Monday 19 November 2018

John Downing: How Ireland will need to define a new role in Europe after Brexit

The Big Read: Ireland will need to define a new role in Europe after Brexit - and tax policy will be our biggest challenge

Breaking up is hard to do: Leo Varadkar and Prime Minister Theresa May during a bilateral meeting in Brussels
Breaking up is hard to do: Leo Varadkar and Prime Minister Theresa May during a bilateral meeting in Brussels
Talks: EU leaders, including Theresa May, (bacl row, third from left) at the the Informal Summit of Heads of State or Government in Salzburg last month.
French President Emmanuel Macron (R) welcomes Irish Prime Minister Leo Varadkar (L) upon his arrival at the Elysee Palace, in Paris, ahead of a meeting, on October 24, 2017
Shortfall: German Chancellor Angela Merkel may have to find an additional €4 billion per year from her country's budget to make up for the UK's missing contribution after Brexit
John Downing

John Downing

Turning 60 can be tricky. Life reflections can tend to the gloomy side: too young for a pension, too old for big career initiatives, euphemistically-termed "health issues" creep in with intimations of mortality.

But alternatives to not turning 60 are not great. So, try the phrase: 'The Worst is Never Certain'.

The European Union, now aged 61, is facing several crises - including Brexit - and many of these issues have implications for everyday life in Ireland.

Brexit will bring big changes for Ireland after 45 years of EU membership.

Talks: EU leaders, including Theresa May, (bacl row, third from left) at the the Informal Summit of Heads of State or Government in Salzburg last month.
Talks: EU leaders, including Theresa May, (bacl row, third from left) at the the Informal Summit of Heads of State or Government in Salzburg last month.

There is, however, one certainty about the European Union in late 2018. The bloc's leaders are already well advanced in planning for an EU without the United Kingdom.

This has been evident at their leaders' summits now nearly always held at the mammoth Europa complex in Brussels. There have been more than a dozen summits since the UK voters opted for an EU divorce in June 2016, and at many of these summits Brexit has scarcely figured at all.

The year 2016 was the EU's 'annus horribilis'. On June 23, UK voters opted to leave the EU after 43 years of membership; and on November 8, voters in the USA elected one Donald Trump on a tagline of 'America First'.

These events catapulted incipient questions on to the international agenda about the very idea of multilateral institutions like the EU. They also brutally raised doubts about the future of the European-American alliance which has underpinned stability of a kind across the western world since the late 1940s.

The 60th birthday in 2017 landed amid considerable dread about a great voter lunge to the Eurosceptic extremes of right and left. But, it turned out the worst was not certain after all.

Our half-happy slogan - The Worst is Never Certain - comes from French political scientist, Corrine Deloy, in a hard-nosed stocktake earlier this year of the rise of populism sweeping mainland Europe. That's a phenomenon which is happily less evident in Ireland.

Yes, pivotal elections in France, Netherlands, Germany and elsewhere, did see Eurosceptic populists right and left gain considerable political ground in 2017. But the populists did not win power and in fact there was also a less commented upon rise for pro-European parties - most notably the election of Emmanuel Macron, as an unashamedly pro-EU President of France, who on the canvass favoured the beautiful EU anthem, 'Ode to Joy', as much as the stirring 'La Marseillaise'.

None of this is an effort to downplay the continuous rise of the populist right, and to a lesser extent a Eurosceptic left. It is not to deny the near-death of Social Democrats all across the EU, including Irish Labour, who for decades along with their Christian Democrat rivals, drove European solidarity.

Certainly, the worst was shown not to be certain in 2017. But that is some distance from being certain that the worst, or something approaching it, is still not going to happen to the 61-year-old EU with potential fallout for Ireland.

Coming to terms

The UK is well on its way through EU exit portals and the only thing at issue in late 2018 is the departure terms - and especially the fate of the Irish border.

Bar the UK itself, Ireland has the most interest in these divorce terms. The other member states, and especially specific sectors such as car-makers within those states, also have Brexit interests, but only up to a point.

By now Brexit spends long periods in a silo of its own in the EU capital.

"The interesting thing is how often Brexit is not even mentioned at various EU meetings. Sometimes it is mentioned out of politeness because there is a British, or indeed Irish, official present. But there are so many other things to be dealt with," a long-time Brussels diplomat told the Irish Independent.

These is a growing conviction that the EU will do a half-reasonable Brexit deal with the UK. The EU was set up to do deals which often come late and can look rather clunky. But Brussels is the home of compromises.

Far less certain is whether UK prime minister Theresa May can ever sell any such deal at home. From the outset, the EU side has been facing a London political elite at war with itself and does not know what outcome it wants.

It is easy to become entombed in the details, and bewildered by the jargon, surrounding the key issue of the Irish Border. But just hold a few key thoughts on this one.

When Brexit happens, and the associated transition period passes, the Border becomes a de facto EU frontier with the UK jurisdiction. Brussels, London, and Dublin all agree that they want to avoid a return to border checks for customs and product standards.

Ireland succeeded in getting a thing called the 'Backstop', a minimum arrangement which will kick in, if the EU and UK cannot agree a post-Brexit trade deal, and which would avoid a return of a 'hard border'. In essence it would keep the North inside the EU customs union, and close to the single market, by mimicking EU product standards.

All sides hope the Backstop will not have to be used because they believe a decent long-term EU-UK trade deal can emerge in negotiations likely to take many years. But the Backstop's existence causes big problems for ultra-Brexiteers in London, who argue it undermines Brexit, and the Democratic Unionist Party, who prop up Mrs May's minority government.

It all turns on making a special case for the North - without being seen to have the North exit the EU on terms too markedly different from those of England, Scotland and Wales. On the other side of the argument, moves by the UK to extend the North's concessions to all its territory, cause further waves among those ultra-Brexiteers. The UK-wide concession idea also causes worries in Brussels who fear the UK would get big trade benefits without meeting its obligations.

It will drag on... and on.

But reverting to our half-happy EU slogan - The Worst is Never Certain - it is more likely that Brexit will happen with economic impacts for Ireland. Hopefully, those impacts will stop short of carnage, and can be ameliorated over time.

A question of tax

So, beyond the Border row, what are these many other issues which face Ireland after the departure of the UK?

Well, if you promise to read on, I'll try to keep this brief, and give you a flavour of what is looming into view. Most of all, we must try to see the implications of these issues for Ireland in the context of the UK's departure from the EU.

As the EU finally emerges from major economic recession, there are questions about a more ordered eurozone geared to avoid another such collapse.

The EU seven-year budget regime expires in 14 months and must be recast to cover the years 2020-2027, with the added delight of funding a €12bn-per-year budget hole left by the UK's departure.

The EU must also contemplate new taxation rules to cope with stateless multinational companies. These issues will impact directly on Ireland and have long ago raised red flags in Dublin.

Ireland's experience in the wake of the banking collapse, with losses of some €40bn borne by the Irish taxpayer, was arguably the most bitter in the 45-year relationship. The EU's effective ban on Ireland having bank bondholders carry their share of the debt still rankles.

There has been some progress on new post-collapse EU supervisory structures and creation of funds to avoid another collapse.

The European Central Bank has steadied the ship and banished speculation about the death of the euro by massive bond purchases.

But the departure of the UK in relation to banking and monetary issues does not have a big direct effect. As before, Ireland must face into all these battles alone, or with other allies.

Equally, the future EU budget, once you get over the detail of the €12bn hole left by Brexit, also leaves Ireland fighting its corner alone. Bar the odd detail of common ground about budget controls, the UK and Ireland have always faced in different directions on the EU budget.

The UK has long opposed EU farm grants, and was sceptical about regional and social grants, which for decades benefited Ireland hugely. Ireland is now a small net contributor to the EU budget to the tune of about €200m per year - but that sub to Brussels will very probably increase significantly after 2019.

We must bear in mind that Germany will likely face an increase of €4bn per year and France €3bn. Expect lively times ahead here.

Merely writing 'EU' and 'tax' in the one sentence has long been enough to raise hackles in Ireland. Here, the UK's departure is a big loss as London's insistence on fiscal sovereignty was a big bulwark against changes to the ­current position whereby taxation is the sole preserve of the member states. EU taxation issues require unanimous approval by member governments. That includes any move to change the rules to make decisions by majority vote.

But, as many capitals eye our 12.5pc corporation tax rate, Ireland would be very lonely politically trying to veto EU moves to take more tax control. Equally, Ireland is already adapting to international pressures to tax multinationals more effectively, and that pressure can only grow as it is further driven by challenges in the digital world.

Tax is very likely the biggest EU post-Brexit battle ahead for Ireland.

In it for the long haul

'Irexit' really does not have the same ring to it - or does it? Few of us had even heard the term 'Brexit' before spring 2016 but now we utter it as automatically as we draw oxygen.

Standing in the shadow of the Europa building at the most recent EU summit, Fianna Fáil leader Micheál Martin made it very clear that his party was committed to Ireland staying in Europe. Inside the conference centre a few hours later, Taoiseach Leo Varadkar repeated his mantra that Ireland was fully signed up to the EU for the long haul.

Even Sinn Féin, whose EU policies 30 years ago mirrored those of Maggie Thatcher, has moved a deal more towards critical engagement. It is hard to find a mainstream voice advocating that Ireland leave the EU and go it alone.

The latest measure of Irish public opinion, Eurobarometer, shows that almost two-thirds of people favour the European Union and 84pc have a positive view of its future.

Yet in early September 2018, the inaugural meeting of the 'Irexit: Freedom to Prosper' was held in Dublin. One of the key people behind the meeting, Hermann Kelly, said they had convened to discuss "the benefits and the necessity of leaving the EU".

There are few comparisons to be made between the Irish and UK experience of EU membership since both countries joined in January 1973, along with Denmark. Many in Brussels have periodically and reflexively asked if the UK were still EU members as the "Fog over the Channel - Europe is isolated" joke was re-run.

But other research shows that Irish people's support for the European Union can be fragile, and based on very limited knowledge. On two recent occasions, in 2001 and 2008, Irish voters rejected EU treaties.

For the first two decades of membership, Ireland's EU involvement was often lazily sold as 'free money' in the form of farming, regional and social grants. But those grants were designed to help Ireland improve and were always temporary.

It has taken a long time to get round to talking about the other manifold benefits like vast wider access to trade across the continent of Europe and beyond. We still hear too seldom about the invaluable cultural, educational and social links which have come from 45 years of EU membership.

The European Union, aged 61, is in some respects a flawed and creaky edifice, facing a very challenging future.

But 73 years after the end of World War II, and 29 years after the fall of the Iron Curtain, there is a degree of peace, freedom and prosperity, which is truly remarkable.

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