The member states of the European Union are going through a deep economic crisis.  Unemployment is at historic and rising levels.  States are having to pay excessive amounts to fund public debt and are cutting essential services.  Growth projections for the years ahead continue to be reduced.  The foundations of the common currency shared by most states are under threat.

These are the uncontested facts that formed the background to this summit.  Yet the leaders of Europe managed to meet for two days without even discussing a single measure that might help address any of the problems facing the Union today.  Their failure to agree on a multi-annual budget was not a surprise or a major issue in itself.  What is a further blow to confidence in the Union and its leaders is the lack of either ambition or urgency.

The only item which was actually agreed the summit showed an elite club mentality in the dismissal of a rarely used prerogative by the European Parliament.

In relation to Ireland’s immediate needs, there have been very significant developments in the government’s position.  In relation to the Budget the strategy has been to follow France and little more – however in relation to the financing of bank-related debt there have been major developments which have not been addressed directly by the Taoiseach.

 

EU Budget

This Summit was called specifically for the purpose of agreeing the next EU Budget.  The decision to separate it from a regular summit meeting was in order to concentrate everyone’s attention and maximise the chances for success.  In terms of its specific objectives the Summit was clearly a failure.

Difficult budget negotiations are as old as the Union itself. There is no major problem with rolling-over one year’s budget while a final agreement is being sought.  What is a major problem is that the likely shape of the final agreement will undermine the ability of the Union to address the urgent economic crisis.

It is now clear that the final budget will involve a real-terms reduction in EU spending.  What is also clear is that the arguments are now mainly focused on what programmes can be cut in order to finance urgently required supports in areas such as innovation.  Both of these represent bad news for anyone who believes that the EU can play a constructive role in helping Europe to return to growth and job creation.

First of all a budget of roughly 1% of the total national income of the member states is far too small to be able to make any serious contribution to renewed growth.  One of the most important lessons of the crisis is that you cannot have a genuine economic union if transfers within the union are capped at a very low level.  The contract which members signed up to was one which said that there would be support to aid development in return for unrestricted competition.  For many of Europe’s regions feeling the impact of this recession in ever rising unemployment this contract is being broken.

Secondly the pressures on the Common Agricultural Policy continue unchecked and threaten what is by far the most successful common policy.  President Hollande has been very forceful in demanding that the CAP budget not be reduced in order to fund other programmes.  It is likely that he will be successful for the most part.

What is of much greater concern is the idea that funding might be restructured in such a way as to give priority to larger producers.  This would be a betrayal of the spirit of the CAP and directly undermine rural communities.

The Taoiseach on a number of occasions has said that he is emphasising the fact that the agrifood sector is a potential engine of growth and rising competitiveness for the Union.  He is right in this, and Ireland has a very strong record in being innovative in the sector.  Deputy Brendan Smith prepared what is still the blueprint for growth through innovation in agrifood-Harvest 2020.  This is also reflected in the research and innovation programmes in the Department of Enterprise and Innovation which have been running successfully for a decade.

It was a surprisingly partisan, petty and blatantly untrue comment of Minister Bruton recently when he claimed that the state had done nothing to develop the research capacity of our world-competitive food companies.

Where the Taoiseach is wrong is the emphasis he is placing on the CAP with the concentration of support in the hands of larger producers should not be central to the wider agenda of increasing the quality and innovation of the sector.  The support of rural communities and the environment are the soul of the CAP.

Ireland must do nothing to damage this and it should under no circumstance support or implement a revised programme which is weighted against smaller producers.

On a number of occasions the Taoiseach has stated that the support of growth and employment are major objectives for the budget.  This is in no way reflected in the likely budget.

There is no net stimulus effect possible through reducing the budget in real terms and doing nothing to significantly increase support for job creation or the wider productive capacity of the Union.

It would be a lot better for everyone if the empty claims about a budget for growth and jobs were put aside.

The fact that Ireland’s role in these negotiations was reduced to cheerleading for President Hollande is a direct reflection of the failure of the Taoiseach to opt out of all of the multi-lateral and bilateral budget initiatives which have gone on this year.  He is one of only three heads of state or government not to join one of these initiatives.  The reason for this remains unclear.

Now that the important of the rotating presidency has been significantly downgraded at the level of leaders, the burden of finding an agreement falls primarily to President Van Rumpouy.  Britain has got its chance to parade its anti-Brussels rhetoric and others should be satisfied that the symbolic cut in activity has been achieved.  Taken together there is likely to be an agreement at latest by the Spring Council.  However, leaders have displayed an unerring ability to turn a problem into a crisis in the last few years, so clearly nothing can be taken for granted.

 

ECB Appointment

The only formal decision of the Summit was to complete the appointment of the President of the Central Bank of Luxembourg to the Executive Board of the ECB.  This was a retrograde step and reflected the arrogance of a group unwilling to accept legitimate opposition.

Yves Mersch is clearly qualified to serve on the ECB’s Executive Board; however there is nothing unique in his qualifications which required that he be pushed forward in the face of the European Parliament’s Opposition.

The Parliament has exercised considerable restraint over the years in using its powers to object to appointments to various institutions.  It has performed its role in a responsible and professional manner.

It isn’t good enough that there has never been a woman on the most important body within the European Central Bank and it is a disgrace that there will be no woman on the Executive Board for at least another three years.

As has been seen in Britain with their new Governor of the Bank of England, there are a large number of highly qualified people who can fill these roles.  They do not have to be limited to a handful of people at senior levels in a few countries.

It is also a concern that Mr Mersch appears to have been promoted as someone who would advocate a conservative approach to the ECB’s role in counterbalance to Mario Draghi’s innovative approach.

The membership of the ECB’s Executive Board is unbalanced in nearly every key area.  In terms of gender, nationality, outlook and experience it does not include the range of members to allow it to properly run the monetary policy of a union as diverse as the Eurozone.

Ireland’s failure to stand with the European Parliament on this issue was wrong.  In the future the process of inside deals must end and Ireland should join those countries such as Spain and Portugal who have said they will not agree to any more ECB appointments made in this way.

 

Banking Union

Given that so much time was available for this summit, including the possibility of working into Saturday, it is surprising that the breakdown happened so quickly and that leaders ran home as quickly as possible.  Why this extra time was not used to attempt to unblock other vital negotiations is inexplicable.

The negotiations on the banking union which was agreed in general principle in June remain blocked on fundamental issues.  The deadline of having legislation and the framework ready for implementation by January will be missed and has not been replaced with a new target.

For months I have been unsuccessfully trying to get the Taoiseach to outline what Ireland’s position is in relation to the banking union.  In the midst of his filibuster of his own question time the Taoiseach yesterday finally gave some detail.  There was no opportunity to follow-up on those points and there is no coverage of what he said in today’s media, so it is worth going over it again. 

The Taoiseach stated that Ireland believes in a banking union which covers all European banks in a single system.  This is perfectly reasonable and reflects all independent advice.  However he then went on to confirm that Ireland is arguing against any proposals which might require a change in the Union’s treaties during the lifetime of this Dáil.  This is an extraordinary position.  If there’s one thing that everyone knows by now it is that the Eurozone sovereign debt crisis has largely been caused by countries putting politics ahead of implementing the right policies.

At every stage of the Euro’s life, and especially in the last three years, there has been a desperate search for doing as little as possible rather than doing whatever is needed.  This is why confidence has been undermined.

Yesterday the Taoiseach said that Treaty changes shouldn’t even be considered until the term of the next European Parliament begins in two years’ time.  Given how deeply important a functioning and effective banking union is to Ireland, this position is indefensible.  It’s the same approach which led to Ireland making no positive contribution to negotiating the Fiscal Treaty.  In fact, our government pushed for it to be watered down in a desperate attempt to avoid a referendum.

The people have shown that they will support any proposal which can be shown to make a serious contribution to rebuilding economic confidence in Europe.  Given the failings of our banking system and regulatory procedures, support for any treaty changes which build a strong banking union are likely to once again earn the people’s support.

 

Bank-Related Debt

Also buried in the Taoiseach’s answer to 55 questions at one time yesterday was a significant development in what he has to say about our bank-related debt.

His failure to do detailed work in advance of June’s deal has meant that there is no agreement between states on what it means.  More seriously, the Taoiseach has never said exactly what we are looking for.

In the case of every other country which is receiving or seeking EU support their objectives have been set out very specifically.  Greece has a target for debt to GDP of near 120% and has been working to achieve changed terms which help achieve that.  Spain is seeking between €50-60bn in direct recapitalisation for its banks with the risk being shared through the ESM.

In contrast, Ireland’s objective has been set out in as vague a way as possible.  We are looking to reduce the burden of bank-related debt to help with debt sustainability?  What is our government’s definition of what is sustainable?  What terms are required to deliver this?  There appears to be a near terror in some government circles that answering these basic questions might undermine the thing which is most important to them – being able to claim victory no matter what emerges.

The Taoiseach has also begun to again back off the strongest argument for why Ireland’s case is unique.  Yesterday he was back to his partisan argument of saying all debt was incurred solely because of decisions of the last government.  He has forgotten his words of last month when he said:

         “Ireland was the first and only country which had a European position imposed upon it in the sense that there wasn’t the opportunity, if the government so wished, to do it their way by burning bondholders”.

This is Ireland’s strongest case and the Taoiseach should stop undermining it.

It appears that the sale of the state share in AIB and Bank or Ireland to the ESM which he and Minister Noonan talked about in June is no longer being sought – though no explanation of this change has come forward.  Yesterday the Taoiseach also said for the first time that Ireland wants to “replace an overdraft with a long-term, low interest mortgage”.

This marks a further major reduction in Ireland’s negotiating position.  It appears that the government is no longer seeking to have the ECB extend the terms of the promissory notes but intends converting them into standard sovereign debt to be financed by the ESM.  This would be a major defeat for Ireland and would in no way recognise our unique case.

It is not the terms of this debt that were unfair; it was the fact that we had to incur all of it in the first place.  As the Taoiseach admitted in Paris, a significant write-down of debt to bondholders would have occurred if it had not been for the intervention of the ECB and others.  Financing this debt a slightly different way doesn’t make it any fairer.

If Minister Noonan sneaks into the House next March to again proclaim victory in the promissory notes because he’s converted them to standard people will be ready for him.  It will be seen for what it is, a failure to get recognition of the unique unfairness of the debt Ireland is being asked to carry.

As I said before, and as I will keep saying no matter how often the Taoiseach deliberately misquotes me, if the ECB wants to ease the burden of this debt it is technically easy for it to do so.  It can agree a change to the length and terms of the promissory notes.  I have never said that the negotiations would be easy, but I find it incredible that the government appears already to have given up on the core principle four months before the negotiations are due to conclude.