Most powerful man in Ireland
Olli Rehn denies he forced the €15bn cuts on us, but the EU bureaucrat now wields extraordinary power over Irish finances
Published 30/10/2010 | 05:00
THIS week's shock announcement that the Government is now going to take €15bn out of the economy through a combination of higher taxes and public spending cuts over the next four years, and the agreement to enforce tighter budgetary controls on EU member states is likely to transform European Economic and Monetary Affairs Commissioner Olli Rehn into the most powerful, and unpopular, man in Ireland.
Just when it seemed as if things couldn't get any worse, they got an awful lot worse. The Government had spent most of the past year assuring us that the December 2009 budget, which took €4bn out of the economy, was as bad as it got. Finance Minister Brian Lenihan's Budget Day remark that we had "turned the corner" is now infamous. Oh no, we hadn't.
On Monday night the Government made the shock announcement that, instead of cutting €7bn from the next four budgets in order to meet the EU's demand that Ireland's budget deficit be cut to 3pc of GDP by 2014, we would now have to cut spending and raise taxes by a total of €15bn instead.
It was hardly a coincidence that the shock announcement came after Brian Lenihan's visit to Brussels on Monday, a working day everywhere in Europe except Ireland, to attend a meeting with Rehn, which lasted for one-and-a-half hours.
After the meeting Lenihan returned to Ireland in time for the emergency bank holiday Cabinet meeting at Farmleigh on Monday night. At the meeting Lenihan briefed his shocked colleagues on the need for spending cuts and tax increases twice as large as most of them had been dreading.
Further fuelling suspicions that it was Rehn who was setting the budgetary agenda was Lenihan's insistence that the cuts be "front-loaded", ie that, instead of spreading the pain evenly over the next four years, somewhere between €5bn and €7bn of spending cuts and tax increases would have to be implemented in 2011. This put paid to the hopes of some government ministers that a yet-to-materialise economic recovery would somehow ease the pain of the budgetary adjustment process in the later years.
No such luck. When Lenihan gets up to speak on December 7 he is likely to unveil the harshest budget in the history of the independent Irish State. By the time he finishes his speech Lenihan will probably have replaced Ernest Blythe, who cut pensions by a shilling a week in 1924, in the popular memory as Ireland's most infamous finance minister.
Then on Thursday Brussels flexed its muscles yet again when EU heads of government agreed on much tougher rules for enforcing the eurozone's rules on budget deficits. For the first time, these new rules are likely to come with credible enforcement measures.
While this involves tinkering with the Lisbon Treaty and the nightmare prospect of a possible Irish referendum, the brutal truth is that, with the ECB propping up the Irish banks and acting as buyer of last resort for Irish government bonds, we in this country will have no choice but to quickly ratify any amendment or exit the eurozone.
Although Brian Lenihan has said that Ireland will resume holding monthly bond auctions in January, it now seems increasingly likely that Ireland will first have to seek assistance from the EU's stabilisation fund. Following Monday's announcement, far from falling, yields on Irish government bonds actually rose, climbing over 7pc for the first time since we joined the euro at the start of 1999.
This reflects the view of investors that, even with the larger-than-expected spending cuts and tax increases announced on Monday, Ireland will not be able to hit the 3pc deficit target without a rescheduling and possible write-down of both the official national debt and government-guaranteed bank liabilities.
Such assistance is likely to come with a hefty price tag attached. The draconian spending cuts and tax increases implicit in Monday's announcement will be only part of that price.
While it could be argued that Rehn was merely stating the blindingly obvious on October 1 when he was quoted as saying that it was "a fact of life" that Ireland would no longer be a low-tax economy for the next 10 years, conspiracy theorists and other assorted anti-Europeans were quick to put another more sinister interpretation on his seemingly innocuous remarks: that this was part of a masterplan by the EU Commission to finally abolish Ireland's 12.5pc corporate profits tax rate.
To which one can only reply that, even if this pessimistic interpretation of Rehn's remarks turns out to be correct, beggars can't be choosers.
Whatever the truth of the matter, Rehn quickly realised that he, not Ireland's pressing need for spending cuts and tax increases, was in danger of becoming the story.
On Thursday his spokesman explicitly denied that it was the commissioner who had imposed the cuts:
"There is no imposition whatsoever, at least from the European institutions. There is an agreement. Ireland has agreed to certain budgetary targets under the excessive deficit procedure with its European partners, not only with the commission".
It was an astute move on Rehn's part to seek to deflect blame for the Irish Budget deficit cuts. Ever since we first joined the EU in 1973 ministers of all parties have grown used to blaming the commission and the other European institutions when introducing necessary, but unpopular, measures. If they are allowed to do so it will be no different this time around.
So just who is Olli Rehn, the man who now exercises such power and influence over Ireland's internal budgetary affairs? Contrary to the notion peddled by some Irish Eurosceptics, he is not some country-bumpkin county councillor who was appointed by the Finnish government to the EU Commission for narrow party-political reasons.
Formidably well-educated, he graduated with a bachelor's degree in economics, journalism and international relations from Macalester College in Minnesota before going on to do a master's degree in international relations at Helsinki and a PhD from Oxford.
He is fluent in Swedish, English and French, as well as his native Finnish.
Rehn began his career in politics with the youth wing of the Finnish Centre Party, one of the three parties that dominates that country's politics. He was elected as a Centre Party candidate to Helsinki city council in 1988 and to the Finnish Parliament in 1991.
When Finland joined the EU in 1995 Rehn was one of the first batch of Finnish MEPs. From 1998 to 2002 he was chef de cabinet for the then Finnish EU Commissioner Erkki Liikanen.
He then returned to Finland for two years, serving successively as head of the Centre for European Studies at the University of Helsinki and adviser to the Finnish prime minister.
In 2004 he returned to Brussels as the EU's Enlargement Commissioner before being promoted to his current job in 2010.
Even a cursory glance at Rehn's CV reveals that, far from being a past-his-sell-by-date domestic politician who had been foisted on an unwilling commission by the Finnish government, he was a high-flyer. This was someone who had been talent-spotted at an early age and, when Finland joined the EU in 1995, was dispatched to Brussels with the explicit intention of acquiring the expertise and experience that would allow him to advance quickly.
We in this country will next see Rehn when his visits Ireland in early November. With our budgetary situation likely to get worse before it gets better, we will probably be seeing rather a lot of him in the coming weeks and months.