This week’s meeting of the European Council is the regularly scheduled June meeting but it is still a crisis meeting. As the problems facing the European economy have deepened, the Council has talked at great length about these problems. It has agreed the necessity for comprehensive measures to tackle them – but it has consistently failed to follow these words with credible action.
The agenda for this summit is short and unambitious. All of the major points have already been agreed at meetings of finance and foreign affairs ministers. In spite of the sheer range and scale of problems facing member states at the moment, the Council President actually announced yesterday that he intends ending the summit earlier than originally provided for.
If you look back at the debates held before the last two summit meetings it is almost depressing how little progress has actually been achieved. The great sense of urgency which was evident amongst countries at the start of the year has almost disappeared. In place of a genuinely inclusive discussion amongst states and institutions we now have a more narrow and exclusive debate. Policy appears to be being developed through media briefings rather than in face-to-face discussions.
The hands-off approach of the Taoiseach and other leaders in the last three months has failed and this summit should be used to say with absolute clarity that delay is no longer an option. If member states do actually want to save the Euro; if they want to contain the debt crisis; if they want to restore credibility to the Union; then they must stop talking and start acting.
Financial Support Conditions for Ireland & Others
The first thing they should do is to restore to the agenda the issue of the conditions applied for financial support for Ireland and others. The finance ministers have failed to handle this issue and it’s time for the leaders to take it over.
In the first half of last year a scheme for providing financial support for member states was agreed. The objective was to help Greece and bring confidence to the market. This didn’t happen and by the time of the Irish deal in November it was agreed that changes needed to be made.
While the Taoiseach and others like to talk about a lousy deal, they know the truth is that the terms of the deal were fixed and not open to negotiation by anybody. This was recognised by Minister Noonan in his opening remarks following the announcement of the deal – though he rapidly changed his line when he saw the political gain to be made by going on the attack.
The need for new terms was negotiated in the following months, agreed in February and formally ratified on March 11th. There was no equivocation. Every member state accepted that, to quote the communiqué, terms “should be lowered to better take into account debt sustainability of the recipient countries”. Final details relating to Ireland were postponed and handed over to finance ministers purely so that the bank stress tests could be published first. These stress tests turned out exactly as predicted, so there was no reasonable basis for further delay.
I think even the Taoiseach would now accept that the self-aggrandising hyping of his brief chat with President Sarkozy on the margins of the meeting served no positive purpose. An exactly similar exchange between Brian Cowen and President Sarkozy happened at the previous meeting and was not allowed to get in the way of the important agreements reached in February.
Grinning about having a ‘Gallic Spat’ and praising your own toughness against a colleague might be good for polishing the image at home but it did nothing to help get the deal finalised. It shows an interest in media spin taking precedence over building a relationship – and a number of reports have shown that what annoyed President Sarkozy was not the discussion with the Taoiseach but the hyping of it afterwards.
The French demand relating to Corporation tax is longstanding and it is unachievable. They know it and they will accept it. As matters progress, it appears that this is more likely to be because of the intervention of others worried about how the issue is dragging on rather than because of bilateral contacts.
There will be a lower interest rate for Ireland’s borrowings and other terms may also be improved. It will happen because the cost of not agreeing it could be immense for the whole of Europe.
The problem for Europe is that it has already agreed that the financing conditions agreed last year are unsustainable. To leave unsustainable financial conditions in place would be a direct signal that the European sovereign debt crisis will get worse.
Before the March Council the government said that it was seeking changes which would be worth €400 million a year to Ireland. This figure has been halved since then. It is still an important amount which would make a contribution to easing some of the fiscal adjustments planned for the next three years.
The four-year fiscal plan prepared last Autumn and accepted as the basis of funding from the EU and IMF is credible and provides the foundation for restored confidence in the economy. There is a lot of positive feedback internationally for the decision of Fine Gael and Labour to both implement the plan and claim credit for a Budget they voted against.
The Tánaiste is right to give speeches about what he terms the many fundamental strengths of the economy – just as he was wrong to call it banjaxed three months ago.
Better terms on the international funding will reinforce the idea that we are on a sustainable path to recovery and show that Europe is willing to actually resolve the debt crisis. The Taoiseach should use the well established support for Ireland’s position by the Presidents of both the Commission and Council to force the issue to a conclusion this week.
The change to the status of borrowings from the ESM is welcome and it does have potential benefits for Ireland and others. The efforts which the government went to on Monday to claim credit for it are once again short-sighted.
It has always been our position that private sector burden sharing in relation to bank debt should be implemented. Brian Lenihan brought legislation to enable this through the Oireachtas.
As is well known, others effectively vetoed this due to fears about knock-on effects. Given the refusal of the Taoiseach, Tánaiste and Minister for Finance to actually ask Secretary Geitner about his role, there is some doubt if he was an important player in this. What is absolutely not in doubt is that the ECB opposed burden-sharing and continues to do so.
The Taoiseach yesterday confirmed that Minister Noonan’s Washington announcement concerning burden sharing for Anglo Irish Bank is a continuation of existing policy and that it is not going to be raised until the Autumn. This of course raises the question about why such efforts were made to push the story last week and why no one thought to brief the main interested parties about it before the Minister did his press events? It appears to have been mainly about manipulating domestic coverage of the 100 days anniversary – certainly there was and is no strategy to actually achieve something on burden sharing in the near future.
A lot more detail would need to be provided before we can know whether or not a ‘Vienna Initiative’ style of debt-rollovers can work for Greece. What is sure is that this is the very least that needs to be tried.
The Pact for the Euro
Over dinner on Thursday night the Council will, according to the President, “take stock of the progress on the various elements of the comprehensive approach agreed upon in March”. As I have said, the approach was agreed but the implementation has been stalled.
If the leaders fail to take a comprehensive and generous approach to reaching a conclusion tomorrow evening the next summit may deal with an even deeper crisis, one covering more countries and threatening the existence of the Euro.
Also scheduled to be agreed over dinner is the appointment of Mario Draghi to be President of the European Central Bank. It is a great pity that we have not worked with other countries to query this appointment and do not appear to have tabled any measures for the reform of a deeply flawed institution.
It appears poised to undertake a series of interest rate increases that could destroy weak economies due to a flawed targeting of commodity-driven inflation. Its failure to give clarity on affordable medium-term funding is making recovery harder for a number of banking systems. Its arrogant and unprofessional approach to the media is denying it the stature which is essential for public legitimacy of its broad powers.
As a commentator wrote yesterday:
“The ECB’s strategy of threatening peripheral banking systems (and the regular coverage this receives in the media) has become one of the destabilising factors that have contributed to worsening the current crisis. It is time for this poorly-thought-out strategy to cease. The ECB’s obligations under the European Treaty mean that it cannot help peripheral countries via keeping interest rates low for the next few years. But it can continue to act as a lender of last resort to the banks in these countries in a way that reassures (rather than worries) financial markets.”
Mr Draghi’s comments to the European Parliament last week were unacceptably dismissive of Minister Noonan’s statement about burden sharing. His comments about medium-term funding were actively damaging.
We should not be nodding through his appointment over dinner without any sense that he appreciates the failings of the ECB and shows that he has a reform agenda.
The Council is due to spend a significant period discussing migration policy. The papers published to date have a certain air of unreality about them. They talk about the great achievements of the Union in terms of free movement but fail to mention that these achievements are under threat. The unilateral abrogation of Schengen rules by France and Denmark was a dramatic move. It does appear that the French move was justified by the scale of its issues on the Italian border.
Ireland’s non-membership of Schengen is an accident of history due to the common travel area with Britain – but it is also no great issue. It is not clear that any great benefits would accrue from membership. However, what is important is that the Union sort out a policy which respects its rules and doesn’t allow a situation develop where members can take a selective approach to constitutional obligations.
The formal closing of all negotiating chapters with Croatia is welcome and overdue. Croatia was put through considerably tougher negotiations than many previous accession countries. The delay imposed by Slovenia was a disgrace.
The Croatian government took a number of stands that were politically very tough but mean that their country has implemented important reforms which have strengthened its economy and society.
There is a major problem due to the major change in public sentiment against the Union, particularly because of measures relating to the Hague Tribunal. I hope the Council and member states will acknowledge the role which they must play in talking to the Croatian people before their accession referendum.
Libya & Syria
The proposal before the Council to strengthen sanctions against the Syrian regime are welcome and we should support them. It would be a constructive use of the leaders’ time if they would also agree to significantly increase Union support for democracy promotion in the countries experiencing the ‘Arab Spring’. The elections in Egypt and Tunisia have great potential, but also carry great risks. The people of those countries and others have expressed their powerful desire for real democracy. Europe should take the lead in helping ensure that the get the free and fair elections which the deserve.
Europe should also move to put in place support for civil society organisations which are essential for the healthy functioning of the democracies after elections. The failure to do this more comprehensively in some post-soviet countries was a fatal error.
I would certainly support the idea of Ireland increasing its allocation to this issue and working in closer cooperation with the Union and other members. This could involve increased levels of joint-funding programmes.
Europe’s Moment of Truth
President Barosso was wrong this week to talk about this being ‘Greece’s moment of truth’. This is Europe’s moment of truth. The principle of solidarity between members is under threat. The Euro is in danger. The institutions are failing to react credibly and comprehensively. The citizens of Europe are looking for a sign that the millions of jobs they need can be created.
This week’s summit has an agenda which is low on ambition and devoid of the sense of urgency which is so badly needed. Vital issues are being left drift long after the need for action was agreed.
Tough talking and media posturing are of no use.
We need a summit which has a renewed sense of purpose. We need it to agree measures which help individual countries to recover, protect the common currency and reinforce the vision of a Europe of shared interests.