Thursday 29 September 2016

Brian Hayes: Dangers face Ireland with a natural ally gone from EU

Brian Hayes

Published 21/07/2016 | 02:30

‘It was of course Ms Merkel and Mr Sarkozy who tried to push the Taoiseach into concessions on our corporate tax rate in favour of a better deal on bailout loans’
‘It was of course Ms Merkel and Mr Sarkozy who tried to push the Taoiseach into concessions on our corporate tax rate in favour of a better deal on bailout loans’

IRELAND'S position in a post-Brexit EU landscape is far from clear. There is no question about our commitment as a Member State, and as a member of the Eurozone, but in terms of financial services and economic issues, Ireland faces dangers on several fronts.

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Only one week after the result of the UK referendum, the European Parliament decided once again to push its agenda for further tax harmonisation.

This is not good for Ireland, not good for the EU and certainly not good for business. Now more than ever, Ireland needs to be focused on staying competitive. Such moves from the EU are not helpful.

The EU's corporate tax agenda puts Ireland in a dangerous position following Brexit. On one hand, we have Britain proposing to reduce its corporate tax rate to 15pc and on the other we have to continue our battle with the EU on tax harmonisation.

Of course, we have to remain firm on our 12.5pc corporate tax rate - this is a complete red line issue for Ireland.

Moreover, any attempts to harmonise tax rates through the backdoor must be resisted. This government, and many previous governments, must be commended on their efforts to fight hard for Ireland's corporate tax policy.

But now the fight will become more difficult. The UK was always a natural ally for Ireland in resisting the EU's tax harmonisation agenda, particularly on the proposal to have a harmonised EU financial transaction tax (FTT) and a Common Consolidated Corporate Tax Base (CCCTB).

In a few years, it is most likely we will no longer have a UK ally at the European table - a huge political setback whose importance cannot be overstated.

Whenever corporate tax issues were raised at the European Council, the UK and Ireland always took the same position, and with the UK on our side we knew that France and Germany could not extend their reach too far. It was of course Ms Merkel and Mr Sarkozy who tried to push the Taoiseach into concessions on our corporate tax rate in favour of a better deal on bailout loans.

Despite this, we still have to wait to see what kind of EU is going to emerge in the years following Brexit. This will dictate what kind of debate we are going to see on corporate tax.

Not long after the referendum, Wolfgang Schauble, the long-standing German Finance Minister, said that Europe can't simply operate like it did in the past.

At one level he is right. The relentless focus now must be all about getting the Eurozone functioning properly. Europe has to tackle the low growth high cost narrative that too often exists around the world in commentary about the EU. But that cannot be at the price of railroading smaller Member States.

He went on to say that it is for national governments to set the pace for future cooperation with the European Union and "if the Commission isn't coming along, then we'll take matters into our own hands and solve problems between governments".

Schauble is a politician who doesn't mince his words. It is clear that he wants Member States to take control and for the European Commission to take a step back. The problem is that leaving matters to the big countries, frequently means following their agenda. There is no guarantee that by cutting out the EU Commission that our situation can improve. If anything, it's the Commission that stands up for smaller Member States and understands the challenges they face.

I firmly believe that the EU institutions do need to take a good hard look at themselves and the way they operate following Brexit. National governments also need to do more to explain to people the benefits of the EU.

There is a huge wave of Euroscepticism all over Europe and not enough has been done to address this.

This sort of discontent should give EU leaders the impetus to build a better Union, one that is more connected with its citizens.

And while it may not feel like it at the moment, the fact is that never in our history has there been such good relations between Member States, never have we had such a continuous time of peace in Europe and never have we had such a good quality of life.

Unfortunately a great many Europeans do not see things in this way. Instead, the tendency is to blame the EU for everything that is going wrong.

The irony is that the EU was already starting to change its way of doing business, especially since the new European Commission came into office in 2014. There has been a strong emphasis on better regulation, there was a recognition that we need to further develop a single Capital Markets Union and there was also a desire to give national parliaments more control.

It is too early to say whether the EU that emerges in the coming years will be kinder to Member States wishes for respect for sovereignty. Whatever EU develops in the future, Ireland has to manoeuvre itself carefully in this new post-Brexit environment.

We can no longer rely on the UK to do our bidding for us. That means that we have to be clear and vocal about things that are harmful to us. We also have to start building new alliances at the European table, now that Britain will no longer be there.

The European Council is made up of a group of blocs - the Scandinavian countries generally stick together, the Benelux countries have a close alliance, the Baltics share many similarities and the Mediterranean countries operate in a like-minded way. In its own way, Ireland and the UK made up a bloc as well.

The reality is that we are now very much on our own and very much on the periphery. But by associating ourselves more closely with certain countries or blocs we can get more out of negotiations on European policy. In particular, Ireland's representatives in Brussels need to play a smart diplomatic game on tax for the coming years - we need to solidify partnerships with those Member States who think along the same lines on tax issues.

There are several other big EU issues on the horizon which will require careful negotiations and diplomatic skills. The completion of the banking union is one such issue that is fast approaching. Added to that, the Commission is keen to follow up on the actions proposed in the "Five Presidents report" on the completion of the Economic and Monetary Union.

Many of these actions will define the future trajectory for the Eurozone and the euro. The EU will also continue its work on climate action following the agreement at COP 21 in Paris. And of course, migration will remain a major issue for Europe in the coming years.

The EU has served us well and we must never forget that. We have been one of the biggest beneficiaries of the EU. This year we became a net contributor to the EU budget - an amazing turnaround for what was once a poor country.

We must remain as committed as ever to the EU. But we must also remain self-interested. We must work as hard as possible at every moment to defend our interests in a post-Brexit EU.

Brian Hayes is a Dublin Fine Gael MEP

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