Last week’s meeting of the European Council was the latest in an increasingly lengthy series of crisis meetings. Its primary objective was again to find a way of containing the threat of a significant sovereign debt default by showing how the leaders are committed to comprehensive and credible action. As even the most basic look at events and commentary since Friday suggest, this objective was not met.
No significant new measures were announced, the leaders sorted out no identified area of dispute and there was no sense of energy or determination from the meeting. Between December and March there was a very definite urgency – with the communiqué drafted for the March 11th Eurogroup meeting drawing this together into concrete actions. That text addressed short, medium and long-term issues – and it was designed to be swiftly implemented. This has not happened.
The number of vital decisions which have been put off for another day is confirmation of what many are now calling the real EU economic strategy – ‘kick the can down the road and hope something turns up’.
The Taoiseach’s approach to the summit was again surprising. He raised issues of specific importance to Ireland in a way which was more designed for media briefing than actually achieving anything. He agreed a text concerning Ireland’s interest rate which is a significant step backwards – but claimed it as a victory. Unbelievably, it remains the case that after over 110 days the Taoiseach has yet to seek or hold a substantive bi-lateral meeting with a Eurozone leader.
After this summit Europe is in a situation where its leaders:
have left in place funding conditions they agreed in March are unsustainable;
have agreed a new ECB President without discussing any reform of the ECB or challenging the new President about his views;
have not given a sense of providing clarity on Greece’s situation; and
have failed to consider issues relating to non-sovereign debt in the Eurozone.
The decision of the Council to circulate a glossy brochure about a new €1/4 billion building for itself was at best foolish and at worst a signal of a complete lack of understanding of the current situation of Europe and the Union.
For people who passionately believe in the European ideal this is a very depressing situation and there is no doubt that a significant intervention is required by leaders over the next two months in order to make sure that we don’t reach another moment of truth in September.
The situation in Greece quite rightly received the bulk of attention before the summit, but it is not clear that anything new was progressed beyond the agreements reached at Ecofin on the previous Monday. When communiqués from these meetings state “it was agreed by the leaders” the matter has often not actually been raised and was agreed before the leaders turned up in Brussels.
Irrespective of the nature of support programmes and the handling of debt, a further major fiscal and economic reform is required in Greece – something which their government freely acknowledges. Prime Minister Papandreou is a highly knowledgeable, competent and sincere man. Both within Greece and internationally he has worked tirelessly to help his country. Even though he is a socialist and he would like to take more politically popular steps, he clearly wants to do what’s right.
In light of this, I think the leaders of Europe should show a lot more consideration in the language which they use in talking about Greece and its leadership. It serves no possible useful purpose to question the sincerity of the Greek government. Equally, the best approach to the opposition of many Greeks to economic reform is not to lecture but to engage.
The revised proposal for the European Stability Mechanism is good and the proposal to remove preferential creditor status is very important. It should be of considerable assistance to Greece.
What is not yet fully clear is whether the issue of the sustainability of debt has been adequately addressed. As we saw last year, the threat of contagion from either a badly conceived or partly executed measure is a very real one.
The ‘Vienna initiative’ style of debt roll-over is worth trying and the move yesterday by President Sarkozy and the French banks is very welcome. A substantial lengthening of maturities and improvement of the terms of Greece’s debt is essential.
I think the threat of the ratings agencies to deem this to be a de-facto default is both wrong and a disgrace. The lack of even the merest hint of self-reflection about their role in the current crisis is amazing. They are supposed to provide guidance not be enforcers of an inflexible, damaging and self-fulfilling approach. If there is no legally-forced restructuring then threatening to call a milder initiative a default is simply wrong. Their lax policies having provided a foundation for the financial crisis, their new more rigid policy could make it much worse. The reform and regulation of the ratings agencies is a matter which should be returned to the top of the agenda for Finance ministers.
The Taoiseach’s Strategy for the Meeting
As the Taoiseach confirmed last week, he did not seek the inclusion on the agenda of any item relating to Ireland. He chose not to undertake a substantive bi-lateral meeting with any head of state or government who is involved in deciding matters relating to support for Ireland. What he did do was commit his staff to another round of briefing journalists with exaggerated and self-serving details about every real or imagined development.
A difficultly has developed in relation to how the Taoiseach describes his international contacts. When he visited London in April he claimed in an address to senior financial personnel that he had already held meetings with Chancellor Merkel and President Sarkozy. When he was asked about this in the Dáil he rowed back and admitted that the so-called meeting involved nothing more than briefly talking at the side of a busy Council chamber.
On his way into the EPP meeting he told Irish journalists that there might be a breakthrough on the interest rate because “a form of words is being worked on.” This was quickly corrected by an official who said “there’s always a form of words being worked on”. Later in the evening we had the almost surreal situation of the Taoiseach praising himself for telling leaders about the many virtues of this year’s budget. He of course neglected to say that he voted and campaigned against the same budget.
As is being revealed every day on issues from the local to the international, when the Taoiseach said repeatedly during the election “my only concern is polling day” he was absolutely telling the truth. The problem is that he has taking his campaign tactics into government with him. The attempt to spin absolutely everything is already being found out.
This is why the Taoiseach chose to announce and give a title to his “Gallic Spat” with President Sarkozy – exaggerating a far from unique encounter in order to polish his image as a tough new leader. The clear and damaging outcome of this public grandstanding is now indisputable.
In April the Taoiseach announced that he was holding the first bi-lateral meeting in a “major diplomatic initiative” which he was going to lead. That meeting has so far been the only one.
Instead of undertaking a tour of capitals, or taking up President Sarkozy on either of his two invitations to visit Paris, the Taoiseach has preferred to stay in Dublin and deliver regular and false attacks on the diplomatic activities of recent years.
Last week the Taoiseach had another brief encounter with President Sarkozy. Yesterday he refused to say how long it lasted. What is not in doubt is that all that emerged was an agreement to keep leaving things to officials. Given the amount of time the Taoiseach has spent attacking the number of roles filled by Irish officials during past European negotiations, this confirms that the Taoiseach has had an irony by-pass.
Reducing Ireland’s Interest Rate
As the Taoiseach knows well but refuses to admit because it would undermine one of his favourite attack lines, the interest rate on Ireland’s support package was a fixed figure not open to negotiation. In subsequent discussions our partners agreed to reopen the issue. This culminated in the February agreement, formally ratified on March 11th, that our interest rate should be reduced in order to ensure debt sustainability. The need for an interest rate reduction was no longer for negotiation, just the timing.
In order to avoid answering any direct questions about his handling of the matter, the Taoiseach keeps patting himself on the back for holding a line on corporation tax which has been maintained by every Taoiseach and every minister over decades. It has now emerged that President Van Rumpoy tabled a text on March 11th which our Taoiseach rejected, in spite of general agreement that it posed no real threat to our corporation tax rate. It is about time that this text was published so that people can make up their own minds about this matter.
The delay in the deal to take account of the stress tests was reasonable – but given the fact that the stress tests and subsequent government banking announcement were indistinguishable from expectations and existing policy, the failure to conclude a deal in March is inexplicable.
Beyond the fact that the government has halved the value of what it is looking for from an interest rate deal, what is equally worrying is the weakened text which the Taoiseach agreed to on Thursday. In March, a reduction was recognised as a prerequisite for debt sustainability – yet on Thursday the Taoiseach agreed that debt sustainability would be achieved simply through the implementation of the current programme. The Taoiseach needs to explain this serious and unexplained development.
European Central Bank
The process for appointing the President of the European Central Bank managed to completely ignore the crisis, of which it sits at the very centre.
It has been Ireland’s position since November that burning bank bondholders is an essential step. It was vetoed in November and the ECB continues to veto it, while issuing implied threats and refusing to provide a secure medium-term commitment to funding.
Mario Draghi’s attitude to this issue has been unhelpful and his casual dismissal of Ireland’s reaffirmed wish to burn certain bondholders was unacceptable.
He should not have been nodded through over dinner. The failure to discuss any reform of the Bank is incredible. Just as importantly, the behaviour of France and Italy in effectively claiming proprietorial rights over seats on the Executive Council did much to confirm the idea of a Bank which treats the periphery as a nuisance rather than a core concern.
I hope that someone from this Government will communicate with the ECB that its policy of aggressive anonymous briefings against member states must be stopped. Minister Noonan’s statement on Sunday that the ECB would understand what he meant “because a nod is as good as a wink to a blind horse” perhaps suggests that it’s time to arrange for a more direct system of communication.
The agreement to move to final accession procedures for Croatia is welcome and overdue. The Council failed to note its role in reaching out to an increasingly sceptical Croatian public – something I hope will be taken up by foreign ministers.
I welcome the Council’s commitment to greater sanctions on the Syrian regime and the implication in its briefings that the Union stands ready to make significant steps to aid the people of Syria.
I also want to acknowledge what appears to have been a positive intervention from the Taoiseach in relation to the situation in Bahrain.
In relation to the wider issue of support for the new or potential democracies in the Arab world, the summit was disappointing. What we need is to show our deep and long-term commitment to the development of civic society, democracy and a broad economic development in these countries. This requires a significant new initiative, a dedicated staff and extra resources. The Mediterranean and Neighbourhood policies were designed for a different time and different challenges. No one is as well placed as Europe to help people who have created unprecedented opportunity through their bravery in recent months – it’s time to show more substance in supporting them.
Ireland and Europe
I remain a strong believer in the European Union and its ideals. I am very proud to lead the party which brought Ireland into the Union, which led the final process of enlarging the Union to include millions of people who had suffered for decades under communist dictatorships and which ran a number of Presidencies ranked amongst the most successful ever.
However I reserve the right to be critical of its leaders and to point to serious failings in its actions.
I think Minister of State Creighton is wrong in the way that she has sought to portray my comments and those of others as being negative or ignoring huge progress. I think she should reflect again on her recent comment to the Institute of European Affairs that “joining the EC in 1973 was an act of nation-building with arguably more tangible positive benefits for Ireland’s independence than the 1916 Rising.” It is not necessary to diminish the absolutely fundamental role of 1916 for this state in order to express support for the EU and I hope we won’t be hearing this line again.
This is Europe’s moment of truth, but it remains unclear how it will emerge from it. This summit has not provided the confidence-building momentum which was so badly needed. The Greek issue is in hand but not finalised. Ireland’s interest rate reduction is at best frozen and at worse a step backwards. Contagion remains an issue.
In this circumstance the worst thing the leaders of Europe could do would be to continue to muddle through, hope something shows up, wait until the next summit and once again go through the motions. Now is the time to stop prevaricating, seize the problem and demonstrate to the people of Europe that the ideals of this Union are alive, are relevant and are a match for the problems we now face.