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Brendan Keenan: History lessons can help us avoid hitting more EU icebergs

It's a year of anniversaries but 2012 may well be judged as the defining moment in our ties with Europe

THE second year of the decade has some fairly strong echoes in Irish history. There is to be no escaping the fact that the Titanic sank 100 years ago -- though we probably have the movie to thank for that rather than the actual event.

On the other hand, it will probably be quite easy to miss the 90th anniversary of the foundation of the State. The country has never been quite comfortable with the circumstances of its birth. As was the case with the 50th anniversaries, 1916 is likely to see more elaborate centenary commemorations than 1922.

There will be even less attention for another anniversary -- that of Ireland's application to join what was then the European Economic Community. Forty years ago, the application was made by a man who had taken part in the 1916 Rising and been on the losing side in the Civil War -- Sean Lemass.

Irish nationalism is not easily defined, then or now. 2012 could easily turn out to be not just an anniversary, but another defining moment.

That phrase was used last week by Catherine Day, the Irishwoman who, as Secretary-General of the Commission, is the EU's top official. At a meeting of the Institute for International and European Affairs in Dublin, she was very clear in her view that dramatic changes are on the way and that countries will have to make hard choices as to the kind of EU they want, and their place in the one that emerges.

Lemass could see no future for Ireland outside the EEC, other than as an unimportant, disregarded, economic satellite of Britain. When Harold Wilson called a referendum on continued UK membership, Lemass was prepared to have Ireland remain in the EEC without Britain -- a far riskier action than joining the euro without sterling in 1999.

Wilson won his vote, so that particular risk was avoided. Not so in 1999, which was then followed by the bewildering folly of tumbling headlong into every well-known danger of euro membership, culminating in the unexpected one of a global financial crash.

The consequences are lucidly set out in the latest report from the Breugel think-tank in Brussels, which compares the experience of the three biggest boom/busts in Europe: in Iceland, Ireland and Latvia.

There have been many such comparisons, given that this is almost a "controlled experiment" in different remedies, of the kind that economics frustratingly cannot do in its efforts to be treated as a proper science.

Ireland had a common currency, and could not devalue. Iceland's currency collapsed before it could decide what to do. Latvia decided to maintain its currency's value, at the cost of the most ferocious fiscal retrenchment of all three, which included a cut of one quarter on public sector pay.

Iceland also had no choice but to let its banks collapse. Latvia's banks were mostly foreign. In Ireland, the European Central Bank did not want the banks to collapse and offered unlimited loans to prevent that happening, while the Irish Government provided unlimited cash for the banks and their bondholders.

In the Breugel report and elsewhere, this is generally presented as the ECB "refusing" to let the banks fail, which implies that the Government was willing to let AIB and Bank of Ireland go down, taking their jobs with them, leaving no native Irish banking system, and a hefty bill for paying off most depositors. The much-admired Icelandic bond burning still left a bill of €47bn.

I am not aware that either the last government or this one ever contemplated such a thing. They wanted -- not unreasonably -- more realistic terms. These are still not on offer, even as we embark on the decade-long task of finding €3bn a year for the banks while cutting the annual deficit by almost as much.

This is a defining moment. Arguments will rage forever as to whether the Government should have played a tougher hand. But the truth is that Ireland had no real cards to play, and is rapidly running out of chips. We cannot stay in this particular poker game for very much longer. The IMF knows that and we must assume the EU authorities know it too.

That does not mean they will be able, or willing, to do much about it. As Ms Day said, a new EU is in the making -- and it will be very different from the old one. In the eurozone at least, it will be more integrated and more collective. But as things stand, it will be no more the finished article than it was in 1999.

Integration does not yet include a proper euro area banking structure, and collectivity does not yet include common borrowing in the common currency. It was largely our own fault that we made such a mess of what was admittedly a flawed single currency. That is no reason to support another botched plan.

Sunday Indo Business