Politics

For Ireland, Is It London or Berlin?

Irish Green Party leader Eamon Ryan argues that a breakup of the Eurozone would offer no benefits to Ireland, and that the solution instead is to champion a strong, Green economy that ties Ireland ever closer to Europe.

It seems we have reached a defining point in the Euro crisis. Christine Lagarde was clear in her analysis yesterday that we urgently need a new banking and fiscal union and new measures to stimulate our economies. There seems a real risk that if we do not address the crisis in a different way to what has been tried to date, the Union could fall apart. Martin Wolf has described our options in marital terms. We could make this thing work as a proper Union, we could see a partial split between the Euro countries, or we could see a full breakup where Ireland would be forced back with our ex in the UK.

We don’t have much time to make up our minds but I know that my preference would be to try and make the Union work. I didn’t like the line from Chancellor Angle Merkel last week, that changing strategy might ‘make mediocrity the yardstick for Europe’. Not allowing some sharing of the debt burden and some risk of inflation from a stimulus plan, presents the greater risk that everyone will slip into severe recession. I think we can change tack and still meet the objective she seeks and which the Germans have shown can be done, which is to maintain prosperity in face of increasing international competition. Ireland has every reason to follow the German model of using greater productivity and innovation to deliver prosperity. It is something we know we are good at and where we can compete. My one caveat is that the new model should also be Green. We need different economic indicators of wealth and success which recognise that just chasing growth is no longer an option. Our stimulus plan needs to concentrate on us doing better while using up less.

Chancellor Merkel is arguing for greater unity and control at a European level and for independent supervision of the European institutions. If that is to happen, then it is the German Government which is going to have to move the most. If as she argues the German Constitution is an obstacle to certain economic solutions, then surely it will be necessary to change that Constitution. We do that in Ireland on a regular basis. The traffic cannot all go the one way. One of the key problems in this crisis has been the return to a form of inter-governmentalism, where the creditor countries are calling all the shots. That has fundamentally undermined the independence and power of the European Institutions. If the solution is going to be a more federal Europe then the design of any such system has to be done by Europe as a whole. We need smaller members to have a real say in how those institutions are set up and run. We need to restore democratic legitimacy to the Union and in Ireland we need to make sure that it comes with a radical reallocation of power back to a regional and local level.

I will be going to Berlin this weekend to attend a special German Green Party convention on the crisis. One of the things I will be saying is that Ireland needs to get the issue of our debt payments out of the way, as we start looking at the wider constitutional issues. Irish economic commentator Karl Whelan has been reviewing some of the ways that might be done and the IMF has already recognised we need such a deal for both political and economic reasons. The Irish Greens have been talking to our own German Green colleagues about how that might happen. We hope to be able to form a common position that might in some way help break the deadlock that exists. Michael Noonan, Ireland’s Minister for Finance, has backed himself into something of a corner because it will be impossible to repeat the conjuring trick that took place around the promissory note repayment last March. He faces an impossible political retreat unless there is a change to the deal next year. Ireland needs to get that issue out of the way so that it does not colour our overall judgement on the wider European issue. Ireland’s last referendum on the fiscal compact was not a shining example of how that debate can go. The main argument for a yes vote was once again all about getting access to money. Next time the arguments will have to be about European Unity and we need to create the political space for that to happen.

There is a risk that we may not even get to that stage if things slip over the brink in one or other of the countries now at the centre of the crisis. If in those circumstances a two tier euro is proposed, then I think we should make sure that Ireland sticks to whatever strong new euro area evolves. At the start of this crisis an influential report from Ireland’s National Economic and Social Council (www.nesc.ie) set out the five challenges we face. It came to the conclusion that our situation was similar to what had been faced in Sweden and Finland in recent decades and that we should use the same approach they had adopted. That Scandanavian model of promoting economic innovation while maintaining social protection through the provision of public services was at the heart of our initial response to the crisis. Such thinking is also contained in the four year plan that was written in 2010, that the new Irish Government has adopted as our way forward. We are not out of the woods yet but we are sticking to that plan and there is no reason to think we will not succeed. We have already completed an internal devaluation through wage cuts and other efficiency measures. We are back in a balance of payments surplus and we do not need to devalue into a weaker currency to restore our competitiveness. We had already introduced a lot of labour market and other reform measures back in the early 1990?s. For all our failings we have a well-established, independent and accountable legal and political system and it make sense for us to maintain a place in a strong currency area.

Because of those inherent strengths I don’t buy the arguments of other commentators that now is the time to leave the euro and tie our fortunes once again to Sterling. Why would we do so when it seems clear that their model is over reliant on the speculative forms of capitalism that got us into this problem in the first place? I don’t see that UK Chancellor of the Exchequer George Osborne’s solution of using tight fiscal policy and loose monetary policy is starting to work. He said last week ‘Maintaining low interest rates is also crucial in an economy as indebted as the UK” but the three hundred year historic low in their interest rates could also be seen as a sign of weakness rather than strength in their economy.

While Dublin has its own financial services centre, which benefits greatly from its relationship with the City of London, I don’t want to see the divide grow between well paid financiers and the rest of our economy. If excessive leveraging is the real cause of this crisis then surely a charge which dampens down the insane trading systems that now exist, must be part of the solution. I deeply regret that the only action of note that our Taoiseach has taken on the European stage, is to make a vow of total opposition to the introduction of a Financial Transaction Tax (FTT). I can understand how we will negotiate to maintain our corporate tax rate in a new fiscal union but I don’t think he will be able to hold the line on the FTT at the same time.

At some point soon we are going to have to make a call in choosing whether we follow our interests in London or Berlin on this and other issues. Another regret I have is that Ireland’s new constitutional convention (established to debate changes to Ireland’s constitution) will not be able to address the biggest and most urgent constitutional change we face. It is not too late for the Government to open up that convention more and to put the big European constitutional issues facing us at the heart of the agenda.

A version of this article was originally published on Eamon Ryan’s blog.

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