Speech by Micheál Martin at IIEA, Dublin on theme “After 6 Years of Crisis – Can the EU Survive?”

Published on: 05 March 2015

Thank you for the opportunity to address you today.  The IIEA is nearly unique in Ireland as a place where it is possible to have an in-depth discussion about long-term issues shaping our future.  In recent years it has at times worked single-handedly to try to get attention for urgent national and international issues largely missing from our public debate.

Over the last six years Europe has experienced a profound crisis.  This has not just been a deep recession, it has gone much further.  It is a crisis which has shaken the economic, social and political fabric of Europe and many of its states.  Worst of all, the crisis is nowhere near over.

Europe has not returned to sustainable growth.  Emergency measures continue to be adopted to tackle a threatened deflationary spiral.  Basic elements of the freedoms which underpin the European Union are being challenged.

Extremism of both the right and the left is on the rise.  The Eurogroup is unable to agree on policies essential to ending avoidable austerity.  There is a gradual decline in the basic respect between members which is central to any progress.

Individual member states are resorting more and more to an inward-looking approach.  One of the largest member states may soon hold a referendum on leaving the Union.  A foreign state is working to divide the members of the Union and has invaded and partitioned a neighbour because of its desire for a future in Europe.

Unfortunately it is possible to go on with this depressing list.

For these reasons and others it is now a perfectly legitimate question to ask if the Union itself is in danger?

At a very minimum the bonds of solidarity and common purpose have been dramatically loosened.

There is a lack of confidence, ambition and resolve in Europe today – but simply finding a way of muddling through isn’t good enough.  What we urgently need is for critical friends to speak up for a reformed Europe.  A Europe capable of overcoming the many threats it faces.

And by reform let me be clear, that I do not mean the type of reform promoted by the Union’s enemies in order to hollow it out and strip it of meaningful functions.  I mean a reform which gives it the focus and responsibilities it needs to tackle the concerns of citizens.

Ireland has long had a reputation as being a constructive member of the Union.  We have always played our membership straight – promoting our national interests but also looking for progress for all.

However in recent years there has been a tendency to say as little as possible.  A Treaty was negotiated without our government ever making a statement about what it wanted to be in it.

No strategy relating to changing European policies has been published.  This did not even happen during our Presidency of the Council.

Ireland needs to abandon its policy of standing on the side-lines waiting to see which side prevails.

Every time it has been put to the government in the Dáil that there is a wider crisis facing the Union this has been dismissed through talking points about how everything is in hand.  This just isn’t good enough.  Ireland has a vital national interest in tackling this crisis and returning Europe to a better path.

In the short time available I want to explain what I think the problems are in relation to the economy, the flawed agenda of European institutions, the potential loss of an important member state and the direct threat from a neighbouring country.

I will concentrate on economic related matters, but the other wider issues have to be mentioned.  Unlike others, I don’t believe in just pointing to problems, there is much that can and should be done and I will outline a few proposals in conclusion.

Political Background
Let me start first by addressing the current situation in relation to Europe within our national politics.  We need to do this because it sets a framework for everything else.

This is not only a moment of great crisis for Europe it is also a moment of unprecedented political cynicism.

There are politicians and parties in many countries who have taken up the cry of protecting national interests against Europe and who have taken a tactical decision to abandon or hide past beliefs.  I and my party reject this.

We all need to understand that Ireland is no longer seen as being an instinctively constructive country in relation to Europe.

Four of our eleven MEPs are people who have a record not just of opposing occasional EU proposals but of opposing absolutely everything from membership up to today.

One of them is now honest enough to say that he thinks the EU should be rolled back, the Euro abandoned and national sovereignty restored on all matters.

Anti-EU elements here like nothing better than to wrap the tricolour around them and to claim that they alone stand for sovereignty and the ordinary citizen.  It is bogus populist nonsense but you would be surprised how rarely they are challenged on this.

It is a constant problem that Dáil debates on Europe are not covered in the media because they would show that there is a real debate going on there.

My position and that of Fianna Fáil’s is today just as it has always been.  We approach this issue from fundamental principles.

Small nations are the ones who have most to gain from close international cooperation.  For our country to prosper we have to be part of a strong multinational community.  Without strong international bodies giving us guaranteed access to trade on an equal basis we would suffer an economic crisis dramatically deeper and more permanent than anything we have experienced in recent years.

As we face into the commemoration of the centenary of the event which inspired and led to our statehood we should remember that the Irish republicanism of the majority has always been an outward looking one.

Our revolutionary generation didn’t take the road of isolationist nationalism seen elsewhere, they went the other way.  Those people who call themselves republicans and have campaigned against everything European for the last half a century have never represented the traditions of this republic.

It was as a republican prisoner that Seán Lemass became convinced that peace and mutual prosperity in Europe required states to share sovereignty.

In 1937 leaders who had fought for independence put to the people a basic law which enshrined liberal democracy and tolerance at a moment when many others were going in the opposite direction.

What is less commented on is how a constitution largely written by a man who was the last surviving leader of the 1916 rebellion says quite clearly that this state accepts the constraints of international law.  With great passion de Valera used Ireland’s voice on the international scene to argue for stronger rules enforcing cooperation between states.

There are already clear signs of at least one party seeking to use next year’s anniversary to promote its own falsified version of history.  Yet we don’t need to guess where the men and women of 1916 would stand on the issue of Europe because they were the ones who led us in its direction.

Seán Lemass and Frank Aiken risked everything in their fights for Irish freedom and they viewed it as a culmination of this movement when they signed Ireland’s application for what is now the European Union.

Those who are trying to import ‘little-Englander’-type definitions of sovereignty and nationalism are not following any widely held tradition of republicanism in this country.  Since republicanism became the defining separatist ideal in the late 18th Century it has always seen Ireland as standing with others not against them.

The tricolour was inspired by a European revolution and most of our most visionary and effective leaders saw a European future for our country.

The sterile, damaging and cynical division of debate between sovereignty and internationalism must be opposed.  It is doing great damage in Europe and we must confront it in Ireland.

Europe and the Economic Crisis
The Great Recession was not solely a European phenomenon but Europe has felt its impact long beyond the point where others entered a strong recovery.  Substantial parts of the continued low growth, high unemployment and threatened deflation trace directly to failed common European policies.

In the first three years of the crisis Europe’s response can only be described as deeply damaging .There was a persistent policy of denying the scale of problems until they were allowed to become overwhelming.

Policies which had clearly failed were allowed to continue until they threatened to engulf the Union.

Underlying this was a drift into groupings where communications failed and resentments grew.  In the institutions, anonymous sources were always available to deliver high-handed judgements on countries.

Almost exactly six years ago the then President of the ECB Jean Claude Trichet spoke in this room about the future of the European economy.

The Euro-area was, he said, taking “resolute action” as a result of which the financial markets would be stabilised and competitiveness enhanced.  In effect he was saying that if we all prayed at the altar of “close to but below two percent over the medium term” all would be fine.

Since then there have been four bailouts, endless emergency summits, a new Treaty, massive changes to financial regulation, and ECB action which skirts the edges of what is legally possible.  And yet the crisis is not over.

In many countries unemployment which is at or slightly below historic levels.  One Euro member state has capital controls in place and another has plans to introduce them unless their banks stabilise.

There was goodwill at that time.  What there wasn’t was an agenda urgent or ambitious enough to help many countries avoid what happened in 2010 and 2011.

It was fear of contagion and of setting precedents which drove many policies.  The sovereign debt crisis was the direct and possibly inevitable outcome of inflexibility and putting off decisions which ultimately became inevitable.

In mid-2012 the three words “whatever it takes” were all it took to lead to a sudden and sustained reduction in sovereign bond yields.  This statement by a President of the ECB not afraid to change policy in the face of reality was enough.  The ultimate irony is that the action he proposed was not necessary once the markets understood it was available.  How different would things have been if this had been the policy in early 2010?

There is no doubt that the Irish and Portuguese bailouts would not have been necessary if this had been the collective approach.  Even the Taoiseach has accepted this point – albeit only once, in Paris two and a half years ago and he has tried to avoid the topic since.

It must also be said that the impact of substantial elements of Greece’s bailout would have been avoided if current policies had been in place in early 2010.

What is striking though is that the reform agenda has largely ground to a halt.  There is a superficial belief that Greece is a standalone problem and that we now have the tools required to restore stability and growth to the Eurozone.

I fear that this confidence is misplaced and that core weaknesses of the Union in general and the Eurozone in particular have still not been addressed.

Even Jacques Delors was able to look at the crisis in 2011 and speak about the core design flaws in the Euro.  These were the lack of a banking union, the lack of a fiscal union and the limited mandate of the ECB.  On two of these there has been some progress, albeit in parts limited and possibly temporary.  On the other, the fiscal union, there has actually been a movement in the other direction.

The failure of financial regulation in the decade before the crisis is well known and continues to be the subject of inquiry.  Unfortunately this is an issue which continues to be treated as a political football here.  It is striking that the government first agreed new financial regulations before agreeing to establish an inquiry into the failure of the old ones.

The European regulatory reforms mark a big move forward.  For the first time there are regular stress tests of banks and larger banks are being subject to substantial European oversight.

It is, however, still not the Banking Union which is needed.  The ECB’s monetary policies have had as much to do with achieving stability as the regulatory reforms – and the policies are not yet there for returning to a properly functioning financial market.

The Bank Resolution Fund will take 10 years to build up its funds.  After a decade it will have €55 billion available to it.  This has been estimated at only 0.2% of the total asset base of the covered banks.  There is no single resolution regime, just a coordinated one.  There is no shared deposit insurance.  In effect the new system is based on the idea that we can have confidence rather than certainty that backstops are in place.

The failure to restore proper lending is seen particularly with business lending which remains at artificially low levels and is economically and socially very damaging.

Mario Draghi is the single biggest reason for the scale of the decline in Irish bonds yields since 2012.  This was even accepted by Minister Noonan during the debate on the end of the bailout – though not repeated since.

Mario Draghi deserves our acknowledgement for his at times single-handed campaign to save the Euro and stop deflation.  His willingness to stand against even the most powerful voices in order to promote an essential policy should be a lesson to all European leaders.

Given the centrality of ECB policy to what happens here – from mortgage rates to the basic underpinning of fiscal and economic policy – it is remarkable how little it is discussed.

And this is a particular problem because progress could be reversed and flaws in its mandate remain.  The fact that the ECB is trying to stop deflation is the result of a majority vote not a secure policy.  Key past decisions are before the European Court of Justice.  While the first round of the process has gone well, it is quite possible that the final judgement will severely limit what the ECB can do.  It looks likely at this stage that it will signal that the ECB cannot participate in enforcing adjustment programmes, which is no bad thing given that its feel for fiscal policy is poor and inflexible.

The ECB will only be a guarantor of a successful Europe when the banking union is strengthened, when it is obliged to consider growth as well as inflation and when no one can ever doubt that it will play its part in stopping a sovereign debt crisis such as we saw in 2010 to 2012.

This may not be likely given the strength of opposition from Germany and some other states – but this shouldn’t stop us from pointing to the reality.

The lack of substantial fiscal transfers has also been a key component in the scale of the economic crisis.

In every other full currency union there are mechanisms for using fiscal transfers to help regions in trouble.

The idea that growth will come from fiscal consolidation or structural reform alone is obvious nonsense.  It hasn’t worked and it won’t work.

What has been missing is aid to countries to allow them some room for investing in recovery.

And yet the Budget agreed during our Presidency, and let me be clear I am not blaming the Taoiseach for this, is less than 1% of the total GDP of the EU and is due to fall from current level.  So we’ve actually made the EU less capable of helping during an economic crisis.

It doesn’t matter how many times the figures are massaged or repackaged, the European Union is not in a position to decisively help.  To pretend that it can do so is a mistake as it makes the Union accountable for failing to deliver an objective it has no resources or powers to achieve.

What the Union is in danger of becoming is simply a control mechanism: One which imposes inflexible conditions on states with no accountability for the impact of those policies.

As said at the start, I am not interested in simply laying out problems, I believe there are solutions which we need to work for.  I will turn to them later.

It is important to note that the situation with Greece remains critical.  There is no doubt that Syriza took the easy populist line during the election.  They promised that it was as simple as standing up to people and that there were no hard decisions to take.

Acting as if they were the only government in Europe with a mandate was foolhardy and the habit of making public attacks on the leaders of other member states serves no-one’s interests.  However, the core point that there needs to be a new policy towards Greece is correct.

Greece needs and deserves a credible return to growth which can create jobs and restore the social safety net.  The current plans and policies will not do this.  The breaking point has been reached.

It may well be that the Greek government is unwilling to genuinely reform anything in return for support, or that its bottom line is not one which the citizens of other countries would countenance – however there is a duty to at least be generous and to recognise that not all of Greece’s debts are its own fault.  It would be restructuring were it not in the Euro.

I fear that this is an issue which will be allowed reach a dramatic point the conclusion of which no one can predict.

In relation to Ireland, we have a very different situation.  If you put aside the silly political narrative of the conferences held in the last two weekends you find a simple long-term reason why Ireland has returned to growth.

The fiscal corrections begun in 2008, mostly in place by the end of 2010 and continued since then, are very important but they are not solely the reason for the recovery.

Throughout the recession our internationally trading sectors continued to do well.  Even in the worst years the IDA attracted significant inward investment.  These sectors have been the core of the recovery.

The reasons for this were the same as the reasons for growth in previous years – an open economy with access to Europe, pro-employment policies and a large pool of skilled people.  These skills didn’t materialise overnight, they came from long-term investment.  Equally, industrial policy hasn’t changed at all.  Priority industries are basically the same as they were ten years ago.

Ireland has every right to sell itself internationally but the politically-focused message is selling us short.

Firstly, to emphasise short-term actions as driving recovery takes away from the strength of our long-term message.  Economists have shown that certainty over an extended period is a key to encouraging investment.  The underlying strength of our people and skills is a much stronger message than the current one.

Secondly, there is the fact that over-selling the recovery deepens the detachment and disillusionment of the many that are not experiencing it.  The reality of the two-tiered recovery is to be seen in town and communities throughout Ireland.

Finally there is the fact that Ireland has not received full justice for its case on banking-related debt.

In Paris in 2012 the Taoiseach said Ireland was a special case because: “Ireland was the first and only country which had a European position imposed upon it, in the sense that there wasn’t the opportunity if the Government wished to do it their way by burning bondholders.”  It’s not a statement he has repeated but it was and remains valid.

Over the past four years there have been repeated announcements of breakthroughs on the bank-related debt and claims of wildly inflated amounts being saved.  Ireland has received exactly zero in concessions on the special nature of its bank-related debt.  In fact it is now the government’s position that it will not seek any retrospective aid.

The lengthened maturities and reduced interest rates on much of the debt were the application to Ireland of agreements negotiated by others.

As for the promissory notes, those debts have simply been converted to sovereign debt.  Because the Central Bank of Ireland is now selling them to the market at a rate faster than originally announced much of the saving on the arrangement may be lost.

Ireland’s fiscal situation is better than it was but it is not strong.  Our domestic economy still has many challenges.

There are two things which should, at a minimum, be sought.

Firstly the sale of Irish bonds by the Central Bank should be delayed so that interest payments can be retained here.

Secondly we should seek the return to Ireland of profits made on the ECB’s holding of Irish debt.  Much of this holding was accumulated in the pursuit of now abandoned policies.

Given that the release to Greece of ECB profits on Greek debt is on the table, it should be for Ireland as well.

If the Union wants to really show that it understands what went wrong it should not retain profits from failed policies – particularly when there is such a desperate need for economic stimulus.

Perhaps more importantly, the scale of political challenges faced by the Union from those who want to break it up and undermine it are huge.  It can’t afford to miss opportunities to show that it is doing everything possible to help countries.

On constitutional matters the term of the Conservative Cameron government has been distinguished by growing crisis.  In Northern Ireland a policy of disengagement came close to collapsing the political institutions.  In Scotland there was a dramatic surge in support for dissolving a 300 year old union.  In relation to Europe the policy has been confused and damaging.

In the history of international negotiations it is probably unique for a country to demand treaty changes before it has decided what changes it wants.

The process of the Review of Competencies exposed much of the anti-European bluster as based on nothing more than prejudice.  Even though there were repeated efforts by some ministers to skew the review, the consultation and independent review consistently showed that the Eurosceptic narrative is false.

In most areas the review found that claims of EU interference were untrue and that having common EU regulation was a benefit to British business because it created a level playing field.

Obviously May’s election will decide if there is to be an in/out referendum in the next 2 years.  The lack of a credible agenda for treaty revision means that it is almost impossible to imagine the Tories getting what they want.

And the idea of hollowing out the EU to be a glorified free trade area with no employment protections is one we should never agree to.

It is Ireland’s duty to prepare for the possibility that Britain may leave the Union.  We need to prepare for what our position would be on negotiating a new East-West relationship in these islands.

We should note the highly significant point made in Dublin last week by the Scottish minister responsible for foreign affairs when she said that Scotland would demand the right to stay in the EU if England voted to leave.  Given the closeness of last year’s vote and the strongly pro-EU sentiment in Scotland, such a scenario is highly possible.

The benefit to Ireland and Europe of Britain being in the Union is obvious and the potential threats of it leaving are real.  Whatever happens it’s unlikely to be a clean decision and we have to be clear on what we want.

The departure of the Union’s second largest member would set a precedent and the nature of that precedent is something we should be discussing.

At the heart of English Euroscepticism is a debate which has for thirty years been set in terms of every decision being a zero-sum-game.  This unfortunately is a debate which has spread to other countries.

Instead of allowing the future to be a choice between a competitive race to the bottom or the status quo a third option should be available – a Union reformed which cannot just talk about growth but can deliver it.

Ukraine and Russia
The final major threat to the Union is the fact that a neighbouring state has a clear policy of trying to undermine not just those who aspire to EU membership but some current member states as well.

Russia’s policy on invading and partitioning former client states is not new, however the scale of the aggression against Ukraine is unprecedented.  A recent international treaty was ripped up in order to invade and annex Crimea.  A strategy of lies and deception has underpinned a campaign to further split Ukraine.

At the same time a policy of regular incursions into the air and marine space of EU states has been adopted.  This has been applied equally to NATO states and neutral states including Ireland.  Actions towards Baltic States have been actively threatening.

The bullying and neo-imperialist behaviour of Russia is one which we should stand united against.  Ireland as a country which has experienced a hard struggle to win independence and an imposed partition should appreciate this more than most.

However the halting and divided response in the Union to Russia should be a real concern.

The founding charters of the Union set out that we are a community of nations which respect boundaries and laws.  The obligation to stand with Ukraine and against aggression is absolute.  Yet there are those who have tried to stop Russia facing any consequences.  They have argued for the need to do nothing and in effect legitimise Russia’s actions.

The fact that the High Representative for Foreign Affairs actually tabled a plan to normalise working relations with Russia without any roll-back of its partition of Ukraine is outrageous.

Thankfully the leadership of President Tusk and others has meant that the basic moral duty of the EU towards its threatened members and Ukraine is being upheld.

What there has not yet been a reaction to has been the propaganda of the extreme right and left.

If you look throughout Europe you see that the loudest voices against sanctions and defending Russia are those of the far right and far left.  The National Front in France, UKIP in England, Jobbik in Poland and every party in the former communist group in the European Parliamemt.  They are united in their defence of Russia. The National Front in France has actually taken a large loan from a Kremlin-linked bank to fight regional elections this year.

In Greece you have a position where both the neo-Facist Dawn party and the majority of Syriza oppose any action against Russia for annexing Crimea.

Again this is a case where the debate here has basically been ignored.  There are significant voices here that are following the line that Russia was somehow provoked.

With mounting repression on minorities in Crimea and the outlawing of the right to protest against the annexation, groups which constantly demonstrate against other countries have been silent.  I have been calling on Sinn Fein repeatedly to denounce the partition of Ukraine but they will not do so.  Anti-partition at home but no problem with it abroad.

In fact they have said that the EU and US are co-responsible for Russia’s action – something they are unlikely to repeat to their fundraisers during the forthcoming trip to Washington.

The point of this is that there is a sizeable political representation here and in other states which does not accept the core idea that the Union must always stand for democracy and human rights in Europe.  They do not accept the fact that this is a Union which has and must promote peaceful relations between states.

This really goes to the core of what the Union is there for.  If we don’t understand that this ideal is now threatened how can we protect it?

A Reformed Union
On almost every level we need to wake up or over the next few years there will be great damage.  The core principles of the Union could be undermined and it could be less and less able to help return Europe to a growth which benefits all.

There are many things which can and should done, most of them not requiring a new treaty:

Europe needs to focus first on economic actions which only it can undertake.

There should be a completion of the banking union, with larger deposit insurance and a uniform resolution regime.

A strong energy union which secures a diversified and affordable supply for all countries is needed urgently.

The medium-term flexibility which is allowed for in the Fiscal Treaty and being sought by France and others should be endorsed as part of a move to end austerity where it is avoidable.

Good faith in ensuring that states do not have to carry a disproportionate debt from failed EU policies should be delivered in a practical way for Greece, Ireland and others.

The Commission should end its search for populist gestures like its attack on Google and instead focus on measures which will increase the productive capacity of the Union.  A start on this would be to use more funding for research and innovation.

Another element of a real growth agenda would be breaking down barriers to services being offered across boundaries – something which would be a particular benefit to Ireland.

At a practical level, the scale of bureaucracy faced by many businesses and farmers really is far too high.  A programme of simplification is urgently needed.

On a more fundamental level we need to speak up more for the basic values of democracy and human rights – and be willing to support sovereign democratic states when others try to undermine them.

The most basic thing which is now required is a more generous and more active programme of economic support for Ukraine.  We cannot stand by while millions suffer because they sided with European values in a free ballot.

Europe is not the cause of all our problems and it is also not the answer to them.  However, we desperately need it to end six years of muddling through and to show a new urgency and ambition.  If we do not do this the threat to the very existence of the Union is very real.

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