SUMMIT’S POLITICAL DAMAGE MAY BE FOLLOWED BY EQUAL ECONOMIC DAMAGE
Micheál Martin TD, Leader of Fianna Fáil
Statements on European Council
Dáil Eireann, Wednesday 14th December 2011
Last week’s meeting of the European Council was one of the most critical in the history of the EU. This summit was charged with providing a final and decisive answer a crisis which is hitting all 17 states in the Euro and is a direct threat to the wider European and global economies.
It was the fifth time this year when leaders met determined to ‘draw a line under the crisis’ by acting decisively and in unity. They promised a firewall to contain the crisis and to do whatever it would take to return Europe to rising growth and employment.
For anybody who wants Europe to work, for anyone who believes that countries are stronger when they work together and for anyone who recognises the great history of the Union, the outcome of this summit was close to a disaster.
-There is no secure firewall
-The flaws in the Euro have not been fixed
-There is no plan for growth
To make this worse these failures have been linked with a deeply damaging political split which has been developed in the name of an agenda which does absolutely nothing about the real causes of the crisis. We are now heading into a three month period of discussions which is almost designed to destroy what confidence is left in the EU and the Euro.
There has been no serious move away from the agenda which has comprehensively failed over the last year and a half. This agenda drove Ireland and Portugal out of the bond markets, has put other countries in great difficulty – and it may shortly involve the downgrading of the credit of every Eurozone country.
The leaders of Europe handled this summit appallingly. They maximised division, minimised discussion and produced a set of agreements based on little more than hope that failed policies can be made to work if they are given one final push.
The only thing left to cling to is the chance that there may still be time left to do something before further, and this time irreparable, damage is done.
This is not about being pro or anti-EU
Anyone paying attention to events in recent days will have been repulsed by the spectacle of assorted Euro-haters dancing with joy at the idea that the EU in under threat. This is not just a British phenomenon – throughout the Union there are reports of those who have fought the Union at every turn claiming that they are being proven right. Wherever anti-EU forces have any influence they are trying to make this bad situation much worse.
There are reports of the Dutch government’s majority being under-threat. In the Czech Republic the President’s appointee in the National Bank is working to veto the agreed funding. Elsewhere anti-EU forces are looking to maximise the damage they can do.
It is one of the greatest failings of Europe’s leaders that they are encouraging the idea that to be pro-EU you must support their agenda or be seen as a Eurosceptic. This is dismissive and counter-productive.
In fact, the people who are most concerned about the agreement – the people who are most angry with the leaders who put it together – are those who most want the Union to work.
My party is proud to have led Ireland into the great project of European integration. In every poll for every referendum our supporters have been the most enthusiastic about the Union. Following the vision first outlined by Seán Lemass in the 1930s, we are a resolutely pro-EU party. There is not now and there never will be any wavering on this point – and anyone who tries to read anything else into our comments during this crisis is quite simply wrong.
We want Europe to be strong and we want Europe to be successful. That is why we believe that the agreement reached at this summit is both foolish and damaging.
We in no way object to the discussion of giving the Union more powers – what we object to is the failure to give it the right powers.
We also believe that our government has followed a flawed strategy. It has been incapable of escaping from its obsession with scoring political points at home and has therefore abandoned a major opportunity to shape events. They have also spent too much time on whether there will be a vote on the agreement and not enough on what will be in the agreement.
The Euro is worth saving
Unfortunately more and more people are asking the question “is the Euro worth saving?” Equally unfortunately they are only getting general rallying cries in response.
The Euro was a major experiment when it was launched and its chief architect Jacques Delors has stated that problems in its construction are the direct cause of today’s crisis. However, in spite of this, the evidence shows that the Euro has enabled significant growth throughout the Union which has been maintained even after the declines of the last few years.
In Ireland the story is even clearer. For example, a study released this week by researchers based in the ESRI and Trinity concludes that the adoption of the Euro has had a significant and positive impact on our exports which has increased over time. They show how it has given a boost in the different markets ranging from 30 to 60%.
Being part of a large currency has been an enormous benefit in attracting investment and in giving our companies a solid foundation in which to access and grow opportunities.
A very large number of jobs have been enabled by the Euro and there is quite simply no doubt that if we were forced to have our own currency there would be a further severe and long-term impact on both employment and living standards.
The Euro has been good for Ireland, it is key to our return to growth and we need to play our part in helping it to survive.
Fiscal Rules – An Answer which Ignores the Evidence
Part of this is that we should be willing to speak out when the policies being pushed are wrong – and every single piece of evidence shows that the introduction of stronger fiscal rules is a marginal part of the agenda to tackle the crisis.
Ireland was fully compliant with both the existing and proposed fiscal rules throughout the entire decade before the crisis. In contrast, Germany and France regularly broke the rules. Soon after his election President Sarkozy even invited himself to a Finance Ministers’ meeting in order to announce that France intended breaking them for a bit longer.
In his television broadcast, repeatedly in this House and in his contribution to last week’s summit the Taoiseach has steadily increased his support for the idea that stronger fiscal rules would have prevented the crisis and our bailout. He wrote to President Van Rumpouy “The Irish people are paying a price now for the absence of such rules in the past”.
This is not only wrong it directly undermines Ireland’s negotiating position. It says to the leaders of Europe ‘everything is Ireland’s fault’ and fails to make the increasingly undeniable position that Ireland required a bailout because of the lack of a lender of last resort and our willingness to take decisions in the interest of the whole of Europe. This last point is one you began to make last week, but you undermined your own argument by insisting on putting domestic political point-scoring into everything.
You were right Taoiseach to join everyone else in welcoming the removal of private sector burden-sharing from the agenda of sovereign bailouts. Where you continue to be wrong is your failure to explicitly point to how the raising of this issue last year directly and rapidly undermined Ireland’s ability to borrow.
New Fiscal Rules are Reasonable – These May Not Be
As I said in March and in a number of debates since then, my party supports the idea of incorporating fiscal rules into legislation. This is not a question of whether there should be such rules but rather how they should be set.
I find it no less than incredible that the Taoiseach agreed new rules last week without having access to a single study on their impact.
He, along with the others, adopted a very tough series of commitments relating to structural deficits and the reduction of debt. The enforcement procedures are such that these rules will effectively set the entire economic framework the future of this country.
Not one person in the Council Chamber last week could answer the basic question “what will the impact of these specific rules be?” This is madness.
We want to be supportive of the new measures, but early examinations of the new target figures are deeply worrying. It would appear that they will significantly undermine growth and hold-back employment – while actually reducing government debts to a much lower level than the 60% figure mentioned.
Analyses of the impact of the deficit limit suggest that it will actually lead to countries having close to no debt in the long-run. In other words, it would involve significant austerity on effectively a permanent basis. In the name of saving the European sovereign debt market these rules would actually end up closing it down.
Before there is any move to finalise agreements on these new fiscal control rules there must be detailed studies carried out and publicly available.
Many of the current troubles came from politicians twenty years ago taking decisions about the Euro without detailed evidence or discussions. This cannot be allowed to happen again. A decision of such a magnitude, with such a profound impact on the social and economic future of Europe should not be taken on the basis of plucking figures from the air because they sound tough.
The Real Issue Remains Untouched – and there is no firewall
The rushed move to enact these rules is being done in the name of ‘showing resolve’ which would supposedly restore confidence. This is nonsense. The idea that Italian debt is under pressure because the government hasn’t enacted a strong enough law about future budgets would be laughable if it weren’t the policy signed up to by the Taoiseach and his colleagues last Friday.
The real issue remains uncertainty about the ability of governments to refinance existing debt. This uncertainty can only be dealt with if Europe has a significant lender of last resort.
It is almost shocking that the Council spent hours reaching an agreement on fiscal rules and did not even discuss the idea of addressing the central role of the ECB in inflating this crisis.
Mr Draghi is right when he says that the Bank’s agenda is “narrow, clear and independent”. It is however not as narrow as he is interpreting it and there is an urgent need to reform its work.
It remains a mystery why the Taoiseach agreed to Mr Draghi’s appointment without discussing these issues with him.
This is a bank which raised interest rates after a recession had started and risked creating a depression by raising them before it was over. It is so obsessed with the idea that targeting an inflation rate of “close to but below 2%” is the answer to every problem that it has even produced an iphone app where hitting this target delivers high growth, full employment and the award of “central banker of the year”.
The ECB’s moves in relation to longer financing for the banking system are welcome, but they are not enough and they ignore the causes of the uncertainty which is making capital flee European banks.
The exposure of these banks to sovereign debt is a huge cause of uncertainty about future risk. This new financing is treating a symptom but not the cause.
Equally, the Bank’s secondary market purchase of bonds continues to enable investors to leave the market as their perception of the risk to the primary bond market continues to grow.
The ECB is willing to spend an extraordinary amount of money in protecting the banking system and in reducing yields in the market for existing sovereign debt. If much of this was to be even theoretically available to the primary debt market the crisis would be over in the morning. The arguments against allowing this are now devoid of any credibility.
There are indications that yesterday’s Spanish bond auction was aided by international coordination. Its impact is very welcome, but all evidence is that a failure to change the basic policies will leave the underlying problems unchanged. After every past summit coordinated interventions have delivered nothing more than short-term relief.
Within the existing rules this could be done by giving a banking licence to the EFSF. In the longer-term there should be a Treaty change to include economic growth in the ECB’s mandate and to explicitly allow it to buy sovereign debt.
It is inexplicable that the Taoiseach and others did not even raise the issue last week. I would strongly encourage him to return to the Council on this issue. It is one which it is worth fighting a referendum on if that is what is needed.
EFSF and ESM
The bringing forward of the ESM’s start date is welcome, as is the agreement to provide Europe-specific funding to the IMF. Taken together they are no firewall. What they involve is having funding ready to provide bailouts while the ECB continues to drive countries into needing those bailouts. They also amount to little more than a year’s worth of funding for the three countries under the most pressure at the moment.
After the failure of October’s package, the leaders simply came up with a different way to fund the package – they did not take any radical decision.
Without Transfers there is no Fiscal Union
Another item missing from the agenda was the creation of funding to support development and stimulate the European economy during downturns. Fiscal control does not amount to a fiscal union.
The Taoiseach was correct to raise the fact that the debt which Ireland took on as part of a common-EU approach should be recognised through a significant refinancing.
I believe these debts should be at both a low rate and a long duration. They are the core of our debt issues.
Mixed messages from the government about debt sustainability, easy agreement to the fiscal control agenda and the failure to have any diplomatic initiative have not helped negotiations. It is, however, still not too late and the government should significantly ramp-up its efforts on this matter.
As we can see from the Text of the Merkel/Sarkozy agreement last week and from the daily comments from senior French government sources, the people who drove this agreement directly see it as a means of forcing the harmonization of corporate taxes.
The current legal position is totally clear, Ireland has the right to decide its own corporate tax rate and rules. Whether this remains the case under the deal will become clear once we see the text, but the government’s failure to put it in the deal has to be a concern. Equally the threat to our financial services sector is undeniable.
Last Friday the government was eager to push the idea that there’s nothing at all to be worried about. Minister Creighton said on Morning Ireland about Corporation Tax “It wasn’t an issue that was on the agenda at all”. In spite of this, page three of the Summit communiqué states explicitly that leaders discussed the coordination of tax policies and “how tax policy can support economic policy coordination and contribute to fiscal consolidation and growth.”
Given that yesterday the Minister of State referred insultingly to many journalists having been too lazy to read the summit communiqué, she should clearly be more careful in future.
Damage to the Union is the Most Serious Development
The scale of the political damage done at the summit will take some time to work out. The scenes on Friday were a disgrace and reflected a badly-prepared summit and a set of leaders who did not seriously try to overcome easily surmountable problems. Kohl, Mitterand and other past leaders would not have let this happen.
Reports that it was stated at the EPP summit on Thursday afternoon that Britain would not be able to be accommodated are extremely serious. I would like the Taoiseach, who is a Vice-President of the EPP, to confirm or refute these reports.
It is unprecedented that there would be a formal veto and split on the first day of a two–day summit and this is the first time in the history of the Union that leaders failed to find some compromise that all could sign.
Whatever Britain’s demands, and however ineptly they were promoted, it appears that some leaders were eager to have this split. Certainly this is implied by their actions since then.
Commissioner Rehn is a sensible and considered man, so I take seriously his position that existing treaties, even recently agreed directives, cover the issues which were discussed. This is irreconcilable with the position President Barroso took yesterday that the changes are so significant and Britain’s position so unreasonable that this is the only way vital steps forwards can be taken. President Barroso does not appear to be taking seriously his duty to build bridges between countries rather than helping tear them down.
Britain is both our biggest partner and our biggest competitor. We need it to be in Europe and active in Europe. We cannot afford any risk that our firms will be subject to controls and taxes which British firms will be exempt from. This is no marginal issue and I am surprised at the failure of the government to be able to give a coherent account of its position on Britain’s demands.
Whatever lies behind this split, it must be tackled immediately. President Sarkozy should be told unequivocally that he is not the spokesman for the 26 countries. He might believe that there is a new era of deep integration under-way but he has no right to speak for us and to act as if it is a great victory that Britain is becoming at best a semi-detached member of the Union.
A Breakdown of Solidarity
Friday’s breakdown was a betrayal of the spirit on which the Union was built. It reflected a group of leaders who have not systematically engaged each other. They have not built alliances and they have not shown the imagination or generosity required to work effectively together.
In the weeks leading up to a vital summit the Taoiseach held his only proper-bilateral with a Eurozone leader since he was elected and had a phone chat with Prime Minister Cameron. According to his reply to questions yesterday, that was the sum total of his direct diplomacy before this summit.
He was clearly not alone in effectively standing on the sidelines of this summit.
I know from my conversation with Prime Minister Rutte and others last week that governments throughout Europe are extremely uneasy with developments – both in terms of the policies and the divisions. Many do support the agreed approach, but others have serious reservations.
From August onwards the government’s main strategy has been to try to avoid anything which would require a referendum. The Taoiseach, Tánaiste and ministers went through hoops in avoiding telling us exactly what their position was on the key issues. The letter to President Van Rumpouy was withheld from the House in spite of repeated requests for a discussion of the Taoiseach’s proposals. Reinforcing the government’s unprecedented level of contempt for the Oireachtas, they then leaked the letter to RTE in order to try to manipulate coverage of the first day of the summit.
There should be no doubt about the position on a referendum. If what has been agreed is significant then there should be a vote. The leaders of Europe have said that these changes are fundamental and will at a stroke restore confidence, so we should take this issue off the table.
I believe that there should be a referendum on measures to strengthen the Euro. However the proposals on the table at the moment will not strengthen the Euro and they are weakening the Union.
The deal may well have unravelled well before any decision has to be taken here.
This summit will be recorded as one of the worst in the Union’s history. It has reinforced failed policies and caste-aside the principles of solidarity and respect which built the Union.
For the sake of Europe and its citizens we should all hope that there is still time to undo the damage caused last Friday.