Friday 28 October 2016

Ireland has no special place in the affections of our 'allies' in Europe

This country has lost a crucial ally in Europe and there will undoubtedly be a price to pay for that

Published 11/09/2016 | 02:30

Taxing times: In 2011, Angela Merkel and Nicolas Sarkozy joined forces to bully Enda Kenny on Ireland’s corporate tax rate Photo: REUTERS/Fabrizio Bensch
Taxing times: In 2011, Angela Merkel and Nicolas Sarkozy joined forces to bully Enda Kenny on Ireland’s corporate tax rate Photo: REUTERS/Fabrizio Bensch

The Brexit decision damages the context of Ireland's international relations and in ways not all of which will be clarified quickly. The 27 European Union leaders meet in Bratislava on Friday, the full roster minus the British.

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This truncated grouping has already met once, at the end of June, in the immediate aftermath of the UK referendum, their first meeting without the British in 43 years.

When Charles de Gaulle vetoed UK membership in the 1960s, there was a conditional willingness in Ireland to pursue membership without the UK and apparently de Gaulle was inclined to entertain the idea. But nothing came of it, unsurprisingly given Ireland's pronounced trade dependence on Britain at the time. Ireland waited to join, alongside Britain, in 1973.

The first fork in the road came in 1999 when Ireland chose to abolish its currency by choosing the ill-fated euro while the British declined, retaining their own currency, much to their subsequent relief. This currency choice can now be seen as the first step leading to British withdrawal, and with Brexit, the split between Ireland's and Britain's relationship to Europe is complete.

This matters greatly for both economic and political reasons. Britain remains Ireland's most important trading partner, shares concern in the peaceable resolution of the Northern Ireland conflict and is the only major European country with a narrow self-interest in the success of the Republic of Ireland.

The EU without Britain will become once again a continental and essentially Franco-German political project, as it was at its inception.

There are other large EU countries, notably Italy as well as Spain and Poland, but they have never played leadership roles. The balance within the Franco-German leadership has also tilted, with Germany now the senior partner.

The European Union has assumed a far more intergovernmental character than heretofore, with the Commission less able to protect the interests of the smaller members, as had been its traditional role.

Ireland has ended up in a framework for its external relations, with no currency and in membership of a Britless EU, which it would hardly have chosen as the most congenial outcome.

To make matters worse, the European Commission's target in the corporate tax war is the United States, Ireland's principal source of foreign investment and another country with self-interested reasons to accommodate Irish interests.

Far too much attention is paid in this country to sentiment, as against interest, in the conduct of foreign policy. There is no reason to believe that either France or Germany harbour negative sentiments towards Ireland, but it is naive to imagine that they see themselves as having any serious national interest in Ireland's success or failure.

The premature adoption of a poorly designed common currency has divided rather than united the continent and there have been numerous examples of small countries at the receiving end of arbitrary treatment, emanating principally from the German-French leadership and its dominance of the central institutions.

Greece is the most egregious example but Ireland has been targeted, too, and the Commission's behaviour in the Apple corporate tax row is merely the most recent example.

Whatever the rights and wrongs of the affair -and Ireland has had ample notice that its policy stance needed overhaul - the Commission has chosen confrontation rather than negotiation and reform.

It is fair to ask whether the same belligerence would have been shown to a larger member state.

Any notion that Ireland enjoys a special place in the affections of 'our gallant allies in Europe', to quote the 1916 declaration, should have been dispelled at Enda Kenny's first Brussels summit as Taoiseach back in 2011.

The German chancellor Angela Merkel chose to support then French President Nicolas Sarkozy to bully Kenny on Ireland's corporate tax rate, an explicitly national competence as reaffirmed by the European Commission in its most recent statements on the Apple affair.

Sarkozy had visited Ireland during the re-run of the Lisbon treaty referendum to reassure us on precisely this point, reversing his position without apology when Kenny sought relief from the punitive interest rates imposed on Ireland by European partners in the 2010 bailout.

It is worth remembering that Ireland's only ally during the Troika financial rescue programme was the IMF in Washington, and that the Commission in Brussels and particularly the ECB in Frankfurt were less than helpful.

In 2010 and again in 2012, the ECB, in the person of its then President, Jean Claude Trichet, threatened the denial of permission for the Irish Central Bank to lend to the surviving Irish commercial banks.

His price was the payment in full of unguaranteed and unsecured bondholders in bust Irish banks already in the process of closure.

The ECB, with the support of both Germany and France, imposed an obligation on a country already in an IMF programme to pay numerous billions to hedge funds and others to which it did not owe any money.

Britain had no part in this extortion, not being involved in the ECB, and it is worth reflecting on whether Ireland would have been treated in this cavalier fashion had the Auld Enemy had a say in the matter.

It is true that Ireland subsequently was accorded better terms on European loans (along with Greece and Portugal) and that the ECB, under a new president Mario Draghi, cooperated in lowering the cost of the State's financial support to creditors of bust banks.

But the Irish State would have been within its rights to have sued Trichet's ECB at the European Court over the bondholder payouts and there is a delicious irony in the willingness to resist the Apple bonanza in court.

Both decisions may have been wise in the very different circumstances surrounding each, but the hostility to Irish interests displayed by French and German leaders on both occasions is not hard to spot.

Friday's Bratislava summit will seek to develop common positions for the upcoming negotiations on Britain's exit, and finance ministers have already been deliberating.

The corporate tax issue and the fallout from the Commission's Apple decision will loom large. Britain has already reduced its corporate tax rate to 20pc and has hinted at further reductions.

The surviving EU members will continue their efforts to coordinate their tax arrangements so as to inhibit tax avoidance by US multinationals and will make sure that Britain cannot become, outside the EU, a giant tax-laundering threat far larger than Ireland or Luxembourg.

The challenge for France and Germany is to constrain British tax policy outside the EU, end the tax abuses in the smaller member states, including Ireland, while retaining the sweetheart regime for their own national champions.

The friendly tax arrangements of German companies in central and Eastern Europe will be defended, as will the ability of France's top 40 companies to pay an actual rate of 8pc against the theoretical and virtue-laden rate of 34pc.

The principal bulwark against the erosion of national autonomy in EU tax policy has been Britain, now in the departure lounge, and the principal target is now the United States, the source of virtually all of Ireland's foreign direct investment.

There are bigger challenges for the Government than the mollification of hospital campaigners in Waterford.

Sunday Independent

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