Sunday 19 January 2020

Fionnan Sheahan: EU states must face up to the reality of economic pact

Fionnan Sheahan

The prospect for Ireland of having to face the public in yet another referendum would not be welcomed

EU members are agreeing to disagree. The European Union has been locked in continual crisis mode for the past two years as a result of the banking, financial and economic crisis spawning into measures required to rescue the euro.

Finance ministers pretty much agreed last night that there needed to be greater oversight of member states budgets -- particularly the serial over-spenders. But nobody is agreeing how exactly to do it.

And everybody agrees this level of scrutiny can't supersede the role of the national parliaments in setting budgets.

After observing carefully which way the wind is blowing, Finance Minister Brian Lenihan believes there is growing support for Europe to be given more oversight of member states' budgets.

Everybody also agrees tougher penalties are required to stop countries from straying from responsible budgetary paths again, thereby jeopardising the entire currency.

The concepts of scrutiny and sanctions appear to be agreed in principle -- and just not in practice.

Lenihan and his counterparts will return to the topic again in due course, as discussions will continue until October.

The finance ministers, or their substitutes, will meet twice more before June 17 and prepare a progress report for the EU summit of leaders. The conclusions of the talks will be presented at an EU summit in October.

In the meantime, the currency crisis continues.

EU leaders are struggling to regain investors' confidence after months of turmoil -- that have pushed up many eurozone member states' borrowing costs -- led to a €110bn bailout of Greece and the setting up a €750bn rescue package for the eurozone to prevent the contagion from spreading among the 16 countries using the euro.

The debt crisis is still provoking huge instability in the 11-year-old euro currency and intensified the demands for EU states to coordinate their economic policies and bring errant public finances into line.

Apart from the markets not having the desired confidence in the measures taken to date, the euro instability has highlighted a lack of cooperation amongst member states.

Germany has been the vanguard of calls for swifter and broader sanctions for countries that repeatedly break the EU's deficit limit of 3pc of GDP.

The Germans proposals go beyond even the European Commission much-criticised 'peer review' plans for domestic budgets.

Yet German Chancellor Angela Merkel acted unilaterally in clamping down on market speculation by banning short-selling.

The solo run, albeit and because it was by Europe's strongest economy, led to even greater uncertainty about the direction the EU was taking in tackling the economic crisis.

Merkel repeatedly insists stronger economic co-ordination of the EU requires treaty change.

She insists it won't result in more powers being given to Brussels.

Not only will he not be joining the euro, but British Prime Minister David Cameron made it clear he won't be agreeing to anything that drags his country closer to the euro area.

The Irish Government can't rule out treaty change, but don't want to see major surgery being conducted.

The Government is dreading the prospect of substantial treaty change requiring another referendum in this country.

Lenihan is happy to tinker around the edges with technical changes, but not go any further.

"What we do not want is some sort of prolonged ratification procedure stemming from far-reaching treaty changes," he said last night.

Though only finally adopted last year, after seven years of gruelling negotiations and ratifications, the Lisbon Treaty was not devised to deal with the economic crisis currently gripping the euro.

The notion of centralised strong leadership for the EU being enshrined by Lisbon was immediately undermined by the appointment of a lightweight figure as head of the European Council.

The so-called EU President Herman van Rompuy goes about his duties with earnest efficiency and aims to achieve consensus, but he's not the one driving the agenda.

It's not his fault either as Europe's heavy hitters didn't want to put a bigger fish into their pond, so opted for the obscure Prime Minister of Belgium.

The net effect, though, is the EU lacking the leadership required at a crucial juncture and various interests putting forward what they regard as the correct course of action.

As the credibility of the German economy provides the backbone for the euro, Merkel's point on the necessity for treaty change cannot be simply dismissed. And the treaty changes she envisages would not be limited to the eurogroup as she argues budgetary discipline is needed across all 27 countries because they are connected through the internal market -- not just the 16 countries being intertwined by membership of the euro.

Nobody realistically wants to go down the tortuous route of renegotiating a treaty and then having to ratify it through all 27 member states all over again.

The prospect for Ireland of having to face the public in yet another referendum, even if it was a number of years away, would not be welcomed by even the most staunch pro-Europeans in this country.

But EU members, and Ireland included, have got to face up to the realities of membership of an economic and monetary pact. The benefits bring responsibilities for citizens and governments alike.

Without harsh penalties for breaking economic rules, up to expulsion from the single currency and the union, there is no genuine fear of non-compliance.

To ensure the current crisis isn't repeated in the long-term, European leaders have to ask themselves how far they are willing to go.

fsheahan@independent.ie

Irish Independent

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