THE German chancellor's most likely coalition partners, the Social Democratic Party (SPD), are threatening to torpedo the Irish economic recovery as the price of an agreement with Angela.
The German left-wingers believe that Angela has been soft on Ireland. They are demanding that any more concessions from Germany should be met by Ireland giving up its sacred 12.5 per cent corporate tax rate.
In the socialists' sights are Angela's promise to allow a new European fund to rescue Irish banks. Last year Enda Kenny returned from a European summit in triumph brandishing a piece of paper. It raised Irish hopes that Germany had agreed to pump money from a European rescue fund (the ESM) into AIB and Bank of Ireland. Angela has been blowing hot and cold on Kenny's rash promises of legacy debt relief for Irish banks ever since. At one point she pooh-poohed the bullish Irish interpretation of the wording in the communique. Later she mellowed, promising that Ireland would be a "special case".
Irish government sources have been apologising for the delay in progress on the banking rescue fund for months. They have been explaining it away, insisting that Angela would "come onside" once the German elections were over. We are grown-up politicians, we understand political realities: she needed to act tough to shield herself against damage from right-wingers playing the "Germany First" election card. Germans do not fancy subsidising weak European countries like Greece, Portugal and Ireland. It is electoral death to defy the German deity of fiscal discipline.
The German election is now over. The Right has been routed; but the threat to Ireland has increased. Suddenly it is the left-wing social democrats – now Angela's putative partners – who are playing hardball. They want Angela to put the boot into Ireland. Otherwise, they insist that there will be no coalition deal.
The prospect of ESM funds piling into Irish banks is not the SPD's only gripe with Ireland. The party is equally reluctant to commit German support to Ireland's case for a special credit line when we come out of the bailout in two months' time.
Prior to the German election, Michael Noonan had been making progress in securing this emergency safety net. Angela was sympathetic. Suddenly the new guys on the scene, the socialists, are saying "Nein". Well, not until we concede the mega demand – on corporate tax.
Two attacks from the SPD on the Irish flank would be bad enough. But there is a third. They want to be part of a German government insisting that European countries impose a financial transactions tax to fund any gap in European banks' solvency. Ireland is fiercely opposed to this measure because of the threat to the International Financial Services Centre (IFSC). All Irish political parties fear a mass exodus of financial companies if they are forced to pay this tax. The consequences for jobs in the IFSC could be catastrophic.
Just when we felt that our policy of appeasing gentle Angela was about to bear fruit, it is in tatters. The IFSC is in danger from a pan-European tax; the recapitalisation of Irish banks, so long silently expected from European funds, is fading into the distance; the engine of the economy itself – multinational investment – is in danger of a devastating blow from the renewed assault on our 12.5 per cent corporate tax rate. This time the instigator of the attack is not the corporate tax hypocrite, Nicolas Sarkozy of France. It is Germany, the champion of fiscal rectitude. This time it is serious.
What will Angela do?
Two months of talks between her Christian Democrats and the Social Democrats are expected to open this week. A government of Merkel and SPD chief Peter Steinbruck is the almost inevitable result as there is no other workable combination.
Ireland's vital interests will not be a red line issue for her. There is absolutely no evidence that the German chancellor has an ounce of affection for us. Indeed, she does not appear to do affection. While our Government might feebly maintain that our years of bowing and scraping have resulted in an excellent relationship with her, in truth it is a functional one. Germany commands. We obey. Angela tolerates us as long as we continue to hold the line. If we do not, we are as disposable as Greece, Cyprus or the other European malingerers.
We have no cards to play. We will frantically try to form alliances with other like-minded countries. The Netherlands and Luxembourg will join us in opposition to the financial transactions tax; but we may find fewer allies when it comes to seeking European funds to help us recapitalise our banks.
According to the influential left-leaning German newspaper Suddeutsche Zeitung last Thursday, the SPD has insisted that it will never agree to direct ESM support of Irish banks. If we dig in our feet, the big battalions of Germany and France could unite to reopen the 12.5 per cent corporate tax battle. This time, the threat could be more lethal: there will be socialists in power in both Berlin and Paris.
Germany has little patience with Ireland these days. The Anglo Tapes were widely publicised in Germany. The mocking Anglo Irish bankers singing 'Deutschland, Deutschland uber alles' have got right under the skin of German workers. The ordinary German often sees Ireland as a nation of overpaid, lazy public servants and profligate bankers, a nation sponging off the lower-paid, harder working Germans. The Anglo Tapes fuelled this resentment. The SPD demands on Angela are responding to this emotional reaction from its supporters. Worse still, the SPD has threatened to up the ante by giving its 472,000 members the final say on any coalition deal.
Angela Merkel will not go to the gallows to save the IFSC, the Irish banks or our corporate tax rate. She will happily sacrifice any of them to form a government. She has far bigger fish to fry than Ireland.
The Kenny/Gilmore craven courtship of Germany is in bits. The Taoiseach and Tanaiste have landed Ireland as a powerless pawn in a game of chess between the biggest players on the German stage. We would have a better chance of a sympathetic ear in the Bundestag if we were Bavaria. We would have earned more respect if we had behaved like the recalcitrant Greeks.
Angela Merkel owes us no favours. Do not expect her to deliver any.
Shane Ross is the independent TD for Dublin South