‘Ireland and the EU’ – Keynote Address by Micheál Martin TD, Leader of Fianna Fáil to the Institute for International and European Affairs, Dublin

I would like to thank the IIEA for the opportunity to address you today. This is one of the few places in our country where it is possible to step back from day-to-day exchanges on issues and talk about them in a much broader context. The relationship between Ireland and the European Union has never before been so vital – and equally it has never before been in such urgent need of proper debate. This is a unique crisis and it cannot be overcome pushing traditional agendas.

After a year of intense and often chaotic events, this is a moment of relative calm for the European Union. Last week’s Summit concluded without a major dispute and there is a much less hysterical atmosphere about the Greek debt write-down than last year.

The only real momentum at the moment is behind a push for everyone to stop negotiating. There is talk about new flexibilities which may emerge in the future, but the core message is that the agenda for major change is closed. According to Europe’s leaders the solutions have been identified and it’s now time to get the head down and move on.

It’s a very natural thing to want to draw a line under a crisis – to declare the big threats over and to appeal for quiet. The problem is that this is exactly the approach which has time after time made the crisis worse. The crisis will only be overcome with a far more ambitious economic and political agenda.

I believe that it would be an error of historic proportions if we step back from seeking more radical action – if we are complacent and believe that the Union has already agreed the policies required to save the Euro and return Europe to growth and stability.

Quite simply, all of the evidence is that the agreed steps have not addressed the fundamental causes of the crisis. The flaws in the design of the Euro remain untouched and therefore there is no reason to believe that we have seen the end of the sovereign debt crisis. Stricter enforcement of existing policies is an agenda which brings to mind Einstein’s definition of insanity: “to keep doing the same thing while expecting a different result”.

Added to this is the breakdown of the spirit of solidarity between states and a dramatic decline of public support for the Union. These have added a new threat to the democratic legitimacy of the Union. No effort is being made to either acknowledge or reverse a development which could greatly destabilise the Union in years ahead.

In the past, Ireland played an important role in bridging gaps between other members. The Maastricht, Amsterdam and Lisbon treaties each benefitted from the critical input of Ireland’s diplomats and ministers. In truth Ireland’s has always been a positive but reserved approach to Europe. Outside of the careful, and correct, protection of national interests in key areas, the policy has generally been to support only incremental change. This was the right policy for the pre-crisis Europe, today it is part of the problem.

Ireland badly needs Europe to get through this crisis. In the short, medium and long term a successful European Union is an absolute necessity for a successful Ireland. We need the Euro to be placed on a more secure foundation. We need the Union to once again become a driver of growth and stability. We need the Union to reconnect with its citizens.

In order for this to happen we need to start supporting a significant shift in the Union’s policies. We need to work with others to reassert the rights of all member states and demand a serious engagement with the reforms which can actually address the fundamental causes of the crisis. Central to this is a significant expansion of key federal powers. At home, we need a new effort to protect the democratic legitimacy of the Union to avoid a damaging and potentially irreversible growth of Eurosceptic opinion.

I believe the time has come for us to move on from the way we have discussed Europe for the last twenty five years. The old terms of the debate, the rallying cries and casual assumptions are not only of no use in these changed times they are actually helping to alienate the public and damage the effectiveness of our policies.

Ireland needs a new compact between pro-European groups and with the public. One which shows that we understand what’s gone wrong and are reflecting this in our policies. We have to make a positive case for actions and end the growing to tendency to justify everything as merely better than the alternative.

In this short address I would like to detail specific policies which I believe Ireland needs to actively support. These include the reform of the ECB, a genuine fiscal union and a restoration of the community method. I also would like to set out a renewed approach to how we can protect and build the pro-EU mainstream consensus.

 

Fianna Fáil and Europe

As a background to this, let me first make a few points about the approach of my party to the European Union. In recent weeks there have been quite a few completely incorrect characterisations of our policy and equally ill-informed speculations about political positioning. I want to, once again, set the record straight on this.

From the very start of our party we have supported the idea that nations are stronger when they work together. We invested considerable effort in supporting the League of Nations and its subsidiary bodies. In the United Nations our ministers had a sustained record of bridge-building on issues of great importance such as nuclear non-proliferation and the banning of cluster munitions.

We are the party which enacted a republican constitution, but we have also supported sharing sovereignty with the nations of Europe.

Our leaders Seán Lemass and Jack Lynch worked for over a decade to achieve membership of the EEC and we supported the ratification of every treaty which expanded its role and membership. The Council Presidencies which have been run by our ministers have been amongst the most acclaimed in terms of producing tangible outcomes.

It should also be noted that our voters, both our current voters and those who voted for us in the past, have supported each Treaty at a higher level than those of any party. Our current and potential supporters are unequivocally part of the pro-Europe mainstream.

The reason why I am going over this ground is to put an end to the superficial and wrong idea that there is any doubt about our position on Europe. Just like all parties, we have members who disagree on individual points, but as a party we are now and we will continue to be unambiguously pro-EU.

What we do not accept is that there is no room for debate – that there is one pro-EU line, which will be determined by a highly-partisan government without consultations, and that we should just quietly go along with them.

From the very start of this Dáil I have been raising European Union issues almost every day in the chamber. I have delivered a now lengthy series of statements about both the current crisis and the long-term standing of the Union. You will not find a single Eurosceptic comment in the hours of statements on the Union I have made as leader of my party.

What you will find, from an early point and with increased urgency, is a sense that the European ideal is being failed by its leaders and that citizens are being ignored. Equally you will find that my party has been well ahead of the debate in pointing to the flaws of deals which have unravelled.

Never before has the European Union been in such need of the values upon which it was built and never before has there been such a want of them.

In terms of the specifics of this crisis, our core position is that we will support any measures which can genuinely help to achieve two overriding objectives:

1. Saving the Euro while returning the Eurozone to the path of growth and stability, and

2. Protecting the democratic legitimacy of the European Union.

We believe that the future relationship between Ireland and the European Union has to be fundamentally based on us supporting measures to achieve these objectives.

 

2011 – A Year of Damage to the Foundations of the Union

Before going into specifics, including our approach to the Fiscal Treaty, I would like to address a very serious issue which has received almost no media attention.

2011 saw the unprecedented destruction of public confidence in the EU. Since these issues began to be measured by Eurobarometer thirty nine years ago there has never been such a dramatic and concentrated fall in sentiment towards the EU. Today only 19% believe that the Union is heading in the right direction while a majority say the opposite. A similar picture emerges when you look at a range of other measures. This in not just about a Eurosceptic fringe, it is a factor throughout the Union – and most disturbingly it is now a factor in this country.

During the six months from May to November of last year most forms of sentiment towards the Union fell dramatically. Having held-up relatively strongly during three years of crisis, the core belief of citizens in their Union was undermined to an extent that must worry anyone who cares about its future.

On the measure of whether people ‘trust’ the Union, by a margin of 22% the answer of citizens was ‘no’. In Ireland, that six months period saw sentiment swing by a remarkable 41% to a new net-negative trust of 36%.

Another ominous result concerned whether citizens felt that their countries’ interests were being taken into account within the Union. Ireland again joined the majority of citizens and states in saying ‘no’ to this question.

For the first time in the Union’s history, nearly half of its citizens were pessimistic about the very future of the Union. While there was a net 29% decline in Ireland, we still ranked as one of the more optimistic countries on this measure.

What you see throughout the results is a corrosion of the popular standing of the Union and, just as worryingly, a growing divergence between states in how their citizens see the Union. Where once there was a broad middle-ground as the key sentiment to the Union, today it is becoming both more negative and more polarised.

Over time the politics of individual countries always catch up with changes such as these. In practical terms, unless this improves it may make much worse the break-down in solidarity in the European Council.

Of even greater concern is the fact that once public sentiment towards the EU goes negative it’s very hard to get back.

What we can know for sure is that this will not improve unless the leaders of Europe acknowledge that their behaviour during 2011, their failure to show all members respect, their exclusionary negotiations and their timid agenda combined to cause enormous damage.

There is, however, still an opportunity to reverse the damage of last year. The citizens of Europe may be dissatisfied with the Union’s work but they still see it as Europe’s best chance.

As well as the various figures I have mentioned, Eurobarometer shows that the core challenge of economic growth and job creation is one where the Union continues to be the focus of hope. In principle citizens support changes to fiscal and economic policies if these actions can be shown to address their chief concerns – economic growth and employment.

The citizens of Europe are disappointed with their Union but they haven’t given up on it.

 

The Roots of the Crisis

This economic crisis is both the worst for 70 years and the most studied. During the last three years an enormous amount of literature has been developed about how the crisis escalated at such a scale and pace. By nearly all conventional measures, the Euro is the currency of an area which is extremely strong and should not still be experiencing falling confidence, rising unemployment, a fragile financial system and states which face unsustainable costs of borrowing.

In so far as it is possible to get unanimity on any economic topic there is unanimity on the fact that this situation has arisen because of deep flaws in the design of the Euro. Even the architect of the Euro Jacques Delors has pointed this out. Each of these flaws involves the failure to give certain powers and resources to federal European entities. Specifically:

  • · The limited mandate of the European Central Bank;
  • · The lack of uniform financial regulation including a pan-Eurozone bank resolution regime; and
  • · The lack of a more ambitious fiscal union, in particular one which involves transfers between states.

Had these measures, particularly the mandate of the ECB and financial regulation been addressed in Maastricht, Amsterdam, Nice or Lisbon there simply would not be a European sovereign debt crisis today and Europe would be a leader not a laggard in terms of world growth.

 

The Euro is Worth Saving

Before going into more detail about this, it is worth making a point about saving the Euro. A lot of the talk has been about the cataclysm which would befall us and others if the Euro were to fail. I have read a number of papers which make this point persuasively and without the sort of blanket claims common in some ministerial pronouncements. The transition to any new arrangement would be deeply traumatic and the impact would be felt most by ordinary people.

This said, we need to push this reasoning to the side – membership of the Euro cannot be sold on fear alone. What can the Euro’s long-term future be if its main justification is that countries have no alternative and are trapped? Fostering resentment of a currency amongst the people who use it is not a way to restore confidence in it or to win support for transferring powers which can secure it.

There is a positive case which can and must be made for both the success of the Euro and its future. 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. Of course some of the countries who have benefitted the most have been rather reluctant to acknowledge the Euro’s role.

In Ireland the story is even clearer. For example, a study released in December by ESRI and Trinity researchers concluded that the adoption of the Euro has had a significant and positive impact on our exports to all regions which has increased over time. They showed how it has given a boost in markets which ranges from 30 to 60%. Given the centrality of exports to our economy this is by itself a very powerful argument for saving the Euro.

It could also be said that far from undermining the Euro, Ireland has done far more protecting of the currency in recent years.

 

Reform the ECB

The European Central Bank is a very young and powerful institution. Given the unique nature of the currency it was set up to manage, there was no clear blueprint to be followed in setting out its mandate and powers. This was not recognised by its designers and we got a bank ideal for the circumstances of post-war Germany but ill-equipped to respond to the needs of a diverse currency union.

The manner in which it has followed its inflation target has caused direct damage. There are serious questions to be answered by any central bank which raises interest rates after a recession has started and again before it has ended.

Shortly before he stood down last year ECB President Jean Claude Trichet assessed the Bank’s performance in a speech to the LSE. He went through various twists and turns over the years and summed it up saying that, if you looked at its inflation mandate, the Bank could be said to have implemented a “precision landing”. In the middle of a crisis threatening the very existence of the Euro he did not appear to grasp the absurdity of this boast.

The sole place of inflation in the Bank’s mandate is a distortion of the role it can and should play in the Eurozone. The mistakes of 2008 and 2011 would not have happened if it had the broader mandate of the Federal Reserve and it would have avoided placing extra strain on millions of personal and business borrowers throughout the Eurozone.

More fundamentally, there is the issue of the Maastricht prohibition of the Bank purchasing government bonds at issue. This lack of a lender of last resort has played an undeniable role in forcing countries towards bailouts. Trying to get around it has led the ECB to adopt riskier and less effective means of supporting the sovereign debt market.

It is because markets have not been confident in the ability of governments to refinance debt that they have used ECB secondary market purchases as a way to exit the market. Equally, there is no security coming from flooding banks with cheap 3-year money in the hope that they will keep bond yields down. Other currencies whose governments have higher debt levels have not faced the same problems – and the difference has been the role of their central banks.

The two bailout funds are limited and primarily based on states exiting the market. They provide greater confidence but they do not bring certainty.

In recent months Mario Draghi has shown a lot of flexibility but it’s not enough.

Until the ECB directly or through a device such as giving a banking licence to the EFSF/ESM, a central flaw in the design of the Euro will remain. It is time for Ireland and others to demand a real debate on this within the European Council.

 

Financial Regulation & Bank Resolution

In relation to Ireland, the flaws in the design of the Euro which relate to the financial sector have been even more serious.

The lack of strong, unified financial regulation in the years after the start of the Euro caused immense damage here and elsewhere. The division between European and national regulation was confused and lacking in any real logic.

The absence of a pan-Euro bank resolution regime continues to lead the ECB to push governments to take unreasonable debts from failing banks in order to prevent contagion.

The European Financial Stability Board and other related measures are good and welcome moves but the underlying flaws remain.

It is time to urgently move to transfer regulatory powers from national central banks to the ECB and to change the role of the national central banks to being agencies implementing the central regulatory rules. There is some doubt about how far this can be done within existing treaties. Whatever it requires should urgently be placed on the Union’s agenda.

The enactment of federal-level regulation and a common resolution regime would make a major contribution to building a more sustainable financial system in the Eurozone.

 

Fiscal Union

The lack of a fiscal union is agreed to be another design flaw of the Euro but it is not one which caused the crisis. Let’s not lose sight of the fact that there is also no agreement as to what a fiscal union actually involves. At present the agenda of the Council has reduced it to the control of fiscal balances. Missing completely has been any proposal for the transfer of resources between members. This is a more universal and defining characteristic of fiscal unions than the current proposal or anything mentioned in December’s statement about enhanced cooperation.

 

Fiscal Controls

My party supported formal fiscal controls before, during and after the general election. As Minister for Finance, the late Brian Lenihan prepared a detailed discussion document on this as a first step towards implementation and his work was picked up by the new government.

Fiscal rules make sense in a number of ways, but most importantly as part of providing a clear, long-term framework for restoring confidence. Even with the better terms which I believe will come for elements of the bank-related debt, significant fiscal consolidation is required. It is reasonable that this should be incorporated into both national and Eurozone law.

More information is needed on the likely impact of the Treaty and I have sought clarification from the Taoiseach on a range of points. In principle we are positive to the Treaty and will support it subject to receiving a proper response to our reasonable queries about its impact. Unlike some in the Cabinet, we have never voted against a European Treaty and I don’t believe we will start with this one.

In terms of the manner of ratifying this Treaty our core principle is that it should not damage the democratic legitimacy of the European Union with the Irish people. I will address this in more detail later.

We believe that the Treaty is reasonable in some areas. As I have said, we support fiscal rules. The limits in this document are not likely to significantly alter Irish fiscal policy in the medium-term – by which time a new Treaty is likely to amend its contents. In fact, the form of the Treaty makes later amendment easier.

In addition, given the absence of the ECB as a lender of last resort, potential access to ESM funding in the future is probably a necessary condition of returning to the bond market in the near future.

It has been said by many, more out of hope than expectation, that the Fiscal Treaty will provide the excuse for others to show previously withheld flexibility. This is no basis for agreeing an international treaty. If it isn’t set out as part of a deal then this flexibility shouldn’t be taken into account. More importantly, as things stand there is little chance that this flexibility will come anywhere near what is required.

 

Transfer Union

What the Fiscal Treaty in no way does is deliver a fiscal union. Without a significantly increased central budget the Euro will continue to face the threat of long-term under-performance.

Jacques Delors persuaded Europe’s past leaders that investment in cohesion was central to a lasting economic and monetary union. The sums provided were significant for the challenges as they were in the 1990s but are today clearly insufficient.

The discipline of strong common controls and the sacrifice of giving up an independent monetary policy removes from countries most of their ability to tackle economic shocks and invest in growth. The weight of evidence appears to be that without compensatory investment being available from the federal level asymmetric shocks become more likely and more damaging.

If you take the example of the United States, the federal government has no control over state budgets but most states have constitutional limits on borrowing. The federal government does not control state revenue raising but it does have the power to raise its own funding – something it does to a level of over one-third of national income. When shocks arise the federal government cushions up to 40% of the loss of a state’s income. Wealthier states always complain about subsidising others – but they have been doing so in rising amounts for over 200 years.

The Euro must not be allowed become the driver of austerity and economic despair. It must have funding to help states return to growth and job creation while abiding by strong common rules.

 

Side Issues

In December 2010, and then again in both March and December of last year, there was an aggressive effort made, in particular by France and Germany, to bring other issues into the mix and use the crisis to push long-standing national obsessions. There should be no tolerance for this cynical approach.

In relation to Corporation Tax, this is completely irrelevant to any problem facing the citizens of Europe at this time. It had nothing to do with the crisis and has nothing to do with solving it. Harmonisation will not help European competitiveness or do anything to help the Euro. It’s time for issues such as this to be abandoned.

After December’s summit it was stated that taxation was an area which would be pursued within the Eurozone under enhanced cooperation. This would directly undermine commitments given to the Irish people. I have asked the Taoiseach to give an assurance that Ireland’s rights on taxation will in no way be under threat in the new Eurozone arrangements.

 

Community Method

The failure to adopt or even discuss a reform agenda ambitious enough to tackle the crisis has at its core a breakdown of the spirit of solidarity between Europe’s leaders. Coordination of policy between a few states is both a natural and desirable part of how business has always been done in the Council. What is unusual and damaging is how this has reached a new level and has been actively exclusionary.

No effort is being made to obtain and consider the views of the majority of states. States who disagree with what is being rushed-through are being casually insulted and dismissed in a way that is simply unprecedented in the Union’s history.

It is also this behaviour which lies at the roots of last year’s growing disillusionment of citizens with the Union.

The people who built the Union and secured its greatest achievements would never have behaved in this way. They understood that larger nations would have more influence but also that respect for all member states was required.

It is inconceivable that any previous generation of leaders would have allowed a treaty to be developed with so little discussion and so much division. It is an extremely grave situation that for the first time a Treaty is being pushed which is not being signed by all members. It is a disgrace that no real effort was made at December’s summit or subsequently to achieve unanimity, even if it involved opt-outs.

The situation has got this far because of the failure of leaders to actively engage with each other. They have been timid and reserved. I was very struck at a meeting of our European party in December how there is actually a considerable overlap in the positions of the governments of smaller and medium-sized countries – yet no effort has been made by these countries to work on a common approach.

Europe was built in the spirit of solidarity and it cannot work without it.

 

Renewing Ireland’s Pro-EU Mainstream

As I have said, I believe that Ireland needs to move its policy approach to the European Union to one which is more willing to give power and resources to vital European institutions. Instead of reacting to agendas developed elsewhere we have to become active in calling for significant change including Treaty changes.

We cannot do this if we start every negotiation scared to emerge with something that might have to be referred to the people. We also cannot do it if we fail to work on renewing the pro-EU mainstream of Irish public life.

My major concern is that the manner in which this Treaty has been negotiated and will be ratified may so damage public sentiment to the EU that no Treaty will ever again pass. To deal with the flaws in the Euro we need another Treaty and there will be no legal doubt about requiring a referendum.

How can we honestly expect the people to be happy with a situation where they are told that a Treaty is important enough to save the Euro but not important enough to have a vote on? How will their faith in Europe be strengthened by the state going to the Supreme Court to defend the idea that the Treaty actually involves no change?

Our citizens deserve more as does the European ideal itself.

In the discussion about a new Lisbon referendum many people were suggesting parliamentary ratification. I and others rejected this in favour of developing a package which showed the people that they were being listened to and taking the case to them.

People want the Union to return to a path of growth and job creation. The Treaty is part of the required agenda and should be sold positively. The recent poll showed support for a Yes without anyone having made a case for it – and after months of negative commentary.

There is an equally important point about ratification; it is never done by simply passing whatever emerged at the Council. There has always been ratification plus additional measures which address public concerns and to set out national concerns.

Irrespective of how the government chooses to ratify the text of the Treaty, we will be pushing for two measures to be enacted at the same time.

1. The formal adoption by the Oireachtas of a negotiating mandate for the government which would include the reform of the ECB and the expansion of a Eurozone-specific investment budget.

2. The passing of a European Consultation Bill which would establish formal procedures for the handling of Treaty negotiations. This would be in addition to laws already in place which concern EU regulations and the fiscal reforms enacted last year. There is in place a statutory requirement for consultation on everything but Treaty changes.

“Stay quiet and raise your hand” is unacceptable when used by powerful states in the Union and it is equally unacceptable when used here. It emboldens Europe’s enemies and it undermines a mainstream consensus which has survived for forty years.

This is an unprecedented crisis which cannot be overcome by the standard agenda and ways of doing business. Ireland has a vital national interest in making sure that the reform agenda does no stop with what has been agreed. We need Europe to return to growth and job creation and therefore we need real changes to the monetary and financial powers of the Union.

The Fiscal Treaty must be one part of a wider series of urgent initiatives which are capable of tackling the crisis. Because no wider action agenda has been promoted, the Treaty is currently a stand-alone measure and the end of a process. If you agree that any solution to the economic crisis must involve the EU then you cannot keep to this position. It would be a betrayal of the hopes and urgent needs of the citizens of this state and the Union as a whole.