Three weeks ago Deputies contributed to statements about the then upcoming meeting of the European Council. A common theme from all parts of the House was that this would be an extremely significant Council meeting at which the heads of state and government would reach decisions which would have far-reaching effects for Ireland and Europe as a whole. It was to be the Council at which a clear and unequivocal message was sent out that the leaders of Europe shared an absolute determination to overcome the economic difficulties facing member states as well as the common currency.
Few summits have convened with higher expectations and, unfortunately, few summits did as much to fail to meet expectations.
Through my entire adult life I have been a confirmed believer in the European cause – in the idea that the European Union provides the essential means to overcome problems and achieve progress both within nation states and through Europe as a whole. I still believe this, but equally I share a growing concern that the spirit which built the Union and made it the most successful multi-national institution in world history is becoming less of a driving force.
The problems before leaders at this summit could not have been more important, but there appears to have been a lack of a genuinely communitairre spirit. Certainly this appears in the comments which emerged from the summit about national concerns.
The reformed financial support mechanisms are to be welcomed. They probably are sufficient to persuade the bond markets that Europe has the financial firepower and intention to assist at least one large economy should the situation require it. This is exactly as required. What has not been done though is the presentation of a more comprehensive and conclusive series of measures to both support countries in need and to show how states will ensure that economic policies will be more sustainable in future.
Those who built the engine of integration understood that you cannot reduce every decision to a zero-sum game. The sovereignty which small states in particular agree to share in the Union, together with the adopting of everything that is involved with the single market, is enormously significant. The support programmes which were put in place saw the funding of cohesion not as a handout, but as an essential part of recognising the sacrifices which countries were making and the economic benefits being derived by the strongest countries. Most notably, Chancellor Kohl understood instinctively that the cohesion funding Germany supported was of enormous economic advantage to Germany. Equally, he never demanded that recipient countries abandon key national policies in order to receive support – and he always treated other member states with respect. He didn’t do election photo-opportunities with other leaders, preferring to show his support in more important ways.
What I find genuinely surprising from the summit is how little has progressed in recent months.
There is little in the final communiqué that is significantly different from what existed in draft form in January – certainly there is no substantive difference between the measures agreed to and those which were agreed in principle months ago. However, what is noteworthy is that many areas which seemed likely to be advanced to a final conclusion at this summit, or at very least to be close to agreement, were kicked down the road. The decisiveness and comprehensiveness which was a core part of the strategy for this Council got lost in the final weeks.
I will return to the issue of Ireland’s support programme in a moment, but in relation to the wider issues we should have had greater clarity and a more substantive framework of action. What people were looking for was a demonstration of both understanding and will on behalf of the leaders. Part of that is the enlarged and more flexible financial support package – and this is to be welcomed. Part of it should also have been more detail on exactly what states are proposing in terms of fiscal rules and long-term confidence building.
Instead of it being a demonstration of mutual interest and collective will, the summit was allowed to become a place where fine words about ‘grand bargains’ were undermined by the reality of divisive comments.
I believe that the decision to hold off on the matter of revising the terms of Ireland’s financial support was inevitable given the importance of the bank stress-tests and the need for the government parties to take a few more weeks before formally abandoning their election comments about bondholders, Frankfurt and red cents. What was not inevitable and what is of great concern was the continuation of the deeply damaging idea that there must be a price paid for revised terms for Ireland.
Last week Minister Noonan went to Budapest telling the Irish media that Corporation tax was not up for discussion and appears to have talked about little else. In his bilateral with Christine Lagarde on the shuttle-bus to dinner he received, if the comments of French officials are to be believed, little comprehension and less movement in relation to Ireland’s position.
The ever-unhelpful anonymous briefings from the European Commission have joined those of certain countries in claiming that Ireland’s position is untenable and that we have to ‘give something up’ in order to receive better terms. Specifically, they continue to insist that we must increase our corporation tax rate.
This demand is economically illiterate, deeply cynical and an obstacle to changes which are essential not just for us but for the whole of Europe.
It is economically illiterate because its implementation would destroy any chance of achieving the core objective of the support programmes – the restoration of national economies and the protection of the common currency. An increase in our Corporation tax rate would immediately damage our economy and destroy our reputation as a country with a reliable, long-term corporation structure which can attract and retain globally-mobile investment. There is no possible economic upside and there are many direct and rapid downsides. It is not a zero-sum game. Our economy would quickly reach a situation where we would no longer be able to maintain a policy on debts which is key to maintaining international confidence in the Euro. To seek to damage an economy in the name of supporting the same economy is absurd and representative of a continued failure to think through the implications of policy demands.
These demands are deeply cynical because they represent the exploitation of a crisis to progress purely national or institutional concerns. One major point about our corporation tax rate which has been missed by those who complain about it is that every relevant authority who has looked at it has confirmed that it does not represent a distortion of the single market. It fully adheres to our legal commitments to the European Union. It is because of this that the attacks are purely political.
What is amazing about this is that not one piece of evidence has been produced to show that our corporation tax is anything other than a miniscule part of broader European economic performance. Our economy is 1% of the size of the European economy. Our policies have an impact on the larger economies which is so close to zero it is almost unmeasureable.
As the Taoiseach found out recently, there is a great tendency amongst some to see the refusal of Ireland to simply roll-over on this point as being arrogant. This is how they described, and continue to describe the last government’s refusal to concede the point – and it is how they described the new government’s attitude at the Taoiseach’s first Council meeting.
What is most damaging about the almost fetishistic obsession with our corporation tax is that it is preventing Europe from showing the clarity and determination that is essential for confidence in national economies and the Eurozone as a whole. Investors see the failure to agree a sustainable rate with Ireland because two leaders want Ireland to commit economic suicide with a corporation tax increase and wonder if there really is a determination to do what it takes to protect the Euro.
In response to the demand that Ireland ‘put something on the table’ there should be no doubt in anyone’s mind about exactly how much we have put on the table. We have accepted enormous debt obligations in the interests of protecting the common currency. We have adopted a deep and profound fiscal retrenchment. We have put politics to one side in order to do what’s right rather than what’s expedient. We are absorbing interest rates which are being set in light of the conditions in other countries. We have fully adhered to all of our commitments – and we are offering to adopt strong fiscal rules as a guarantor of future action.
We have put more than enough ‘on the table’. We accepted the only terms possible last year and have negotiated in good faith. The question for the other leaders now is whether or not they actually want the recovery for Ireland and Europe which they claim. If so, then there will be a deal in the next few weeks. If not, then the uncertainty will continue, the damage will escalate and the outcome will be negative for everyone.
We have discussed the issue of bilaterals and negotiations this week already, but I would like to stress one point to the Taoiseach. Both he and Minister Noonan have signalled a significant change in at least the tone of their policy on CCTB. They have gone from absolutely ruling it out to promoting what they term ‘constructive engagement’.
The motivation behind the push for a Consolidated Corporate Tax Base has only ever been to raise the level of corporation tax paid by companies based here and in other low-rate countries. CCTB from its very inception has been a solution in search of a credible problem to address. The justification behind CCTB at the start was explicitly harmonisation. Growing resistance from many countries forced this to be changed to supposedly “reducing the costs of compliance”. The fact is that this benefit would be at best marginal and is itself an item very low on the agenda of European industry.
CCTB is a priority only for governments who want to increase revenue. Nobody who actually runs competitive and job-creating enterprises is demanding this.
The only independent study of the likely impact of the Commission’s latest CCTB proposal is deeply worrying. It has many parts, but this report published late last month states clearly that the proposal, if implemented in full, would likely be of no net benefit to the European economy as a whole. It would also be of negligible, if any, benefit to France and Germany. There would, however, be a direct and potentially devastating impact on Ireland’s economy. It would reduce our national income by over 3%. That’s a quick and permanent reduction in GNP by over 3%.
How can this be something that should form part of a deal to supposedly restore our economy?
The Taoiseach mentioned yesterday that he talked with Governor Trichet at the summit. I believe that the mandate of the ECB should be reviewed urgently. The Bank has shown that the sole role of low inflation as a policy target is increasingly unsuitable in terms of the economic needs of Europe. Targeting inflation is important, but when this leads to an overly-aggressive stance it is highly damaging. The ECB’s mid-2008 rate increase after the recession had already begun was a historic misreading of the available information. Unfortunately the same mistake may be being made at the moment – with short-term commodity price rises driving rate increases which are not justified by the fundamentals.
Governor Trichet and his predecessor were rightly eager to establish the Bank’s independence of political interference, particularly from heavy-handed attacks from French presidents over a number of years. This doesn’t mean that the ECB should never be challenged. In this case, the potential impact of further rises could undermine fragile recoveries throughout Europe.
This summit will not be looked back on as a moment when the leaders of Europe showed a shared determination and clarity of vision. It was a deeply unsatisfactory continuation of a mixture of indecision and rising short-termism. The ‘Pact for the Euro’ remains incomplete.
There will be progress in the coming weeks. Ireland will get a more sustainable rate for financial support and there will be agreement on fiscal rules for the future. What is as yet still uncertain is whether it will take another crisis before this happens.