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Ireland and the euro crisis

Ireland, like other small EU member-states, must be especially smart in responding to the euro crisis, since it does not command the resources that better enable larger states to protect their interests. How coherent has the Irish approach been so far and are the alternatives more convincing?

Scenarios of survival, transformation and collapse are being written for the euro as the European Union's single currency faces, from January 2011, into its period of most fateful decisions. The crisis poses extremely difficult strategic challenges for Ireland and other member-states. The smaller among them need to be especially smart, since they do not command the resources and capabilities which better enable the largest to protect their interests and values through such turbulence. Strategic thinking is always a bonus in politics, never more so than during a crisis. It is comparatively rare in Irish political life, notably in linking national and international developments. Arguably, and paradoxically, Ireland has been better at long term strategy, such as its overall approach towards the EC/EU, than in dealing with more immediate change. There is a strong strain of inertia in the political and bureaucratic culture once high policy is decided on.

The EU: Broken or just broke?



This article is part of the Focal Point The EU: Broken or just broke?.

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So how does Ireland measure up to the euro zone crisis on these criteria? How coherent and well organised is the official approach – and are the alternatives presented more convincing? These questions deserve serious analysis as well as political criticism as to their realism, where they would position Ireland in a post-crisis setting and the implications for the country's future. This essay first examines the events of the last three years against Ireland's nearer and longer term experience of European integration. It goes on to look at the three main axes of argument about the EU/IMF bailout deal and the positions taken on how a deeper euro zone should be governed. It then assesses them and concludes with some thoughts about where Ireland should position itself after the crisis.

Having enjoyed nearly two decades of economic recovery and rapid development as one of the most successful member-states of the European Union, Ireland was shocked and chastened by the global financial crisis of 2007-8 and its traumatic impact on the country. A threefold crisis assailed its economic and political elites and citizens when the property bubble built up since 2002 exploded six years later. Its banking system collapsed through overexposure to loans from the cheap credit which coincided with the introduction of the euro. There was an immediate impact on state revenues when property-related windfall taxes collapsed under this pressure, exposing a yawning gap between current expenditure and revenues. And the country's economic competitiveness suffered from a runaway cost base. All roads led to Brussels out of these three great troubles. Being locked into the European credit and banking system meant Ireland's capacity to act unilaterally was tightly constrained in any action which might be perceived to endanger the wider euro system. Not paying in full debts to bondholders who lent money to Irish banks was put top of that list by the European Central Bank and key member-states for fear of contagion – and they now had the financial power because of the bailout to insist they got their way.

The events must be put in the context of Ireland's overall approach towards, and experience of, European integration and also of its economic development since the late 1980s. A central reality of that trajectory has been the changing relationship with Britain – and this remains very much the case now that the euro is threatened, since the logic of voluntary or forced withdrawal would compel choices about whether to draw closer to Britain. This has been an under-examined feature of the euro crisis in Ireland so far. Politically and economically, Ireland's policy towards European integration has been driven since the 1960s by a prolonged effort to escape from continuing overdependence and overreliance on Britain. Accession to the European community in the 1970s was experienced as a liberation from postcolonial constraints by policy-makers and as a broadening horizon by the mass public, underlying the generally positive attitudes which find Irish people among the most convinced they are beneficiaries of EC/EU membership and that it is a good thing. This appeared to affirm the national project of independence and was harnessed by political elites as fully compatible with Irish nationalism, which always had a European vocation. Economically there was a diversification away from British markets, reinforced by the 1990s boom.

The multinational (largely US-based) sector of the Irish economy had a worldwide market, even if the domestic sector continued to rely much more on trade with its nearest neighbour. The US multinationals had been attracted here in good part because they wanted to participate in the single European market and not be locked out of it. Ireland's low corporation tax helped in that, as did the wider policy commitment to the market-based Anglo-American variety of capitalism it symbolised. Thus Ireland's distinctive mix of economic geographies included both the political-economic core European one and the open market one that was given worldwide reach by the globalisation that neoliberal policies strongly encouraged from the 1980s. The European commitment did not exclude but harnessed the market approach. This gave Ireland a continuing interest in making alliances with those who had a similar market commitment, such as the Netherlands – and Britain. The resulting tensions could be seen in the battles between this group, the Commission and continental states over anti-dumping, local content regulation, rules of origin and other technical details during the Single Market negotiations in the late 1980s, which laid down markers for the following decades.

This contributed to the perception of Ireland in France and Germany as effectively an ally of Britain's on market issues, even though in reality the picture is more complicated. Ireland has steered a course between the Anglo-American and the continental approaches. That is reflected in the Boston versus Berlin debate initiated by the then Tanaiste (deputy prime minister) Mary Harney in 2001 (note that it was not presented as a London versus Berlin one, so that Irish Euroscepticism is also distinctively Americanised). And since the current crisis is simultaneously a regulatory/institutional one in the euro zone and a deeper convulsion of this global over-financialised capitalism created from the 1980s the stakes are all the higher.

Ireland's decisions to join the European Monetary System in 1979 without Britain, to support the opening of negotiations on the single European market in 1984 despite British opposition, and above all to join the euro by accepting the Maastricht treaty on economic and monetary union in 1992 notwithstanding British non-participation in the currency confirmed the long term political strategy of reducing overdependence. Some of the genuine difficulties were disguised by the large European structural and cohesion funding successfully negotiated from 1987 to 1992 in compensation. Irish policy-makers were willing to accept the new disciplines involved, notably the loss of sovereignty over currency devaluation, the need for "internal devaluation" instead and conditions of the Stability and Growth Pact negotiated during Ireland's EU presidency in 1996 which imposed the 60 per cent debt and 3 per cent budgetary limits. This was very much a political decision, a deliberate opting for full participation in the emerging European economic system so as to escape the constraints of post-independence continuing reliance on Britain. It was taken despite the opposition of many Irish economists, who felt it was wrong for Ireland to join the euro without Britain and some of whom argued that the projected euro zone was not an optimal currency area and lacked the fiscal and financial means to deal with asymmetric shocks. Their disciplinary shock that such a political decision should trump supposed economic rationality is less convincing in retrospect than their insight that its design was incomplete – and there was also an important group among them who felt the balance of advantage was definitely to join the new currency.

Politically it was a different question when the new disciplines were implemented several years later. Chided by the Commission for breaching the budgetary limits and for pro-cyclical policies in 2001-03 the Irish government pointed out that the pact rules had been ignored too by Germany and France. It was not a good setting in which to develop the disciplines, as a wall of cheap credit stimulated by global financial deregulation coinciding with the creation of the euro flowed from core European economies to Ireland, Greece, Portugal and Spain, where growth and demand were more buoyant. Much of this reciprocal activity is, of course, seen more clearly in critical retrospect after the property bubble burst, when arguments opened up about who was most responsible and should bear the cost.

Having established this position as a small state within an expanding union in the 1970s and 1980s, Irish policy was geared to take advantage of an additional role as a developing state anxious to benefit from the structural funds it helped create. Its relative success in doing so in the 1990s accomplished a transition away from peripheral "Mediterranean" status, marked in 1997 by the passing out of average UK incomes. This was one of the relatively few fields in which the state took a positive initiative; in other respects its policy was normally reactive rather than innovative, whether on enlargement, policy or institutional development. Because of its economic success in that decade Ireland became a model for development and modernisation, based on the neoliberal verities of the time, which were enthusiastically adopted and showed up in the AT Kearney/Foreign Policy globalisation rankings of the early 2000s, with Ireland at or near the top of the worldwide lists of open economies.

Within the EU, Ireland was a friend of the community method and the Commission, wary of any large state directoire and anxious to impose restrictive rules on trends towards two-tier or multi-speed variability and flexibility. More policy and political energy was devoted to institutional and inter-governmental channels than was to the European Parliament, reflecting Ireland's strong centralised executive government structure. There was a conscious effort to avoid being obstructive. A series of successful EU presidencies, notably in 1990, 1996 and 2004, established Ireland's political credentials within the European governance system. Certain primary interests were foregrounded, including low corporate taxation, maintaining the Common Agricultural Policy and benefiting from the structural funds, as well as sustaining the open response to globalisation responsible for Ireland's economic success.

Ireland's experience as a referendum state added another distinctive dimension to its EU profile. There have been ten referendums on EC/EU treaties, beginning with accession in 1972 and then on each successive treaty since the Irish Supreme Court decided in 1987 that the Single European Act required a referendum because its foreign policy provisions were inconsistent with the Irish constitution. The test established by that case was whether state sovereignty is affected by a transfer of powers over and above the original accession terms. Since then governments have decided politically it is more prudent to hold referendums than rely on parliamentary ratification. This means they are more alert to the domestic political consequences of integration than most other governments; and since the defeats in the first referendums on the Nice and Lisbon treaties (2001 and 2008) more cautious about accepting treaty change. The experience tells the political elite it is necessary to campaign vigorously and persistently over the long term if referendums are to be passed. Political communication is put at a premium and they must be able and willing to argue their case. But political parties are not well geared to fight referendum campaigns. If in government they have been frustrated by court restrictions on state involvement and requiring balanced broadcasting; if in opposition they resent the expenditure required and are ill-equipped to fight such a campaign on the doorsteps.

The electorate clearly feels it is safer to be an integral part of the European Union than not in troubled economic times, as shown in the swing towards the Yes side in the second Lisbon referendum of October 2009. That conviction persisted through the following two years, notwithstanding the bailout shock and sharply reduced living standards. Three Irish Times Ipsos/mrbi opinion polls, in July and October 2011, find a persistent 68/65/67 per cent saying it is better to be part of the European Union against 22/25/23 per cent not, with 10 per cent don't know on each occasion. This feeling was held even by classes and party supporters normally most hostile to treaty change and people maintained the position even though in the July poll they thought by 53 per cent to 31 per cent that the government had not done enough to try to negotiate better terms with the EU/IMF and by 50 per cent to 38 per cent that Ireland had surrendered its sovereignty by accepting the bailout. Revealingly, only 25 per cent were satisfied, while 54 per cent were dissatisfied, with how European leaders were running the EU in October 2011. Asked how they would vote in a referendum to amend the Lisbon treaty to deal with the financial crisis, 47 per cent said they would vote No, 28 per cent Yes and 25 per cent were undecided in October. An Irish Examiner poll published on 28 November showed 48 per cent willing to comply with the EU/IMF bailout deal, 33 per cent against and 22 per cent with no opinion. Asked if the government had reneged on its promise to get a better deal 39 per cent disagreed, 36 per cent agreed and 25 per cent did not know.

This configuration of public attitudes forms an essential backdrop to the public debates on the crisis and Ireland's response to it arising from the EU/IMF bailout during and after the election campaign. The election-related discussion was the first of three major axes of policy debate on the crisis. It flowed over into the second axis, on whether multilateral or unilateral strategies to resolve it should be pursued. The third axis of debate concerned whether and when Ireland could expect to return to the markets for its state funding requirements and not continue to depend on the emergency EU/IMF aid.

The first axis broke the normal pattern whereby international questions rarely become domestic political issues. In contrast to the outbreak of social turmoil and conflict elsewhere caused by the crisis, in Ireland public anger was expressed electorally. Civil society in Ireland has been more quiescent for historical, sociological and political-structural reasons, but this may change with circumstances. Greater awareness and more direct personal exposure to the issues involved close the information gap between policy-makers, political elites and the voting public which normally applies in foreign and European policy, narrowing the elites' ability to control them. Political parties in Ireland as elsewhere normally police the domestic/foreign boundary and prefer to keep their post-election coalition bargaining options open by insulating them rather than making them into competitive issues.

On this occasion economic issues, which usually top the national domestic agenda, had an inescapably international dimension – albeit a special one in the sense that Europeanisation is best defined as making European matters part of domestic politics. In Ireland even national issues are usually kept at arm's length from local electioneering but in this election 41 per cent of voters said in an exit poll that choosing between the policies set out by the parties was important (compared to 24 per cent in 2007). Fine Gael and Labour made the European issue national by pledging in their manifestos to renegotiate the interest rates paid to the bailout fund and to reopen the question of how much bank bondholders would be paid – which Fianna Fáil had to defend as the best deal available. Renegotiation received support from a poll showing 80 per cent of voters preferred it to austerity. As the late Peter Mair pointed out, this raises in acute form one of the central dilemmas of contemporary democratic politics, the tension between the voter preferences to which political parties are expected to respond and which they must also seek to represent, and the various international and supranational actors who expect and demand that certain policies are pursued responsibly by domestic authorities. Where (admittedly unusually) the external actor holds the upper hand, we end up, he said, with a "democracy without choices".

This dilemma opens up the second axis of the Irish debate: whether to persist with multilateral efforts to improve on the EU/IMF deal in the expectation that the crisis would open up opportunities for Ireland as it penetrated the core European economies and could no longer be contained in the peripheral ones or to take unilateral action to break out of the deal. The new government accepted the major parameters of the agreement negotiated by the outgoing Fianna Fáil-Green coalition on the grounds that this was a sovereign decision which must be adhered to. But it sought to reduce the high, indeed punitive, interest rates paid on the loans and tried to convince the ECB that certain bondholders, notably in Anglo Irish Bank, should not be paid in full. More broadly, it participated in the debates on financing generalised bank recapitalisation and whether and how to create a deeper fiscal union, including using the ECB as a bank of last resort and creating a Eurobond system.

The debates on the Greek rescue plan and wider euro zone problems in October and November 2011 crystallised these issues, as often happens in periods of high tension. Asked why he was permitting unsecured but senior bondholders of Anglo Irish Bank to be repaid 700 million euros, the Minister for Finance, Michael Noonan, said in the Dáil: "It is the choice between two evils, as far as I am concerned, and the decision we are taking is the lesser of two evils [...] It is more in the interests of the Irish people to grit our teeth and allow Anglo Irish Bank to pay the bond than to default, because default takes us over the edge of the cliff." He supported a much stronger role for the European Central Bank, saying it needed to generate a "wall of money" to prevent contagion spreading to Spain and Italy. The government wanted to ensure it had "no association with the Greek problem whatsoever". It should be seen as a separate economy with different values, closer to the northern European states than the southern Mediterranean ones, in the post-crisis period. In an address on Ireland and Europe Mr Noonan said Ireland did things more like the UK, the Netherlands or Germany than the southern states with which it had been bracketed in 2010 by the PIIGS designation. Establishing that perception in Europe and internationally was a large part of restoring its damaged reputation, he believed. Ireland would grow its way out of its problems and pay its debts. He foresaw a third phase in its "rolling renegotiation" of the package coming around 2013, reducing the debt by 15-20 billion euros through engagement with the ECB on interest payments, by taking advantage of collective developments in the euro zone rather than acting unilaterally.

In an Irish Times article, Taoiseach Enda Kenny said repudiating the EU/IMF deal and reneging on Ireland's debts "would be disastrous for our recovery". It would cut the state off from further international loans, force it to close the 16 billion euros government deficit of 2011 immediately and – strongly underlining his government's reputational case for orthodoxy – given Ireland's vastly better economic circumstances compared with Greece, default would mark Ireland out as a country that "won't" rather than "can't" pay our debts, killing off foreign direct investment and resulting in even higher borrowing costs for the State and Irish businesses that would strangle recovery and lower living standards for a generation.

He went on the specify the benefits flowing from his government's approach in changing the terms of the deal they inherited, including interest rate cuts of 10 billion euros on the bailout loan, private sector participation in bank recapitalisation and refocusing budgetary policy towards jobs and growth. In due course this would ease the way back to the markets, the third major axis of debate on the crisis, and the basis for the strategy outlined by Noonan and Kenny. It steered a middle way on timing between the taxation and spending alternatives supported by the two coalition partners in the February 2011 election. Fine Gael campaigned on a 72:28 ratio of cuts to tax rises, Labour on a 50:50 one. Their four-year economic plan to 2015 announced on 4 November was an almost perfect splitting of the difference at a 62.5 per cent cuts adjustment. In turn this represented a similar compromise between the approach advocated by the (government-appointed) Independent Fiscal Advisory Council, which wanted a faster adjustment, and the Irish Congress of Trade Unions, which sought an extra two years so as to encourage the recovery of growth and employment. These debates on timing echo those between advocates of expenditure-based adjustments and Keynesian critics of austerity politics.

The government's parliamentary and political critics reject these arguments, saying Greece's willingness to bargain robustly with the EU/IMF is the better way, showing greater courage and leadership. Repaying loans in full is unfair and unethical because they were originally lent as a risk and have since been profited on in secondary trading. This feeling is by no means confined to those on the left, since former Fine Gael Taoiseach and EU ambassador to Washington John Bruton wrote to Commission president Barroso saying German and French banks were also to blame alongside irresponsible Irish borrowers. Critics do not agree that it would be as perilous as Kenny and Noonan are convinced it is to defy the ECB by taking unilateral action. Nor do they credit a multilateral approach with producing longer term relaxation of the debt burden, which a Commission official directly concerned with the Irish bailout has put at 12 billion euros in interest rate cuts compared to a likely 3 billion euros from burning Anglo Irish Bank bondholders.

This axis of argument drives towards a logic of unilateral action and, ultimately, withdrawal from the EU/IMF deal. But that would also jeopardise Ireland's membership of the euro. Some critics, such as David McWilliams and Bruce Arnold, are prepared to contemplate that scenario, invoking Iceland and Argentina as exemplars and saying Ireland needs to retrieve the right to devalue its currency if it is to recover. Others, such as the Sunday Independent, have not been quite so explicit but have floated, in a frame of British-inspired Euroscepticism, the lurid perspective of German neo-imperialism dominating the ECB and the euro zone, and implying that Ireland should return to the UK sterling area. Minister of state for European affairs Lucinda Creighton's warning about anti-German feeling among Irish commentators came wrapped in a wider and necessary set of reflections about the need for alliances in a re-energised European Union if Ireland's best interests are to be established. The question is how effectively they are being pursued in and beyond Europe. These arguments have since been sharpened by debate on how best to respond to the fiscal compact treaty for the eurozone agreed outside the EU framework after David Cameron vetoed an EU agreement at the December European Council.

Ireland's position as a small, pragmatic and communautaire member-state is challenged by this crisis. It poses especially difficult issues in three areas: choosing between inter-governmental and community methods of decision-making in the euro zone; charting an optimal role for the European Central Bank and other parts of an emerging EU economic order; and contemplating treaty change. Again the Greek and Italian events in October-November 2011 clarified political and public attitudes, within a framework of more intense political discussion and engagement. Ordinary citizens became a lot more aware of how much their interests are bound up with solving these problems and political leaders learned that they would have to be able to communicate them coherently as well as handle them effectively if they were to regain the trust and legitimacy lost by the political class as a whole during the crisis. The normal information gap between elites and voters narrows under such scrutiny.

Michael Noonan is optimistic about the euro's future, arguing that it has been a great success, reducing inflation, encouraging trade and holding its value. The euro needs to adapt and institutionalise further, as it has done over the last year by creating the European Financial Stability Facility, introducing the European semester economic surveillance system and the prospective European Stability Mechanism. He supports automatic stabilisers, transfer payments and a bank of last resort role for the ECB like the US Federal Reserve, in which the bank should put up a "wall of money" to protect Italian and Spanish bonds from sceptical markets. Kenny took the same position at his meetings with Angela Merkel and Wolfgang Schäuble, at which significant differences arose on treaty change, with Kenny saying existing provisions should be used to the full, including by the ECB. In the Dáil before the 9 December EU summit he insisted that the ECB should have a central role in resolving the crisis. The difficulty, according to Noonan, was that leadership and solutions fell short of the rapidly emerging problems and hence markets caught up fast with the genuine gaps in the currency's armoury. He and Kenny supported the financial transaction tax proposed by the Commission, but rapidly nuanced their position after Cameron's veto. They say it would not be realistic for Ireland to accept it if Britain did not because this would severely disadvantage the International Financial Services Centre in Dublin, which employs 15,000 people. In January, after meeting Cameron in London, Kenny hinted strongly he would veto any attempt to introduce an EU or eurozone transaction tax that did not apply to Britain.

This is very much a vision of deeper integration, raising all the obvious questions about political consent and acceptability. Noonan was also acutely aware of the ECB's central role in providing support for the Irish banking system, to which it has extended cheap credit of some 110 billion euros when market funding dried up. He continually reminds political opponents calling for renegotiation of the bailout terms that the ECB vetoed any Irish default for fear of contagion. Ireland had to accept this existing reality, even if it sought to change policy and structures over the longer term. He and Kenny underlined how they had resisted explicit pressure from the French and German leaders to increase Ireland's 12.5 per cent corporation tax in return for budgetary aid. These demands were dropped at the July 2011 European Council, which agreed the EFSF and conceded lower interest rates for Ireland and at which Sarkozy praised Ireland for following the EU/IMF programme, setting a trend which culminated in Merkel's similar encomium when Kenny visited Berlin. They are likely to resurface however in any future negotiations about closer economic and fiscal union, posing awkward choices for Ireland – indeed Sarkozy said as much in his Toulon speech on 1 December and the issue was revived in fresh Franco-German calls for a common consolidated corporate tax base ahead of the January summit. Kenny says he is willing to negotiate that but will resist a common corporation tax rate. Noonan says resources must be found to encourage domestic and international economic growth rather than concentrating on austerity policies. With such a large FDI-based multinational sector Ireland depends on exports to guarantee growth and would suffer badly from any prolonged international contraction.

The outcome of the 9 December European Council strongly reinforced these policy tensions. David Cameron's decision to veto the proposal to use Protocol 12 as a route to treaty change forced the others to agree on a new treaty to bring in additional governance rules for the euro. This could be a historic turning point for the EU and the UK's role in it. A prolonged period of UK dissociation would make the Irish government's desire to govern these changes from the 27 not the 17 redundant. There is little precedent for negotiating a treaty outside the full EU framework. Several major questions arise with a direct bearing on the government's desire to preserve the existing balances between smaller and larger states and the role of the community institutions in decision making. Who will do the drafting of this treaty? Normally it is done by the current EU presidency. Will it incorporate the existing institutions or create shadow or parallel ones? Can it be limited to technical changes that will not require a referendum in Ireland or elsewhere? These questions remain unresolved until the EU summit in late January decides on the draft treaty.

Echoing other ministers, the position of previous governments and a substantial body of public commentary, Noonan is worried about the weakening position of the Commission within the new euro zone arrangements and the tendency of France and Germany to act as a directoire, as if they owned the currency. That is "bad for Ireland". The Commission should be strengthened with the help of a greater small state collegiality in designing the new system. He is also concerned about the danger of a two-tier system divided between the seventeen eurozone states and the twenty-seven EU member-states, strongly preferring the larger entity as the dominant one. The euro zone is currently more inter-governmental than the EU as a whole, and Sarkozy explicitly wants to keep it so. That is why the Irish government wants to see the twenty-seven EU member-states running the deepening system rather than the seventeen euro zone ones dominated by the largest states. Ireland should work with other smaller states against that. In this he strongly supported the similar case put by Barroso in Berlin in November.

If the euro system survives and deepens, how realistic is it to think it could be governed from the twenty-seven and not the seventeen? Kenny and Noonan's desire to avoid a two-tier system with separate agendas owes much to their awareness of the economic values Ireland shares with the UK, including on open trade, financial services, corporate taxation, the single market and transatlantic relations. The UK desperately needs the euro zone to succeed yet will not join it. But on the balance of interests those outside will not be allowed dictate terms. That makes a deepening inner core more likely than a unified EU. The realities of such an "ins" and "outs" logic will determine positioning within the emergent euro system, which is likely to impose its imprint on the shape of EU governance as a whole. The timing pits system integration against social integration, market efficiency and technocratic modes of governing against democratic accountability.

Noonan and other ministers say the Government cannot stand in the way of treaty change, but must caution it would have difficulty carrying a referendum now. They would much prefer to push the existing treaty provisions as far as possible, or at least limit treaty changes to issues that won't involve a transfer of sovereignty and therefore avoid a referendum in Ireland. The urgency of calming markets and repairing the euro's incomplete design makes this plausible; but it clashes with Germany's desire to copper-fasten and entrench rules of fiscal austerity before allowing the ECB to intervene in the markets more actively or to open up debate on eurobonds. Squaring this circle requires short and longer term approaches. Securing approval for a longer term treaty change would be much easier if it could be shown to enhance Ireland's position, which opens up scope for political bargaining, for example on alleviating Ireland's debt burden. Recent talk by leading bank economists of Ireland needing a second EU/IMF bailout because the markets will not be ready to resume funding in 2012 was dismissed by leading ministers; but perhaps in doing so by saying the timing is not right to raise that now with France and Germany they were confusing tactics with strategy. This game will spread over several years..

By then the UK will be embroiled in its own deep debate about relations with the EU, alongside an internal one about Scottish independence. Ireland's choices could be profoundly influenced by that as (in Northern Ireland too) it decided where to position itself in a reconfigured Europe. So the strategic impulse that originally attracted Ireland towards EC/EU membership in the 1960s and 1970s as a means of reducing dependence on the UK resurfaces now that the euro is facing an existential crisis requiring that the EU be deepened politically if the currency is to survive. While it would be in Ireland's interest that the UK would be a leader in the EU, or on occasion a gambler willing to join new initiatives the better to adapt them to its own interests, the best that can be hoped is that it will be a late joiner, refusing to join European projects from the beginning and then being forced to do so later. The current resurrection of the European question in British politics by Eurosceptics alarmed at the Cameron government's readiness to help euro zone economies out and advocating that they deepen the system to save it in fact makes two other scenarios of the UK's policy direction more likely: the opportunist or pick and choose approach, or that of the rank outsider in which Britain is left outside a deepening euro zone.

Ireland will find it more difficult to marry its EU and UK policies in this setting. Conceivably this policy landscape could be dramatically altered by Scottish independence (within the EU) in coming years, driven in good part by growing Scottish disenchantment with an increasingly Eurosceptic and Conservative-dominated England. That would raise the question of Irish unification more urgently than has been the case under the consent and stability norms under which the Belfast Agreement has bedded down since 1998. Even more speculatively one can ask how long a geopolitically reduced England would want to remain outside a deeper European Union. Alternatively, the confident British Eurosceptic predictions of the euro's demise, if they come true, would also throw such scenarios into rapid meltdown.

All this underlines the need for a more coherent Irish foreign policy towards Britain, over and above the imperative to stabilise the Belfast Agreement, which has now been largely achieved. The next phase in British-Irish relations concerns their respective positioning within a reconfigured European Union and an equally reconfigured United Kingdom. The logic of deepening devolution in the UK is a federal one and so is the logic of a deepening euro zone. But these means of preserving both entities run bang up against a deep English aversion to sharing sovereignty within or without the UK. The likely consequences for Ireland need more analysis than they have received, especially since the logic of most unilateralist positions here in the euro zone crisis point to a closer relationship with Britain in the longer term. It sometimes appears that the British government devotes more attention to securing strategic alliances with Ireland in its own interests than vice versa, a phenomenon given prominence in 2011 during and after Queen Elizabeth's successful and highly symbolic visit to the Republic last May.

The Fine Gael-Labour coalition blames its Fianna Fáil-dominated predecessors for neglecting alliance-building in an enlarged EU and for failing to participate optimally in the Council of Ministers and in many other parts of the EU governance system. There is considerable truth in the criticisms, but they raise questions about what the new government should do to repair the damage. If Ireland wants to position itself with northern and not southern states in the EU what alliances are necessary to secure that and how much effort has gone into making them? With the Dutch, the Germans, the Finns – and what about Denmark and Sweden, currently outside the euro? And what of the central and eastern European states which are now maturing in their EU membership? Is it sensible to exclude the Mediterranean states – Italy, Greece, Spain and Portugal simply on reputational grounds?

This question overlaps with another on the balance between large and small states and the debate between inter-governmental and community methods of governing the emerging euro zone institutions. The French under Nicholas Sarkozy espouse inter-governmentalism, which empowers the largest states, as has been seen in his strategic alliance with Angela Merkel. But the Germans want a more rule-governed system giving the Commission and the European Court of Justice roles in policing fiscal austerity. Ireland's interests as a small state are better served by the community method involving the institutions. If the community institutions are to be involved it is essential that strategic alliances are made with similar small states in the coming negotiations to preserve that balance. This will be more difficult within a smaller euro zone system, already tilted towards inter-governmentalist methods of funding and decision-making. So the "ins" and "outs" debate resurfaces in this context.

So might the debate on Ireland's representation on the Commission. The agreement to alternate state representation in a smaller Commission was changed after Ireland voted No in the 2008 Lisbon referendum. Critics like Thomas Klau of the European Council of Foreign Relations say this Irish insistence on retaining its right to a European commissioner has backfired badly in that the consequent large size of the Commission has diminished its effectiveness in managing the euro zone crisis, leaving it marginalised by the Franco-German directoire. Thus a strong Commission is better than a large one. Even if the Commission's role was already under question before the crisis broke, the criticism will surely resurface in any larger treaty revision.

Pursuing strategic alliances and knowing when to intervene effectively in EU debates and with whom is a large part of what makes a small state smart within this system. Michael O'Sullivan recalled the historian Joe Lee's well-known injunction on the need for this in his contribution to the last issue of the Dublin Review of Books: " [...] small states must rely heavily on the quality of their strategic thinking to counter their vulnerability to international influence". The injunction remains relevant today in the current EU context. Research by Diana Panke of UCD on contemporary small state influence in the EU demonstrates conclusively that, as she puts it, "size is what states make of it". Active small states can sometimes punch above their weight while inactive ones cannot. Using case studies from recent environmental, agricultural and market-creating policies she shows that Ireland exercised considerable influence through a number of governing and operating methods within the EU system. These included prioritising the EU in lead ministries, effective cooperation between permanent representatives in Brussels and those ministries and good procedures for resolving conflicts between them. Persuasion-based approaches using good quality arguments and problem-solving tend to work better than bargaining, while timely lobbying and appropriate framing of questions also boost influence.

Changes in the structures of central government are relevant to this debate about effectiveness. The entire EU division of the Department of Foreign Affairs has now been moved to the Taoiseach's office. This brings Ireland into line with most other member-states and positions the governing apparatus more appropriately to influence the European Council consisting of heads of state and government, which is now the major agenda-setter in the EU. But if the crucial business of alliance-building within the EU is thereby separated from foreign policy-making it could be counter-productive. It is also worth noting recent criticism of the quality of senior civil service strategic planning in an Institute of Public Administration report which found a lack of rigour in policy formulation and evaluation, limited joined-up thinking on issues which cut across departments, poor structures of accountability and a very bad record of implementation. These failings are more Mediterranean than northern and show the challenges Ireland faces in driving through political and civil service reform in coming years.

This essay has surveyed Ireland's experience of European integration the better to understand its stance on the debt and euro zone crises and how they can be overcome. Three major axes of argument about the crisis were identified, as were several major issues in how the new EU negotiating and governing structures should be organised. The government's fundamental weakness as a programme state subject to the EU/IMF bailout package must be acknowledged in any concluding assessment of its policies. It has made a central point of restoring the country's international and European reputation, especially by adhering to the terms of the deal and repaying debts. It is determined to be the best-performing bust state just as it was once the best-performing growth and development one within the EU. But making this work is predicated on a restoration of growth in export markets and avoiding another world recession. Without that the debt burden will become overwhelming.

It therefore makes sense to devote a lot more attention to finding markets and linking up with growth poles in Europe and elsewhere in the world economy. The case for developing greater policy and cultural links with Asian states and other emerging regions is strong on these grounds and could be pursued effectively bilaterally as well as multilaterally within the EU's new external action framework.

The benefit of multilateral actions in preference to unilateral ones has been well flagged by the new government and they have some genuine gains to show for what is a more coherent set of policies. As political bargaining over future governing structures intensifies there will be more scope for focused pursuit of national advantage, including on the debt burden. There were some encouraging signs of that in November and December 2011 and clearly there is a public appetite for it. But it will have to include closer attention to smart policy-making and finding allies and supporters elsewhere. The Irish secretary general of the Commission, Catherine Day, made a plea early in the New Year for Ireland and other small states to campaign more vocally and vigorously in favour of the community method of decision-making within a deeper eurozone if the inter-governmental positions of the French especially are not to prevail by default. Ireland is not without influence in these debates. Currently chair of the Organisation for Security and Cooperation in Europe, the country has an honourable record in international affairs. Analysts speak of it as a "middle power" in the context of its international peacekeeping role, the generalisation of its conflict resolution approaches following the Belfast Agreement on Northern Ireland and its overseas development aid programmes. A conscious act of lateral policy thinking is now needed to mobilise these resources in this new European and global setting.

The need to cultivate those European links has also been well flagged; the next stage will be to deliver on them and communicate that to the public. Any treaty changes will have to be sought in dialogue with a media and public opinion that is, on balance, better informed and in a better position to debate these large public issues. In that sense the experience of crisis can contribute to making a more transnational polity, linking citizens in the EU more closely than was previously the case. Such politicisation competes frontally with the technocratic instinct that drives so much of the crisis management approach from Brussels. There is ample scope here for political leaders to create a new legitimacy out of their efforts to resolve the crisis democratically.


This essay draws on a paper to be published in a forthcoming issue of the Asia Europe Journal on Ireland's experience of the EU IMF bailout deal.

 



Published 2012-01-19


Original in English
First published in Dublin Review of Books 20 (2011-2012); Eurozine (updated version)

Contributed by Dublin Review of Books
© Paul Gillespie / Dublin Review of Books
© Eurozine
 

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