The latest meeting of the European Council was largely a formal affair. It had many important topics on its agenda but it reached no decisions beyond the already well-flagged and predictable.
For all of the Taoiseach’s repeated claims that jobs and growth are the absolute focus, nothing agreed at this summit will make any major contribution to dragging Europe out of the current prolonged crisis. There is no urgency or ambition, only a growing complacency.
The Taoiseach has told us that he and the other members of the Council are delivering huge progress – but the evidence says something very different.
In the last few days the European Central Bank has again cut growth forecasts for the Euro area. Following the logic of their analysis it is likely that they will also cut their forecast for Irish growth.
In the middle of the government’s escalating campaign of self-praise it refuses to acknowledge that it has missed every one of its own growth forecasts. Progress in fiscal consolidation has been the result of interest rate reductions which were handed to Ireland as a result of negotiations we didn’t participate in and the impact of measures 70% of which Fine Gael and Labour voted against.
The ECB is now stating that much of the Eurozone risks falling back into deflation. Given that the Bundesbank has started talking about the risk of rising inflation in Germany and the possible need for interest rate rises to stop this, there is a risk of the ECB falling back into the old default policy of setting rates which damage rather than help growth.
The reality of lower growth and threatened deflation is completely excluded from the picture painted by the Taoiseach.
Collectively the leaders have provided no credible map forward for the Union to become a driver of growth and to fix the serious flaws in the design of the Euro. One of the major reasons for this is that many leaders, such as the Taoiseach, appear more interested in managing the media than pushing for action which is ambitious enough to actually help.
End of Troika Programme
This summit took place in the early phases of the government’s plans for a massive outbreak of self-praise next month. Starting at the Fine Gael conference and continuing through a mounting media campaign, the intention is to signal the end of the troika programme as a glorious achievement.
By choosing a party event to make his only significant comment about this issue, and by mixing it with talk about what he intends doing after the next election, the Taoiseach has confirmed the nature of this campaign.
This campaign is proceeding with such energy that even the most gullible would be well advised to step back and see what’s actually going on.
Let no one be fooled, there is no negotiating of any terms of exit from the troika programme. The programme is coming to an end after three years. We would actually have to negotiate to avoid exiting it.
It is cynical even by the standards of this government to try to redefine the end of the programme as ‘negotiating an exit’ – particularly as Fine Gael and Labour voted against measures which delivered 70% of the savings in order to meet the programme’s targets.
The issue at hand is whether or not Ireland will have available to it a guaranteed fund on which it can draw if market rates are too expensive.
Such a back-stop would reduce the risks of holding Irish bonds and, as a result, would reduce the cost of borrowing for the state.
Last month’s budget involved a large amount of putting off decisions. For nearly all areas of spending no multi-annual figures were provided and the government threw up a large cloud of smoke over what its medium-term targets are.
Minister Noonan has commenced a round of meetings where he provides expansive off the record briefings but has provided not a single scrap of paper saying what he hopes to achieve or the basis on which our government will take its decisions.
Reports claim that the government’s main objective is to avoid anything that looks like a programme.
This morning’s report that the government will probably not seek any formal backstop arrangement has been presented as usual in off-the-record briefings to journalists rather than in a forum where questions can be asked. This is, of course, being claimed as a position of strength.
If this is so why didn’t the government say up-front that it didn’t see the need for a conditional credit line? Why didn’t it produce a document showing that it would be of no benefit? Why did it enter into the process of saying it was exploring options?
Both the ECB and IMF stated publicly that this credit facility would make Ireland’s medium term funding more secure and cheaper. The Commission took a position on both sides of the fence – claiming that the facility would help but wouldn’t be essential. There is no doubt that one of the Commission’s objectives is to limit the number of calls on the inadequate bailout funds provided by member states.
Given past experience what we are seeing is yet another example of a government driven by putting political strategy first in everything.
The single most defining characteristic of this government’s approach to European affairs has been its refusal to ever say exactly what its policy is. Its primary objective in negotiations is always political – manoeuvring to be able to hail whatever emerges is a great victory.
We are two years into a process of discussing the future structures of the Economic and Monetary Union but our government has yet to say what it thinks is required.
When negotiating the Fiscal Treaty, for the first time ever our government produced no statement of objectives and no white paper explaining its approach. From European sources it emerged that the only requirement of the Irish government was that whatever emerged should involve avoiding a referendum. There was nothing about fixing the Euro. Nothing about Europe developing the ability to fund real growth measures. Just a political demand which was hidden from the people.
This approach has been followed in every single negotiation. The failure to ever produce a specific proposal before negotiations, are not done because of a fear of showing our hand, but because this might undermine the ability to claim credit for what emerges.
We saw this with the reductions on the interest rates on Ireland’s EU loans. The reduction was delivered at summits where Ireland didn’t put it on the agenda, circulated no papers and had been seeking reductions only one-quarter the size of what was granted to other countries and automatically extended to Ireland.
Within minutes of a deal we didn’t seek the Taoiseach’s staff were putting out statements rewriting history and briefing that doing nothing had actually been a cunning plan.
Then we had the agreement to break the link between sovereign and banking debt. This also came about without any significant input from Ireland, but the Taoiseach and his ministers were active in talking about the huge financial benefits which were about to flow to Ireland.
Minister Noonan, while encouraging talk that it could be worth up to €60 billion for Ireland, said he wouldn’t say what we were looking for in terms of bank recapitalisation because it would give away our hand and we might only get the minimum. Over a year later we have got exactly nothing and Minister Noonan still won’t say what we are looking for.
As one commentator astutely put it, look closely and what you see is not substance but masterful misdirection.
This is happening yet again with the end of the troika programme. The first phase of the campaign was to get people to believe that the programme wasn’t ending on schedule, but that an ‘exit’ was being ‘negotiated’. The next phase is to avoid defining any specific objectives for a post-bailout backstop. The final target is to hail whatever happens as a great victory.
The government has refused to level with the people about how much a backstop might be worth to Ireland – refusing to give commentators and the public alike any fair basis for assessing what emerges.
Until this is done all that we can be sure of is that the government is again putting political strategy ahead of everything.
The ‘media-first’ policy of the government was also seen in relating to this summit’s discussion on banking union. On the day that the Taoiseach spoke to the Dáil he chose to leak his letter to other leaders to journalists rather than to publish it so that we and the public could ask questions.
What has been agreed so far is not a banking union. The Single Supervisory Mechanism, Single Resolution Mechanism and Deposit Guarantee Directive under discussion will not create a genuine banking union. Risk will not be shared across the Eurozone and there will be no uniformity in regulation.
The biggest problem with this is not that it will precipitate a new financial crisis but that it will embed a level of over-caution and restriction in the system. This will keep undermining vital lending. A genuine banking union would rapidly restore confidence and begin to open up lending for cash-starved businesses, particularly small and medium sized enterprises.
The communique’s statement that it calls on the Eurogroup to finalise ESM recapitalisation guidelines was no more than way of avoiding the topic.
The summit’s generic call on members to “strengthen coordination of economic policies” is meaningless. The statement that there will be a “shared analysis” of economic policies would be positive if leaders were willing to speak up for a change in the damaging policy of universal austerity. In particular, the large structural surpluses being run by some economies cannot continue to be ignored.
I welcome the fact that Minister of State Donohue last week decided to reverse government practice and begin to at least talk about developing specific Irish policies relating to the future of Europe. Like many others I’m still not sure about his linking of a Korean pop star to the issue, but his speech was a half-step forward. I hope he will build on it by producing specific proposals.
I would also encourage him to push the Taoiseach and Tánaiste to address the issue of Britain’s referendum on membership beyond empty platitudes.
Ireland has a significant national interest in relation to Britain’s future in the Union. We must make our position plain and prepare for any eventuality.
Digital Economy and Innovation
The summit’s conclusions relating to the digital economy and innovation mark incremental rather than significant progress. Policies agreed some time ago are inching towards implementation.
A genuine single market in digital services is something which Ireland will benefit significantly from. It is an area which has been prioritised by the enterprise agencies for a number of years and this activity has had a big impact.
The strongest part of our economy through the crisis has been our export-oriented sector and businesses involved in advanced technologies have been particularly strong.
This didn’t happen by chance – it was choices made over a period of a decade which sustained commitment to the required investment in people and infrastructure.
The Taoiseach’s always partisan approach to policy has meant that he has opened many facilities which emerged from this process but has pretended that they appeared from nowhere.
Recently I have met with different people from the sector and in particular from the research teams which provide the foundation upon which everything is built. They are extremely concerned about the gap between the words on supporting genuine innovation and the reality of what’s happening.
The recent budget includes a major cut in funding for the sector. Important researchers are leaving our system. All of the research centres being announced by ministers continue work already underway, though often rebranded to allow ministers claim to be doing something new.
Worst of all, other successful research teams are being closed to fund the government’s strategy of moving funding away from more basic research and into a narrow band of areas chosen by ministers.
At a recent event in in UCD the distinguished Professor of Physics Brian Cox said of this approach; “it makes sense until you actually think about it.”
Earlier this year ministers announced that a new Strategy for Science, Technology and Innovation is to be prepared. Since then there has been no consultation with anyone.
If the Taoiseach is sincere in his support for this sector he should insist that a proper consultation process be undertaken before any more changes are made – and this should include a genuine debate in the Oireachtas.
Most of the summit commentary was devoted to revelations about spying. I welcome the approach of European institutions on this matter and the direct approach to U.S. authorities undertaken by the European Parliament.
When you look at the comments of countries with large intelligence services of their own, it’s hard not to bring to mind Captain Renault walking into Rick’s Bar in Casablanca and exclaiming “I’m shocked, shocked to find gambling going on here”.
If our partners in the Union want to be taken seriously on this issue then they should begin by being open about activity of their own where it impinges on the freedoms of European citizens.
There has been much talk about extending ‘no spying’ agreements between friendly nations. If this degenerates into larger countries reaching an accommodation and ignoring their own moral obligations to smaller states then it would be a disgrace.
Our government should insist that these agreements be extended to smaller countries. In particular, I think this matter should be formally raised with the British government. The very least we are entitled to is an assurance that our government has not and will not be spied on.