Germany and France to behave as if they own the currency. That is why he wants to see the 27 EU member states running the system rather than the 17 euro zone members dominated by the largest states. Ireland should work with other smaller states against that.

Several major questions arise. Realistically, a growth-led path may not be possible in another recession, which would badly affect Ireland’s exports.

How would that change the attitude to debts? All bets would be off if things go badly for the euro and the world economy. We could then face the kind of social turmoil affecting Greece – along with most other EU states.

If the euro system survives and deepens, how realistic is it to think it could be governed from the 27, not the 17? Noonan’s desire to avoid a two-tier system with separate agendas owes much to his awareness of the economic values the State shares with the UK, including on trade, the single market and transatlantic relations. The UK desperately needs the euro zone to succeed but will not join it.

Those outside the euro zone will not be allowed to dictate terms. That makes a deepening inner core more likely than a unified EU.

The implications for Ireland need more analysis and debate. Noonan says the Government cannot stand in the way of treaty change, but must caution it would have great difficulty carrying it now. It would be easier if it could be shown to enhance Ireland’s position, but this will play out over several years and involve difficult choices.

By then the UK would be embroiled in its own deep debate about relations with the EU, alongside an internal one about Scottish independence. The State’s choices would be profoundly influenced by that too as it (and Northern Ireland) decided where to position itself in a reconfigured Europe.