Wednesday 26 June 2019

Dan O'Brien: 'Ireland's changing interests in a post-Brexit Europe'

Would a European army and a eurozone finance minister be in Ireland's interests, asks Dan O'Brien

The tax avoidance drive has included a ruling that Ireland recover €13bn from iPhone maker Apple. Stock picture
The tax avoidance drive has included a ruling that Ireland recover €13bn from iPhone maker Apple. Stock picture
Dan O'Brien

Dan O'Brien

Tempting as it may be to discuss recent Brexit developments, the wisdom of the backstop and what will happen next March 29, these matters may be better left until next week.

On Tuesday, Westminster votes on Theresa May's withdrawal deal. No analyst of British politics expects it to be passed. She may not be prime minister by the end of the day.

A decision by the EU's supreme court, scheduled for 8am Irish time tomorrow, on whether the UK can stop Brexit without consultation with other countries, will be the first big moment of the week.

If the judges decide that a country leaving the EU is free to reverse the decision unilaterally, the dynamic in the Brexit debate will change, and the prospect of the whole enterprise being postponed or cancelled will rise. But the most likely outcome is that Britain is heading out of the EU.

Much of the focus of Brexit has been on the immediate impact. Here today, the focus is on how Europe is changing - both because of Britain's exit and for other reasons - and what this means for Ireland.

Nobody who knows the European system thinks that it will not change considerably with the departure of one of its biggest and most influential members. Most observers of that system across the continent believe that Britain, although an awkward partner, has contributed positively: from the big geopolitical dimension, including its special relationship with the US; down to the technocratic humdrumery - Britain's large and effective civil service has done a lot of heavy-lifting in Brussels over the decades. Ireland has often been one of the beneficiaries of this heavy lifting. Although it would be wrong to over-emphasise the frequency with which Irish and British interests aligned, they did so on most economic issues.

Moreover, the British instinct when dealing with problems is much more similar to the solutions-focused Irish one, and very different from that of the statist reflex of romance-language countries. As such, Irish officials have been less inherently suspicious of British proposals than, for instance, French ones.

So how will Europe change after Brexit and how will Irish interests be affected? To some extent, we know quite a lot about how the EU will work without Britain. The euro, now two decades in existence, never had the UK on board.

One euro area country (Germany) wields even more influence than it does in the wider EU and there is a case to be made that Britain would have brought greater balance to the management of the single currency, and its existential crisis in 2010-12, had it been a member.

The British could not block the creation of the single currency, but they have been more successful in thwarting a greater role for the EU in military matters. Britain has traditionally been the most influential voice against the idea, largely because it feared giving the EU a bigger role in defence would weaken Nato and, as a result, weaken the role of the US in European security (Nato was created, a Briton once famously quipped, "to keep the Americans in, the Russians out and the Germans down").

France has always been the member country most in favour of a stronger independent European military capability, arguing that it is strategically unwise to depend on others, whose interests may differ or diverge, for something as fundamental as security. With the election of Donald Trump, the French can claim that their long-standing position has been vindicated.

Both Brexit and the concerns about the US commitment to European security come as Russia is ever more assertive and aggressive, as the recent escalation of its war in Ukraine and other actions attest. Just last week Russia said it would develop new nuclear missiles targeting Europe if the US went ahead and pulled out of a 1980s arms-limitation agreement. Europe is squeezed between these militarily more powerful actors.

Although there has never been a stronger case for the EU to become a more serious actor in security and defence matters, Ireland is ill-prepared for such a move. Few politicians have shown any sort of leadership on security. Discussion of defence matters remains infantilised. Someday Ireland's history of security free-riding - by not joining Nato and spending almost nothing on defence - will come to an end. Brexit has brought that day closer.

Another big, on-going change in Europe relates to the euro. Efforts to address its structural weaknesses grind on. Just last week Paschal Donohoe and his fellow finance ministers put in an all-night session to agree changes to the single currency architecture. The result was thin gruel.

The main reason the changes agreed were minimalist was because Ireland and other northern European countries to which it has allied itself, opposed deeper reform. It is not clear that this position is in Ireland's interests.

The context is as follows. After his election last year, the French president, Emmanuel Macron, sought the sort of profound reforms that would address the euro's biggest weakness - a means of stimulating countries within the bloc which suffer downturns but can't devalue their currencies (as they did in the past) to rebalance their economies.

This would entail - de facto - a euro area finance ministry and the centralised collection of more taxes.

Such a fiscal union makes a lot of sense if monetary union is not to be a source of crisis and instability in the future. That is emphatically in Ireland's interests. A fiscal stabilisation capacity is also arguably of greater potential benefit for Ireland than other countries.

As a small, open and highly specialised economy, Ireland is more at risk than others of being hit by shocks not suffered by others. Even if the public finances were being prudently managed (and they are not) Ireland would be more structurally vulnerable to "asymmetric shocks" than most others in the euro area. Ireland could, therefore, have the most to gain from a bigger Euro area budget which would automatically channel cash to recession-hit regions.

Those in favour of a minimalist approach to reforming the euro have that most potent force - inertia - on their side. Last March, this column set out seven factors working against the sort of big leap towards deeper integration in Europe of the kind advocated by Macron.

To those seven factors, Macron's own loss of authority can be added as an eighth. Yellow-vest demonstrations take place across France again this weekend. The inchoate anger among such a large section of the French people, which has caused voters to turn against recent presidents that they have elected within months, leaves his presidency looking like a busted flush, less than a year and half after he stormed to power.

Like his two immediate predecessors, and despite having much better tailwinds at his back, Macron's opinion poll rating plummeted soon after taking office. They continue to fall. It is too early to say if he is a lame duck, but his chances of re-election in 2022 are waning.

If he finds he cannot govern France, he might well turn his attention to foreign affairs, as leaders heading out of office sometimes do. That brings us back to European defence. With the British out, the Americans half-in and Russia looming ominously, Ireland could be faced with a choice between remaining part of the EU core or marginalising itself.

Sunday Independent

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